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Agreements with SK hynix and Micron | 6 Months Ended
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Jun. 30, 2015
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. In June 2015, the Company s igned an amendment that extends its current agreement with SK hynix for an additional six years for use of Rambus memory-related patented innovations in SK hynix semiconductor products. The Company signed the original agreement with SK hynix for a five-year term in June 2013. Under the amendment, SK hynix has agreed to continue to pay the Company an average quarterly cash payment of $12.0 million which equates to $432.0 million over the remaining term of the agreement ending July 1, 2024, provided that (a) for each of the six full calendar quarters immediately following July 1, 2015, SK hynix will pay the Company a quarterly cash payment of $16.0 million, and (b) in addition, after December 1, 2017, SK hynix will have the option to make six quarterly cash payments of $8.0 million upon six months written notice. In addition, SK hynix has the option to renew the agreement for an additional three-year extension under the existing rate structure. 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 the second quarter of 2015, the Company received cash consideration of $12.0 million from SK hynix. 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. During the first half of 2015, the Company received cash consideration of $24.0 million from SK hynix. The amount was allocated between royalty revenue ($23.6 million) and gain from settlement ($0.4 million) based on the elements’ SK hynix Fair Value. The cumulative cash receipts through June 30, 2015 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 June 30, |  | Estimated to Be Received in |  |  |  | Total Estimated Cash Receipts
| 2015 |  | Remainder of 2015 |  | 2016 |  | 2017 |  | 2018 |  | 2019 |  | 2020 and Thereafter |
(in millions) |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Royalty revenue | $ | 94.6 |  |  | $ | 31.6 |  |  | $ | 63.9 |  |  | $ | 48.0 |  |  | $ | 40.0 |  |  | $ | 32.0 |  |  | $ | 216.0 |  |  | $ | 526.1 |
Gain from settlement | 1.4 |  |  | 0.4 |  |  | 0.1 |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 1.9 |
Total | $ | 96.0 |  |  | $ | 32.0 |  |  | $ | 64.0 |  |  | $ | 48.0 |  |  | $ | 40.0 |  |  | $ | 32.0 |  |  | $ | 216.0 |  |  | $ | 528.0 |
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 the second quarter of 2015, the Company received cash consideration of $10.0 million from Micron. The amount was allocated between royalty revenue ($9.7 million) and gain from settlement ($0.3 million) based on the elements’ Micron Fair Value. During the first half of 2015, the Company received cash consideration of $20.0 million from Micron. The amount was allocated between royalty revenue ($19.4 million) and gain from settlement ($0.6 million) based on the elements’ Micron Fair Value. The remaining $214.5 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 June 30, 2015 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 June 30, |  | Estimated to Be Received in |  | Total Estimated Cash Receipts
| 2015 |  | Remainder of 2015 |  | 2016 |  | 2017 |  | 2018 |  | 2019 |  | 2020 |
(in millions) |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Royalty revenue | $ | 63.4 |  |  | $ | 19.3 |  |  | $ | 39.5 |  |  | $ | 40.0 |  |  | $ | 40.0 |  |  | $ | 40.0 |  |  | $ | 34.5 |  |  | $ | 276.7 |
Gain from settlement | 2.1 |  |  | 0.7 |  |  | 0.5 |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 3.3 |
Total | $ | 65.5 |  |  | $ | 20.0 |  |  | $ | 40.0 |  |  | $ | 40.0 |  |  | $ | 40.0 |  |  | $ | 40.0 |  |  | $ | 34.5 |  |  | $ | 280.0 |

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