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Agreements with SK hynix and Micron | 9 Months Ended
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Sep. 30, 2014
Patent License Agreement [Abstract] |
Agreement with SK hynix and Micron | Agreements with SK hynix and Micron SK hynix On June 11, 2013, Rambus, SK hynix and certain related entities of SK hynix entered into a settlement agreement, pursuant to which the parties have agreed to release all claims against each other with respect to all outstanding litigation between them. Pursuant to the settlement agreement, Rambus and SK hynix entered into a semiconductor patent license agreement on June 11, 2013, under which SK hynix licenses from Rambus non-exclusive rights to certain Rambus patents and has agreed to pay Rambus cash amounts over the next five years. Under the license agreement, Rambus has granted to SK hynix (i) a paid-up perpetual patent license for certain identified SK hynix DRAM products and (ii) a five-year term patent license to all other DRAM and other semiconductor products. The agreements with SK hynix are considered a multiple element arrangement for accounting purposes. For a multiple element arrangement under the applicable accounting rules, the Company is required to identify specific elements of the arrangement and then determine when those elements should be recognized. The Company identified three elements in the arrangement: antitrust litigation settlement, settlement of past infringement, and license agreement. The Company considered several factors in determining the accounting fair value of the elements of the SK hynix agreements which included a third party valuation using an income approach (collectively the “SK hynix Fair Value”). The inputs and assumptions used in this accounting valuation were from a market participant perspective and included projected customer revenue, royalty rates, estimated discount rates, useful lives and income tax rates, among others. The development of a number of these inputs and assumptions in the model requires a significant amount of management judgment and discretion, and is based upon a number of factors, including the selection of industry comparables, market growth rates and other relevant factors. Changes in any number of these assumptions may have a substantial impact on the SK hynix Fair Value as assigned to each element. These inputs and assumptions represent management’s best estimates at the time of the transaction. During each of the three completed quarters of 2014, the Company received cash consideration of $12.0 million from SK hynix. For each quarter, the amount was allocated between royalty revenue ($11.8 million) and gain from settlement ($0.2 million) based on the elements’ SK hynix Fair Value. The remaining $180.0 million is expected to be paid in successive quarterly payments of $12.0 million, concluding in the second quarter of 2018. The cumulative cash receipts through September 30, 2014 and the remaining future cash receipts from the agreements with SK hynix are expected to be recognized as follows assuming no adjustments to the payments under the terms of the agreements:
| Cumulative Received to-date as of September 30, |  | Estimated to Be Received in |  | Total Estimated Cash Receipts
| 2014 |  | Remainder of 2014 |  | 2015 |  | 2016 |  | 2017 |  | 2018 |
(in millions) |  |  |  |  |  |  |  |  |  |  |  |  |
Royalty revenue | $ | 59.1 |  |  | $ | 11.8 |  |  | $ | 47.3 |  |  | $ | 47.9 |  |  | $ | 48.0 |  |  | $ | 24.0 |  |  | $ | 238.1 |
Gain from settlement | 0.9 |  |  | 0.2 |  |  | 0.7 |  |  | 0.1 |  |  | — |  |  | — |  |  | 1.9 |
Total | $ | 60.0 |  |  | $ | 12.0 |  |  | $ | 48.0 |  |  | $ | 48.0 |  |  | $ | 48.0 |  |  | $ | 24.0 |  |  | $ | 240.0 |
Micron On December 9, 2013, Rambus, Micron and certain related entities of Micron entered into a settlement agreement, pursuant to which the parties have agreed that they will release all claims against each other with respect to all outstanding litigation between them and certain other potential claims. Pursuant to the settlement agreement, Rambus and Micron entered into a semiconductor patent license agreement on December 9, 2013. Under the license agreement, Rambus has granted to Micron and its subsidiaries and certain affiliated entities (i) a paid-up perpetual patent license for certain identified Micron DRAM products and (ii) a seven-year term patent license to other memory and semiconductor products. The agreements with Micron are considered a multiple element arrangement for accounting purposes. For a multiple element arrangement under the applicable accounting rules, the Company is required to identify specific elements of the arrangement and then determine when those elements should be recognized. The Company identified three elements in the arrangement: antitrust litigation settlement, settlement of past infringement, and license agreement. The Company considered several factors in determining the accounting fair value of the elements of the Micron agreements which included a third party valuation using an income approach (collectively the “Micron Fair Value”). The inputs and assumptions used in this accounting valuation were from a market participant perspective and included projected customer revenue, royalty rates, estimated discount rates, useful lives and income tax rates, among others. The development of a number of these inputs and assumptions in the model requires a significant amount of management judgment and discretion, and is based upon a number of factors, including the selection of industry comparables, market growth rates and other relevant factors. Changes in any number of these assumptions may have a substantial impact on the Micron Fair Value as assigned to each element. These inputs and assumptions represent management’s best estimates at the time of the transaction. During each of the three completed quarters of 2014, the Company received cash consideration of $10.0 million from Micron. For each quarter, the amount was allocated between royalty revenue ($9.7 million) and gain from settlement ($0.3 million) based on the elements’ Micron Fair Value. The remaining $244.5 million is expected to be paid in successive quarterly payments of $10.0 million, concluding in the fourth quarter of 2020. The cumulative cash receipts through September 30, 2014 and the remaining future cash receipts from the agreements with Micron are expected to be recognized as follows assuming no adjustments to the payments under the terms of the agreements:
| Cumulative Received to-date as of September 30, |  | Estimated to Be Received in |  | Total Estimated Cash Receipts
| 2014 |  | Remainder of 2014 |  | 2015 |  | 2016 |  | 2017 |  | 2018 |  | 2019 and thereafter |
(in millions) |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Royalty revenue | $ | 34.3 |  |  | $ | 9.7 |  |  | $ | 38.7 |  |  | $ | 39.5 |  |  | $ | 40.0 |  |  | $ | 40.0 |  |  | $ | 74.5 |  |  | $ | 276.7 |
Gain from settlement | 1.2 |  |  | 0.3 |  |  | 1.3 |  |  | 0.5 |  |  | — |  |  | — |  |  | — |  |  | 3.3 |
Total | $ | 35.5 |  |  | $ | 10.0 |  |  | $ | 40.0 |  |  | $ | 40.0 |  |  | $ | 40.0 |  |  | $ | 40.0 |  |  | $ | 74.5 |  |  | $ | 280.0 |

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