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Agreement with SK hynix and Micron | 12 Months Ended
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Dec. 31, 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. The following estimates do not reflect any agreement (expressed or implied) reached between the parties on the values attributed to any aspect of this transaction. The estimated SK hynix Fair Value is determined as follows:
(in millions) | Estimated SK hynix Fair Value
Antitrust litigation settlement | $ | 4.0 |
Settlement of past infringement | 280.0 |
License agreement | 250.0 |
Total SK hynix Fair Value | $ | 534.0 |
The total consideration of $240.0 million (as per the terms of the agreements with SK hynix) takes into account the court ruling in May 2013 that $250.0 million should be applied as a credit against the court’s March 2009 award to Rambus in the SK hynix litigation. Using the accounting guidance from multiple element revenue arrangements, the Company allocated the consideration to each element using the estimated SK hynix Fair Value of the elements which include antitrust litigation settlement, settlement of past infringement, and license agreement as shown in the table above. The following allocations do not reflect any agreement (expressed or implied) reached between the parties on the values attributed to any aspect of this transaction, but instead, reflect only what is required as disclosure under the applicable accounting rules. Based on the estimated SK hynix Fair Value, the total consideration of $240.0 million was allocated to the following elements:
(in millions) | Allocated Consideration
Antitrust litigation settlement | $ | 1.9 |
Settlement of past infringement | 125.8 |
License agreement | 112.3 |
Total consideration | $ | 240.0 |
The consideration of $240.0 million (assuming no adjustments to the payments under the terms of the agreements) will be recognized in the Company’s financial statements until 2018 as follows:
· | $238.1 million as "royalty revenue" which represents the allocated consideration related to the settlement of past infringement ($125.8 million) from the resolution of the infringement litigation and the patent license agreement ($112.3 million); and
· | $1.9 million as "gain from settlement" which represents the allocated consideration related to the resolution of the antitrust litigation.
During the years ended December 31, 2014 and 2013, the Company received cash consideration of $48.0 million and $24.0 million, respectively, from SK hynix. The amounts were allocated between royalty revenue ($47.3 million in 2014 and $23.6 million in 2013) and gain from settlement ($0.7 million in 2014 and $0.4 million in 2013) based on the elements’ SK hynix Fair Value. The remaining $168.0 million is expected to be paid in successive quarterly payments of $12.0 million, concluding in the second quarter of 2018. The cash receipts and 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:
| Received in |  | Estimated to Be Received in |  | Total Estimated Cash Receipts
| 2013 |  | 2014 |  | 2015 |  | 2016 |  | 2017 |  | 2018 |
(in millions) |  |  |  |  |  |  |  |  |  |  |  |  |
Royalty revenue | $ | 23.6 |  |  | $ | 47.3 |  |  | $ | 47.3 |  |  | $ | 47.9 |  |  | $ | 48.0 |  |  | $ | 24.0 |  |  | $ | 238.1 |
Gain from settlement | 0.4 |  |  | 0.7 |  |  | 0.7 |  |  | 0.1 |  |  | — |  |  | — |  |  | 1.9 |
Total | $ | 24.0 |  |  | $ | 48.0 |  |  | $ | 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. The following estimates do not reflect any agreement (expressed or implied) reached between the parties on the values attributed to any aspect of this transaction. The estimated Micron Fair Value is determined as follows:
(in millions) | Estimated Micron Fair Value
Antitrust litigation settlement | $ | 8.0 |
Settlement of past infringement | 235.0 |
License agreement | 440.0 |
Total Micron Fair Value | $ | 683.0 |
The total consideration of $280.0 million (as per the terms of the agreements with Micron) takes into account the court ruling in January 2013 that Rambus' patents-in-suit are unenforceable against Micron in the Micron litigation, but which was pending appeal at the time of settlement. Using the accounting guidance from multiple element revenue arrangements, the Company allocated the consideration to each element using the estimated Micron Fair Value of the elements which include antitrust litigation settlement, settlement of past infringement, and license agreement as shown in the table above. The following allocations do not reflect any agreement (expressed or implied) reached between the parties on the values attributed to any aspect of this transaction, but instead, reflect only what is required as disclosure under the applicable accounting rules. Based on the estimated Micron Fair Value, the total consideration of $280.0 million was allocated to the following elements:
(in millions) | Allocated Consideration
Antitrust litigation settlement | $ | 3.3 |
Settlement of past infringement | 96.3 |
License agreement | 180.4 |
Total consideration | $ | 280.0 |
The consideration of $280.0 million (assuming no adjustments to the payments under the terms of the agreements) will be recognized in the Company’s financial statements until 2020 as follows:
· | $276.7 million as "royalty revenue" which represents the allocated consideration related to the settlement of past infringement ($96.3 million) from the resolution of the infringement litigation and the patent license agreement ($180.4 million); and
· | $3.3 million as "gain from settlement" which represents the allocated consideration related to the resolution of the antitrust litigation.
During the years ended December 31, 2014 and 2013, the Company received cash consideration of $40.0 million and $5.5 million, respectively, from Micron. The amounts were allocated between royalty revenue ($38.7 million in 2014 and $5.3 million in 2013) and gain from settlement ($1.3 million in 2014 and $0.2 million in 2013) based on the elements’ Micron Fair Value. The remaining $234.5 million is expected to be paid in successive quarterly payments of $10.0 million, concluding in the fourth quarter of 2020. The cash receipts and 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:
| Received in |  | Estimated to Be Received in |  | Total Estimated Cash Receipts
| 2013 |  | 2014 |  | 2015 |  | 2016 |  | 2017 |  | 2018 |  | 2019 and thereafter |
(in millions) |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Royalty revenue | $ | 5.3 |  |  | $ | 38.7 |  |  | $ | 38.7 |  |  | $ | 39.5 |  |  | $ | 40.0 |  |  | $ | 40.0 |  |  | $ | 74.5 |  |  | $ | 276.7 |
Gain from settlement | 0.2 |  |  | 1.3 |  |  | 1.3 |  |  | 0.5 |  |  | — |  |  | — |  |  | — |  |  | 3.3 |
Total | $ | 5.5 |  |  | $ | 40.0 |  |  | $ | 40.0 |  |  | $ | 40.0 |  |  | $ | 40.0 |  |  | $ | 40.0 |  |  | $ | 74.5 |  |  | $ | 280.0 |

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