REVENUE RECOGNITION

3 Months Ended

Mar. 31, 2020

Revenue from Contract with Customer [Abstract]

Revenue Recognition Accounting Policy

Our revenue is primarily derived from fixed fee license agreements and per-unit royalty agreements, along with less significant revenue earned from development, services and other revenue.

Fixed fee license revenue

We are required to recognize revenue from a fixed fee license agreement when we have satisfied our performance obligations, which typically occurs upon the transfer of rights to our technology upon the execution of the license agreement. However, in certain contracts, we grant a license to our existing patent portfolio at the inception of the license agreement as well as rights to the portfolio as it evolves throughout the contract term. For such arrangements, we have concluded that there are two separate performance obligations:

•Performance Obligation A: to transfer rights to our patent portfolio as it exists when the contract is executed;

•Performance Obligation B: to transfer rights to our patent portfolio as it evolves over the term of the contract, including access to new patent applications that the licensee can benefit from over the term of the contract.

If a fixed fee license agreement contains only Performance Obligation A, we will recognize most or all of the revenue from the agreement at the inception of the contract. For fixed fee license agreements that contain both Performance Obligation A and B, we will allocate the transaction price based on the standalone price for each of the two performance obligations. We use a number of factors primarily related to the attributes of our patent portfolio to estimate standalone prices related to Performance Obligation A and B. Once the transaction price is allocated, the portion of the transaction price allocable to Performance Obligation A will be recognized in the quarter the license agreement is signed and the customer can benefit from rights provided in the contract, and the portion allocable to Performance Obligation B will be recognized on a straight-line basis over the contract term. For such contracts, a contract liability account will be established and included within "deferred revenue" on

the condensed consolidated balance sheet. As the rights and obligations in a contract are interdependent, contract assets and contract liabilities that arise in the same contract are presented on a net basis.

Some of our license agreements contain fixed fees related to past infringements. Such fixed fees are recognized as revenue or recorded as a deduction to our operating expense in the quarter the license agreement is signed.

Payments for fixed fee license contracts typically are due in full within 30 - 45 days from execution of the contract. From time to time, we enter into a fixed fee license contract with payments due in a number of installments payable throughout the contract term. In such cases, we will determine if a significant financing component exists and if it does, we will recognize more or less revenue and corresponding interest expense or income, as appropriate.

Per-unit Royalty revenue

ASC 606 requires an entity to record per-unit royalty revenue in the same period in which the licensee’s underlying sales occur. As we generally do not receive the per-unit licensee royalty reports for sales during a given quarter within the time frame that allows us to adequately review the reports and include the actual amounts in our quarterly results for such quarter, we accrue the related revenue based on estimates of our licensees’ underlying sales, subject to certain constraints on our ability to estimate such amounts. We develop such estimates based on a combination of available data including, but not limited to, approved customer forecasts, a lookback at historical royalty reporting for each of our customers, and industry information available for the licensed products.

As a result of accruing per-unit royalty revenue for the quarter based on such estimates, adjustments will be required in the following quarter to true up revenue to the actual amounts reported by our licensees. During the three months ended March 31, 2020, we recorded a $0.1 million adjustment to decrease royalty revenue. This adjustment represents the difference between the actual per-unit royalty revenue for the three months ended December 31, 2019 as reported by our licensees during the three months ended March 31, 2020 and the estimated per-unit royalty revenue for the three months ended December 31, 2019 that we reported during the quarter.

Certain of our per-unit royalty agreements contains a minimum royalty provision which sets forth minimum amounts to be received by us during the contract term. Under ASC 606, minimum royalties are considered a fixed transaction price to which we will have an unconditional right once all other performance obligations, if any, are satisfied. We recognize all minimum royalties as revenue at the inception of the license agreement, or in the period in which all remaining revenue recognition criteria have been met. We account for the unbilled minimum royalties as contract assets on a contract basis on our Condensed Consolidated Balance Sheets, and the balance of such contract assets will be reduced by the actual royalties to be reported by the licensee during the contract term until fully utilized, after which point any excess per-unit royalties reported will be recognized as revenue. As the rights and obligations in a contract are interdependent, contract assets and contract liabilities that arise in the same contract are presented on a net basis.

Payments of per-unit royalties typically are due within 30 to 60 days from the end of the calendar quarter in which the underlying sales took place.

Development, services, and other revenue

As the performance obligation related to our development, service and other revenue is satisfied over a period of time, we recognize such revenue evenly over the period of performance obligation, which is generally consistent with the contractual term.

Disaggregated Revenue

The following table presents the disaggregation of our revenue for the three months ended March 31, 2019 and 2020 (in thousands).



	Three Months Ended March 31,
	2020		2019
Fixed fee license revenue	$	1,287	$	1,740
Per-Unit royalty revenue	4,895		3,307
Total royalty and license revenue	6,182		5,047
Development, services, and other revenue	75		75
Total revenues	$	6,257	$	5,122

As of March 31, 2020, we had contract assets of $8.3 million included within prepaid expenses and other current assets, and $6.4 million included within other non-current assets on the Condensed Consolidated Balance Sheets. As of December 31, 2019, we had contract assets of $13.1 million included within prepaid expenses and other current assets, and $6.9 million included within other non-current assets, net, on the Consolidated Balance Sheets.

Contract assets decreased by $5.4 million from December 31, 2019 to March 31, 2020, primarily due to actual royalties billed during the three months ended March 31, 2020 that reduced the minimum royalties recorded in contract assets.

Contracted Revenue

Based on contracts signed and payments received as of March 31, 2020, we expect to recognize $29.3 million in revenue related to Performance Obligation B under our fixed fee license agreements, which is satisfied over time, including $13.9 million over one to three years and $15.4 million over more than three years. Revenue related to Performance Obligation B was $30.0 million as of December 31, 2019.