CC Writer re fixed-fee royalty-bearing licenses you said:
..."What I take from this paper, is a Fixed Fee Royalty-Bearing License is a combination of fixed fee and per unit royalty."
I think you're wrong about your quoted conclusion. IDCC uses the term "royalty-bearing" for both fixed-fees licenses and per-unit licenses. Per-unit licenses are either prepaid for several quarters or years in advance or involve current royalty payments each quarter. In contrast to royalty-bearing, a non-royalty bearing license would be one that is in a "paid-up status" for a particular standard. Note the following from the 10K:
"Patent License Agreements
Our patent license agreements are structured on a royalty-bearing basis, paid-up basis or combination thereof. Most of our patent license agreements are royalty bearing......Upon signing a patent license agreement, we provide the licensee permission to use our patented inventions in specific applications. We account for patent license agreements in accordance with the guidance for revenue arrangements with multiple deliverables and revenue recognition . We have elected to utilize the leased-based model for revenue recognition, with revenue being recognized over the expected period of benefit to the licensee. Under our patent license agreements, we typically receive one or a combination of the following forms of payment as consideration for permitting our licensees to use our patented inventions in their applications and products:
Consideration for Prior Sales: Consideration related to a licensee’s product sales from prior periods may result from a negotiated agreement with a licensee that utilized our patented inventions prior to signing a patent license agreement with us or from the resolution of a disagreement or arbitration with a licensee over the specific terms of an existing license agreement. We may also receive consideration for prior sales in connection with the settlement of patent litigation where there was no prior patent license agreement. In each of these cases, we record the consideration as revenue when we have obtained a signed agreement, identified a fixed or determinable price and determined that collectability is reasonably assured.
Fixed Fee Royalty Payments: These are up-front, non-refundable royalty payments that fulfill the licensee’s obligations to us under a patent license agreement, for a specified time period or for the term of the agreement for specified products, under certain patents or patent claims, for sales in certain countries, or a combination thereof — in each case for a specified time period (including for the life of the patents licensed under the agreement). We recognize revenues related to Fixed Fee Royalty Payments on a straight-line basis over the effective term of the license. We utilize the straight-line method because we cannot reliably predict in which periods, within the term of a license, the licensee will benefit from the use of our patented inventions.
Prepayments: Up-front, non-refundable royalty payments towards a licensee’s future obligations to us related to its expected sales of covered products in future periods. Our licensees’ obligations to pay royalties typically extend beyond the exhaustion of their Prepayment balance. Once a licensee exhausts its Prepayment balance, we may provide them with the opportunity to make another Prepayment toward future sales or it will be required to make
Current Royalty Payments.
Current Royalty Payments: Royalty payments covering a licensee’s obligations to us related to its sales of covered products in the current contractual reporting period.
Licensees that either owe us Current Royalty Payments or have Prepayment balances are obligated to provide us with quarterly or semi-annual royalty reports that summarize their sales of covered products and their related royalty obligations to us. We typically receive these royalty reports subsequent to the period in which our licensees’ underlying sales occurred. We recognize revenue in the period in which the royalty report is received and other revenue recognition criteria are met due to the fact that without royalty reports from our licensees, our visibility into our licensees’ sales is very limited.
The exhaustion of Prepayments and Current Royalty Payments are often calculated based on related per-unit sales of covered products. From time-to-time, licensees will not report revenues in the proper period, most often due to legal disputes. When this occurs, the timing and comparability of royalty revenue could be affected..... In cases where we receive objective, verifiable evidence that a licensee has discontinued sales of products covered under a patent license agreement with us, we recognize any related deferred revenue balance in the period that we receive such evidence."
My Additional Notes: Now IDCC can have hybrid or mixed type licenses, which are a combination of fixed-fee and per-unit. However, Samsung is not a mixed fixed-fee per-unit license, it is strictly a fixed-fee license. Merritt has mentioned in a CC that he envisions more of IDCC's future licenses might be "hybrid"/mixed type licenses. At this point, IDCC has identified only one such hybrid type mixed fixed-fee per-unit license that ocurred in the third quarter of 2008 from the 10Q as follows:
..."Patent Licensing
In third quarter 2008, our recurring patent licensing royalties of $51.6 million decreased by $4.3 million from second quarter 2008 due to decreased royalties from our Japanese licensees and a one-time contribution to second quarter 2008 recurring patent license royalties of $1.3 million associated with one of our licensees transitioning from per-unit royalties to a mix of per-unit and fixed-fee royalties.”
AI
