ANNUAL REPORT 2015Notice of 2016 Annual Meeting and Proxy StatementInterDigital, Inc. TO OUR
SHAREHOLDERS
A MESSAGE FROM OUR CHAIRMAN OF THE BOARD AND OUR CHIEF EXECUTIVE OFFICER
InterDigital has always been about future
technologies, and working to help define
what the wireless network, architecture
and device capabilities of tomorrow will
be. Other companies work alongside us,
each with their specific areas of expertise.
Our expertise is helping to tie it all
together, making it work as a whole. We
call it “the living network” and we’ve
been building it for multiple generations
of wireless. Today, the network is more
alive than it has ever been, serving
consumers better than ever. And it
continues to grow, expand and evolve,
incorporating new technologies and
capabilities. As a result, the role that
InterDigital plays, and the need for our
contributions, is more salient than ever.
In 2015, our technology role was once
again at the forefront. We started the
year with two world’s first demos at
Mobile World Congress in Barcelona
– one in each primary area of our
business: next generation wireless
networks (specifically 5G) and the
Internet of Things (IoT). We followed
that with several announcements
regarding our central role in a number of
groundbreaking technology development
projects related to 5G networks,
especially in areas like information-
centric networking (ICN) and software-
defined networking (SDN). Significantly,
we also were awarded a lead role in the
oneTRANSPORT smart city project in
the UK, an integrated transport initiative
based on our oneMPOWER™ platform,
which continues to expand in scope. In
both future wireless technologies and
IoT, our technology footprint continues
to grow, and our position at the leading
edge is continuously affirmed.
While we focus on future technologies to
increase our value, our business model,
which involves monetizing the advanced
research we have invested in, necessarily
means that current value is driven by
our past innovations that have been
widely adopted by the market. Those
innovations, protected by a large patent
portfolio, support a licensing program
that drove total revenues of $441.4
million in 2015 – 6% more than in 2014
and 36% more than in 2013.
While we’re proud of our top-line growth,
another key value proposition is the
operating leverage in our company,
namely driving top line growth with
little to no increase in expense. We saw
that leverage at work in 2015 as our
total revenue increased from 2014 to
2015 while our total operating expenses
decreased by $14 million over the same
period.
Mapping our technologies onto our
revenues is simple. The present is core
wireless innovation and our ability to
monetize it. The future is both that and
the emerging IoT, which we anticipate
will layer on top of our current revenues
as the IoT begins to grow significantly
in coming years. And while, like almost
all transformative technologies, the IoT
has slightly lagged initial expectations,
we feel very strongly that, again like
all transformative technologies, it will
eventually become pervasive and a
tremendous source of value.
To reflect that dual focus, and to drive
clarity and accountability in each area,
we recently separated each major
technology area into its own unit, with
dedicated research and development
resources and leadership, and specific
objectives. Our present, the wireless
business, led by Larry Shay, is focused
on monetizing our past contributions
to mobile technology through licensing
connecting devices while ensuring
that we stay at the forefront of mobile
technology in the run-up to 5G. Our
future, the IoT business led by Jim Nolan,
is charged with driving penetration of this
new, exciting market with the platforms
and capabilities that InterDigital has
developed along the way. We think both
are ideally positioned to succeed and
drive our business forward.
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INTERDIGITAL, INC.
ANNUAL REPORT 2015
shares of the company’s common stock,
and combined with repurchases in
2014 we’ve bought back over 5 million
shares over the last two fiscal years.
In first quarter 2016, we continued our
stock buyback efforts, and early in the
year crossed the threshold of having
repurchased more than half the shares of
the company that were ever outstanding.
Thank you for your continued support as
a shareholder. We remain committed to
further innovation and business growth,
and building the value of InterDigital.
S. Douglas Hutcheson
Chairman of the Board
William J. Merritt
President and Chief Executive Officer
On the governance side, 2015 saw
Doug Hutcheson assume the role
of Chairman of the Board when our
outgoing Chairman, Terry Clontz, joined
Gil Amelio and Ed Kamins in retiring
from the Board of Directors at the end
of their terms last June. Terry counted
17 years of board service, and his tenure
was marked by business growth and
success during a period in the mobile
industry that saw many companies go
down to defeat as part of the changes
our industry has encountered. We are
grateful for his service.
These changes were part of a continued
transition at the Board level over the
last two years. By the end of 2015,
the company’s average board tenure
had been reduced to 7 years, and the
Board now brings together former
executives from major national and
global telecommunications brands
like Qualcomm, Nokia, Alcatel-Lucent,
Cricket and LSI Corporation. The
addition of Phil Trahanas to our Board
of Directors in early 2016 adds another
strong skillset in technology investment.
Finally, while we continue to work
diligently to create value, we also
continue to be focused on returning
value to shareholders. In 2015, we
repurchased more than 1.8 million
3
BUILDING NEW CAPABILITIES THROUGH
LEADERSHIP IN 5G
InterDigital’s heritage in mobile
technology development goes back to
the earliest days of the wireless market,
and while the market has expanded and
attracted an ever-increasing number of
players, our company continues to be at
the very forefront of advanced research
that will drive the capabilities of the
future.
In 2015, InterDigital announced several
major advances in research and
development related to the future mobile
generation. For example, the company
demonstrated the world’s first WiGig-
based millimeter wave mesh backhaul
system. Now branded EdgeHaul™,
the technology features self-adapting
adaptive phased array beamforming
operating in spectrum that is expected to
be a major component of 5G access and
networks.
InterDigital Europe and its project
partners made significant progress on
three 5G projects that are part of the
European Commission’s Horizon 2020
research project, POINT (iP Over IcN
the betTer IP), RIFE (aRchitecture for an
Internet For Everybody) and XHAUL.
The POINT project seeks to develop
technology, innovations, and business
value chains that leverage emerging ICN
technology in commercially viable ways.
Significant success in the project was
achieved in July 2015 when InterDigital
announced the first IP-over-ICN-over-
SDN demonstration, bringing together
several network components that are
expected to help underpin 5G.
Project RIFE leverages advanced
emerging networking technology to
address the major societal challenge of
providing affordable internet access to
those who cannot afford it by solving
the technological challenge to increase
the efficiency of the underlying transport
networks and the involved architectures
and protocols.
CREATING
THE LIVING
NETWORK
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INTERDIGITAL, INC.
ANNUAL REPORT 2015
A milestone win for 5G Infrastructure
Public Private Partnership (5GPPP),
XHAUL aims to develop a 5G integrated
backhaul and fronthaul transport network
to flexibly and dynamically interconnect
the 5G radio access and core network
functions. Ultimately, this will help achieve
the very low latency that will characterize
the 5G networks of the future.
These efforts layer on top of InterDigital
Labs’ continued key role in major
standards bodies that are driving 5G,
including 3GPP and the IEEE and its
802 set of mobile technologies that
include Wi-Fi. The company also worked
diligently to position itself in various
industry 5G efforts around the world. The
company’s Chief Technology Officer, Dr.
B.K. Yi, joined the Board of Directors of
the Telecom Industry Association (TIA) in
the U.S., and the company’s InterDigital
Asia Lab in Seoul, South Korea joined
the 5G Forum, a Korean 5G industry
initiative. The company’s 5G success was
also highlighted in a research partnership,
when the company announced that
the scope of the Convida Wireless joint
venture with Sony had been expanded to
include 5G technology.
5
IoT : A FOOTHOLD
IN A NEW,
POTENTIALLY
MASSIVE MARKET
InterDigital’s heritage in the IoT literally
goes back to the birth of standards-
driven approaches for the delivery of IoT
capabilities and services. In 2009, the
European Telecommunications Standards
Institute (ETSI) met for the first time to
begin the process of defining standards
for machine-to-machine communications,
with simple metering as the first and only
use case. InterDigital was there. A year
later, InterDigital hosted the first meeting
to test the interoperability of equipment
developed on the nascent ETSI standard,
on a company-developed standards-
compliant platform.
Today, other standards setting
organizations like oneM2MTM and IETF,
and other IoT industry consortia like
the Industrial Internet Consortium, have
taken over the effort to drive standards
into the IoT. InterDigital is an active
participant in these efforts, and the
company’s platform, oneMPOWER™, is
one of the first fully standards-compliant
interoperability platforms in the world,
In September 2015, oneMPOWERTM was
behind a breakthrough demonstration:
the platform was used to drive the first
successful public demonstration of the
oneM2MTM standard, interconnecting
solutions from market leaders like
Qualcomm, Cisco, Huawei, KETI and
Ricoh, among others.
Based on our platform and capabilities,
InterDigital has assumed a leading role
in some groundbreaking early initiatives,
particularly in the area of smart cities – a
key area of the IoT. In August 2015, the
company was part of a consortium that
was awarded a project to develop a smart
city application for integrated transport
through Innovate UK.
The project, oneTRANSPORT, is a
commercially-focused project centered
on key counties in the greater London
area. oneTRANSPORT seeks to develop
a platform for the integration and
monetization of important current
transport data, and InterDigital is playing
a key role, with its partners, to develop
and drive the project and expand it to
other counties, municipalities and public
authorities in the UK and beyond.
InterDigital is focused on continuing to
drive the success of the IoT, whether
it’s in monetizing existing and new
connections (devices need wireless
connectivity, which includes Wi-Fi and
cellular wireless, to join the IoT), building
the market success of oneMPOWERTM,
oneTRANSPORT and other intelligent
transport systems or creating a data
exchange for legacy transport data or
new data sources through its wot.ioTM
data service.
6
INTERDIGITAL, INC.
ANNUAL REPORT 2015
7
A MODEL THAT DRIVES
OPERATING
LEVERAGE
In the 2015 financial year, InterDigital
was successful in continuing to grow
revenues while maintaining tight control
over expenses, highlighting the operating
leverage that is a hallmark of our R&D and
licensing-based model.
In terms of revenues, our patent license
agreement with Samsung, signed in
2014, anchored a licensing program that
has seen significant growth based on
the success of our per-unit licensees.
Indeed, our recurring revenue (comprised
of current patent royalties and current
technology solutions revenue) of
$92.6 million in fourth quarter 2015
represented a $31 million increase from
the comparable period in 2013 – a more
than 50% increase in quarterly recurring
revenue over a two-year period.
On the expense side, while some expense
areas like litigation are more driven by
external factors, our total operating
expenses have remained within a
relatively tight range over the past three
years, and actually decreased by $14
million in 2015.
$120.0
$100.0
$80.0
$60.0
$40.0
$20.0
$0.0
Q1 ‘13
Q2 ‘13
Q3 ‘13
Q4 ‘13
FINANCIAL HIGHLIGHTS
Total Revenue
Income (Loss) From Operations
Net Income (Loss)
Net Income (Loss) Attributable to InterDigital, Inc.
Net Income (Loss) Per Common Share – Diluted
Total Cash, Cash Equivalents and Short-Term Investments
Total Assets
Total InterDigital, Inc. Shareholders’ Equity
Total Equity
Total Recurring Revenue*
Total Operating Expenses
2013
$47.4
(15.1)
(12.9)
(12.3)
(0.30)
635.8
1,014.7
506.3
505.6
$46.7
$62.4
$67.7
12.7
8.6
9.2
0.22
769.8
1,153.9
514.4
518.2
$43.5
$55.0
$110.6
49.1
26.1
26.7
0.64
756.8
1,129.6
542.8
547.3
$46.5
$61.5
$99.7
38.0
13.9
14.6
0.35
698.5
1,113.2
528.7
533.8
$61.6
$61.7
*Recurring revenue consists of current patent royalties and current technology solutions revenue.
8
INTERDIGITAL, INC.
ANNUAL REPORT 2015
Amounts in Millions, except per share data
Operating Expenses
Recurring Revenue
Q1 ‘13
Q2 ‘13
Q3 ‘13
Q4 ‘13
Q1 ‘14
Q2 ‘14
Q3 ‘14
Q4 ‘14
Q1 ‘15
Q2 ‘15
Q3 ‘15
Q4 ‘15
2014
$57.9
-
(2.5)
(1.8)
(0.05)
684.6
1,077.8
523.5
529.3
$56.2
$57.9
$194.2
128.4
78.1
78.9
1.93
672.9
1,421.0
594.1
600.3
$74.3
$65.9
$77.6
15.3
12.6
13.5
0.34
732.7
1,295.4
523.6
530.2
$73.2
$62.3
$86.1
25.3
13.2
13.8
0.36
703.9
1,193.0
468.3
475.7
$85.1
$60.8
2015
$110.4
51.2
28.3
29.0
0.78
911.2
1,457.8
476.4
484.3
$110.4
$59.1
$118.6
58.6
32.0
32.6
0.89
907.6
1,461.1
484.3
492.8
$91.2
$60.0
$100.4
45.4
23.8
24.5
0.68
867.4
1,448.7
486.3
491.6
$78.6
$55.0
$112.1
53.3
32.3
33.0
0.92
933.7
1,474.5
510.5
521.9
$92.6
$58.8
9
FORWARD-
LOOKING
STATEMENTS
Statements made in the letter to
shareholders and in the introduction
to this annual report that relate to our
future plans, events, financial results
or performance, including, without
limitation, statements relating to our
beliefs regarding the development
and impact of our technologies, the
anticipated growth of the IoT and our
plans to penetrate the IoT market and
drive the success of our IoT business, are
forward-looking statements as defined
under the Private Securities Litigation
Reform Act of 1995. These statements
are based upon current goals, estimates,
information, and expectations.
Actual results might differ materially
from those anticipated as a result of
certain risks and uncertainties, including
delays, difficulties, changed strategies,
or unanticipated factors affecting the
implementation of the company’s plans.
You should carefully consider the risks
and uncertainties outlined in greater
detail in the accompanying Form 10-
K, including “Item 1A – Risk Factors,”
before making any investment decision
with respect to our common stock. We
undertake no obligation to revise or
publicly update any forward-looking
statement for any reason, except as
otherwise required by law.
10
INTERDIGITAL, INC.
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Form 10-K
Í
‘
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2015
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from
to
OR
Commission file number 1-33579
INTERDIGITAL, INC.
(Exact name of registrant as specified in its charter)
Pennsylvania
(State or other jurisdiction of
incorporation or organization)
200 Bellevue Parkway, Suite 300
Wilmington, Delaware
(Address of principal executive offices)
23-1882087
(IRS Employer
Identification No.)
19809
(Zip Code)
Registrant’s telephone number, including area code (302) 281-3600
Securities registered pursuant to Section 12(b) of the Act:
Common Stock (par value $0.01 per share)
(title of class)
NASDAQ Stock Market LLC
(name of exchange on which registered)
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes Í
No ‘
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the
Act. Yes ‘
No Í
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes Í
No ‘
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any,
every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such
files). Yes Í
No ‘
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405) is not
contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. Í
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a
smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting
company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer Í
Non-accelerated filer ‘ Smaller reporting company ‘
Accelerated filer ‘
Indicate by check mark whether
No Í
Act). Yes ‘
(Do not check if a smaller reporting company)
the registrant
is a shell company (as defined in Rule 12b-2 of
the
The aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to
the price at which the common equity was last sold, or the average bid and asked price of such common equity, as of the last
business day of the registrant’s most recently completed second fiscal quarter: $2,026,553,956 as of June 30, 2015.
The number of shares outstanding of the registrant’s common stock was 34,996,183 as of February 16, 2016.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant’s definitive proxy statement to be filed pursuant to Regulation 14A in connection with the
registrant’s 2016 annual meeting of shareholders are incorporated by reference into Items 10, 11, 12, 13 and 14 of Part III of
this Form 10-K.
TABLE OF CONTENTS
PART I
ITEM 1. BUSINESS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ITEM 1A. RISK FACTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ITEM 1B. UNRESOLVED STAFF COMMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ITEM 2. PROPERTIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ITEM 3. LEGAL PROCEEDINGS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ITEM 4. MINE SAFETY DISCLOSURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
PART II
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER
MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES . . . . . . . . . . . . . . . . . . . . . . . . . . .
ITEM 6. SELECTED FINANCIAL DATA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK . . . . . . . .
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA . . . . . . . . . . . . . . . . . . . . . . . . .
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ITEM 9A. CONTROLS AND PROCEDURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ITEM 9B. OTHER INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE . . . . . . . . . . . .
ITEM 11. EXECUTIVE COMPENSATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
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AND RELATED STOCKHOLDER MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
PART IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES . . . . . . . . . . . . . . . . . . . . . . . . . . .
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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In this Form 10-K, the words “we,” “our,” “us,” “the Company” and “InterDigital” refer to InterDigital, Inc.
and/or its subsidiaries, individually and/or collectively, unless otherwise indicated or the context otherwise
requires. InterDigital® is a registered trademark of InterDigital, Inc. All other trademarks, service marks and/or
trade names appearing in this Form 10-K are the property of their respective holders.
2015 Annual Report
2
Item 1.
BUSINESS.
Overview
PART I
InterDigital, Inc. (“InterDigital”) designs and develops advanced technologies that enable and enhance
wireless communications and capabilities. Since our founding in 1972, our engineers have designed and
developed a wide range of innovations that are used in digital cellular and wireless products and networks,
including 2G, 3G, 4G and IEEE 802-related products and networks. We are a leading contributor of intellectual
property to the wireless communications industry.
Given our long history and focus on advanced research and development, InterDigital has one of the most
significant patent portfolios in the wireless industry. As of December 31, 2015, InterDigital’s wholly owned
subsidiaries held a portfolio of approximately 20,400 patents and patent applications related to a range of
technologies including the fundamental technologies that enable wireless communications. In that portfolio are a
number of patents and patent applications that we believe are or may be essential or may become essential to
cellular and other wireless standards, including 3G, 4G and the IEEE 802 suite of standards, as well as patent
applications that we believe may become essential to 5G standards that are under development. That portfolio
has largely been built through internal development, supplemented by joint development projects with other
companies as well as select patent acquisitions. Products incorporating our patented inventions include: mobile
devices, such as cellular phones, tablets, notebook computers and wireless personal digital assistants; wireless
infrastructure equipment, such as base stations; and components, dongles and modules for wireless devices.
InterDigital derives revenues primarily from patent licensing and sales, with contributions from technology
solutions licensing and sales and engineering services. In 2015, our total revenues were $441.4 million, an
increase of $25.6 million compared to 2014. Our recurring revenues, consisting of current patent royalties and
current technology solutions revenue, in 2015 were $372.8 million, an increase of $84.0 million compared to
2014. Additional information about our revenues, profits and assets, as well as additional financial data, is
provided in the selected financial data in Part II, Item 6, and in the financial statements and accompanying Notes
in Part II, Item 8, of this Form 10-K.
Our Strategy
Our objective is to continue to be a leading designer and developer of technology solutions and intellectual
property for the mobile industry and to monetize those solutions and intellectual property through a combination
of licensing, sales and other revenue opportunities.
To execute our strategy, we intend to:
• Develop and source innovative technologies related to wireless. We intend to grow or maintain a
leading position in advanced mobile technology, the Internet of Things (IoT) and other related technology
areas by leveraging our expertise to guide internal research and development capabilities and direct our
efforts in partnering with leading inventors and industry players to source new technologies.
• Establish and grow our patent-based revenue. We intend to grow our licensing revenue base by adding
licensees, expanding into adjacent technology areas that align with our intellectual property position and
leveraging the continued growth of the overall mobile technology market. Those licensing efforts can be
self-driven or executed in conjunction with licensing partnerships, trusts and other efforts, and may
involve the vigorous defense of our intellectual property through litigation and other means. We also
believe that our ongoing research efforts and associated patenting activities enable us to sell patent assets
that are not vital to our core licensing programs, as well as to execute patent swaps that can strengthen our
overall portfolio.
3
2015 Annual Report
• Pursue commercial opportunities for our advanced platforms and solutions. We intend to pursue the
commercialization of technology platforms and solutions that arise from our research efforts. As part of
our ongoing research and development efforts, InterDigital often builds out entire functioning platforms
in various technology areas. We seek to bring those technologies, as well as other technologies we may
develop or acquire, to market through various methods including technology licensing, stand-alone
commercial initiatives, joint ventures and partnerships.
• Maintain a collaborative relationship with key industry players and worldwide standards bodies. We
intend to continue contributing to the ongoing process of defining mobile standards and other industry-
wide efforts and incorporating our inventions into those technology areas. Those efforts, and the
knowledge gained through them, support internal development efforts and also help guide technology and
intellectual property sourcing through partners and other external sources.
Technology Research and Development
InterDigital pursues a diversified approach to sourcing the innovations that underpin our business. That
approach incorporates internally driven research and development efforts by InterDigital Labs, as well as
externally focused efforts by our Innovation Partners unit. Our efforts are guided by our vision of the future of
mobile communications — Creating the Living NetworkTM — which is articulated around the variables of
content, context and connectivity, and how the interplay of these elements drives future technology capabilities
and needs.
As of December 31, 2015, our patent portfolio consisted of close to 2,200 U.S. patents (approximately 210
of which were issued in 2015) and approximately 10,900 non-U.S. patents (approximately 1,300 of which were
issued in 2015). As of the same date, we also had numerous patent applications pending worldwide, with close to
1,200 applications pending in the United States and approximately 6,100 pending non-U.S. applications. The
patents and applications comprising our portfolio relate predominantly to digital wireless radiotelephony
technology (including, without limitation, 3G and 4G technologies). Issued patents expire at differing times
ranging from 2016 through 2034. We operate six research and development facilities in four countries: King of
Prussia, PA; Melville, NY; San Diego, CA; Montreal, Canada; London, UK; and Seoul, South Korea.
InterDigital Labs
As an early and ongoing participant in the digital wireless market, InterDigital developed pioneering
solutions for the primary cellular air interface technologies in use today, TDMA and CDMA. That early
involvement, our continued development of those advanced digital wireless technologies and innovations in
OFDM/OFDMA and MIMO technologies have enabled us to create our significant worldwide portfolio of
patents. In addition, InterDigital was among the first companies to participate in standardization and platform
development efforts related to Machine-to-Machine (M2M) communications and IoT technology. In conjunction
with our participation in certain standards bodies, we have filed declarations stating that we have patents that we
believe are or may be essential or may become essential to cellular and other wireless standards and that, with
respect to our essential patents, we are prepared to grant licenses on fair, reasonable and non-discriminatory
terms or similar terms consistent with the requirements of the respective standards organizations.
Our capabilities in the development of advanced mobile technologies are based on the efforts of a highly
specialized engineering team, leveraging leading-edge equipment and software platforms. As of December 31,
2015, InterDigital employed approximately 170 engineers, approximately 80% of whom hold advanced degrees
(including 57 doctorate degrees). Over the last three years, investment in development has ranged from $64.7
million to $75.3 million, and the largest portion of this expense has been personnel costs. Additional information
about our development expenses is provided in the results of operations, under the heading “Operating
Expenses,” in Part II, Item 7, of this Form 10-K.
2015 Annual Report
4
Our current research efforts are focused on two main technology areas: cellular wireless technology and IoT
technology.
Cellular Wireless Technology
We have a long history of developing cellular technologies, including those related to CDMA and TDMA
and, more recently, OFDM/OFDMA and MIMO. A number of our inventions are being used in all 2G, 3G and
4G wireless networks and mobile terminal devices. We led the industry in establishing TDMA-based TIA/EIA/
IS-54 as a U.S. digital wireless standard in the 1980s and developed a substantial portfolio of TDMA-based
patented inventions. These inventions include or relate to fundamental elements of TDMA-based systems in use
around the world. We have also developed and patented innovative CDMA and OFDM/OFDMA technology
solutions and today, we hold a significant worldwide portfolio of patents and patent applications for these
technologies. Similar to our TDMA inventions, we believe that a number of our CDMA and OFDM/OFDMA
inventions are, may be or may become essential to the implementation of CDMA and OFDM/OFDMA-based
systems in use today.
We also continue to be engaged in development efforts to build and enhance our technology portfolio in
areas including LTE, LTE-Advanced, and emerging 5G technologies for 3GPP. Some of our LTE inventions
include or relate to MIMO technologies for reducing interference and increasing data rates; power control;
hybrid-ARQ for fast error correction; control channel structures for efficient signaling; multi-carrier operation;
low-complexity devices; vehicular-centric communications (V2X); and other areas. We also continue to develop
additional technologies in response to existing or perceived challenges of connectivity, many of them within the
scope of our efforts to define future generations of wireless including 5G. These include air interface
enhancements, policy-driven bandwidth management, cognitive radio and optimized data delivery. We are
developing technologies that will enable efficient multimedia content delivery across heterogeneous devices and
networks, and creating evolved system architectures that enable operation in small cells and additional frequency
bands and improved cell-edge performance as well as device-to-device communications.
Our strong wireless background includes engineering and corporate development activities that focus on
solutions that apply to other wireless market segments. These segments primarily fall within the continually
expanding scope of the IEEE 802, IETF and ETSI standards. We are building a portfolio of technology related to
Wi-Fi, WLAN, WMAN and WRAN that includes, for example, improvements to the IEEE 802.11 PHY and
MAC to increase peak data rates, the use of lower frequency bands for IoT and other new use cases such as
TV-Whitespace (802.11af) and sub 1 GHz (802.11ah), and fast initial link setup (802.11ai) to enhance hotspot
operation (WFA HOTSPOT 2.0).
IoT Technology
In the field of machine-to-machine (M2M) and IoT applications, we are developing technologies to enable
seamless interconnection for multiple access types (cellular, WLAN, WPAN) and M2M service frameworks that
can be managed by a customer and leveraged by a diverse set of vertical applications. These technologies build
on our expertise in developing platforms and contributing technologies towards the advancement of global M2M
and IoT standards. As part of, and in addition to, InterDigital’s standards-focused development, we have
developed two solutions that are being made available commercially.
In 2015, we launched our oneMPOWER™ platform, which enables interoperability and scalability across
diverse verticals, networks, and devices. InterDigital’s oneMPOWER platform is a secure and scalable horizontal
platform that helps businesses launch and manage IoT data and applications. It features a comprehensive suite of
application enabling services that span connectivity, device, data, security, and transaction management. Our
oneMPOWER platform complies with oneM2M, the global standard for horizontal IoT platforms, and is
designed for interoperability across diverse vertical markets, networks, and devices. The solution is based on an
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2015 Annual Report
open standard with a long-term features roadmap, which interworks with many existing industry protocols and
alliances.
The wot.ioTM data service exchangeTM for connected device platforms was launched in 2014. The wot.io
platform provides a common interface to multiple service providers, allowing companies to monetize IoT data in
a simpler fashion via a real-time, low-latency service-oriented architecture.
Other Technology Areas and Sources
Because mobile technology today and into the future encompasses a very broad range of areas, we are also
developing a range of technologies in the areas of video compression and delivery, security, analytics, and other
areas. Some of those efforts are related to technology standards. In addition, to supplement our own development
efforts, our Innovation Partners unit pursues an external sourcing model based around partnerships with leading
inventors and research organizations, as well as the acquisition of technology and patent portfolios that align with
InterDigital’s roadmap. In 2015, in addition to existing relationships with VTT Technical Research Centre of
Finland, BIO-key International Inc., McGill University and the Institute for Management Cybernetics (IfU), an
elite private research institution in Germany, Innovation Partners added relationships with the Florida Institute
for Human and Machine Cognition (IHMC) and igolgi, Inc., a provider of high-quality media transformation
solutions.
Our Revenue Sources
Patent-Based Revenue
We believe that companies making, importing, using or selling products compliant with the standards
covered by our patent portfolio, including all manufacturers of mobile handsets, tablets and other devices, require
a license under our patents and will require licenses under patents that may issue from our pending patent
applications. We have successfully entered into license agreements with many of
the leading mobile
communications companies globally, including Samsung Electronics Co., Ltd. (“Samsung”), Sony Corporation
of America (“Sony”), Kyocera Corporation (“Kyocera”), HTC Corporation and BlackBerry Limited, among
others.
Most of our patent license agreements are structured on a royalty-bearing basis, while others are structured
on a paid-up basis or a combination thereof. Upon entering into a new patent license agreement, the licensee
typically agrees to pay consideration for sales made prior to the effective date of the license agreement (i.e., past
patent royalties) and also agrees to pay royalties or license fees on licensed products sold during the term of the
agreement. We expect that, for the most part, new license agreements will follow this model. Almost all of our
patent license agreements provide for the payment of royalties based on sales of licensed products designed to
operate in accordance with particular standards (convenience-based licenses), as opposed to the payment of
royalties if the manufacture, sale or use of the licensed product infringes one of our patents (infringement-based
licenses).
In most cases, we recognize the revenue from per-unit royalties in the period when we receive royalty
reports from licensees. In circumstances where we receive consideration for past patent royalties, we recognize
such payments as revenue in the period in which the patent license agreement is signed. Some of these patent
license agreements provide for the non-refundable prepayment of royalties that are usually made in exchange for
prepayment discounts. As the licensee reports sales of covered products, the royalties are calculated and either
applied against any prepayment or become payable in cash or other consideration. Additionally, royalties on
sales of licensed products under the license agreement become payable or applied against prepayments based on
the royalty formula applicable to the particular license agreement. These formulas include flat dollar rates per
unit, a percentage of sales, a percentage of sales with a per-unit cap and other similar measures. The formulas can
also vary by other factors, including territory, covered standards, quantity and dates sold.
2015 Annual Report
6
Some of our patent licenses are paid up, requiring no additional payments relating to designated sales under
agreed upon conditions. Those conditions can include paid-up licenses for a period of time, for a class of
products, for a number of products sold, under certain patents or patent claims, for sales in certain countries or a
combination thereof. Licenses have become paid-up based on the payment of fixed amounts or after the payment
of royalties for a term. With the exception of amounts allocated to past patent royalties, we recognize revenues
related to fixed amounts on a straight-line basis. Our license agreements typically contain provisions that give us
the right to audit our licensees’ books and records to ensure compliance with the licensees’ reporting and
payment obligations under those agreements. From time to time,
these audits reveal underreporting or
underpayments under the applicable agreements. In such cases, we seek payment for the amount owed and enter
into negotiations with the licensee to resolve the discrepancy.
In addition, in 2013, InterDigital formed the Signal Trust for Wireless Innovation (the “Signal Trust”). The
goal of the Signal Trust is to monetize a large patent portfolio related to cellular infrastructure. More than 500
patents and patent applications were transferred from InterDigital to the Signal Trust, focusing primarily on 3G
and LTE technologies and developed by InterDigital’s engineers and researchers over more than a decade. A
number of these innovations have been contributed to the worldwide standards process, resulting in a portfolio
that includes patents for pioneering inventions that we believe are used pervasively in the cellular wireless
industry. InterDigital is the primary beneficiary of the Signal Trust. The distributions from the Signal Trust will
support continued research related to cellular wireless technologies. A small portion of the proceeds from the
Signal Trust will be used to fund, through the Signal Foundation for Wireless Innovation, scholarly analysis of
intellectual property rights and the technological, commercial and creative innovations they facilitate.
We also pursue, on occasion, targeted sales of portions of our patent portfolio. This strategy is based on the
expectation that our portfolio and continued research efforts extend well beyond the requirements for a
successful licensing program. In addition, the strategy leverages the desire from new entrants in the mobile
technology space to build strong intellectual property positions to support their businesses.
Other Potential Revenue Sources
Our strong technology expertise and research and development team also form the basis for other potential
revenue opportunities, focused around areas such as engineering services, research joint ventures and the continued
development, commercialization and licensing of research and development projects that have progressed to a pre-
commercial or commercial phase. We also currently recognize revenue from the licensing of technology that has
been developed by our engineering teams and is integrated into other companies’ technology products.
In both its cellular wireless and IoT technology areas, we work to incubate and commercialize market-ready
technologies. These include technologies that were developed as part of our standards development efforts, as
well as technologies developed outside the scope of those efforts.
In certain cases where we have identified a potential commercial opportunity, we have chosen to establish a
separate commercial initiative focused on the specific opportunity and developing commercial products to
address the identified need. For example, in 2014, XCellAir, Inc. was established. The XCellAir™ product is a
cloud-based, multi-vendor, multi-technology mobile network management and optimization solution that enables
mobile network operators, mobile system operators and Internet service providers to manage, optimize and
monetize heterogeneous network resources. Although this and similar initiatives are in their early stages, they are
potential revenue sources for the Company.
In 2012, we formed of a joint venture with Sony called Convida Wireless. The joint venture combined
InterDigital’s advanced M2M research capabilities with Sony’s consumer electronics expertise with the purpose of
driving new research in IoT communications and other connectivity areas. In 2015, this joint venture was renewed,
and its focus was expanded to include advanced research and development into 5G and future wireless technologies.
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2015 Annual Report
Wireless Communications Industry Overview
The wireless communications industry continues to experience rapid growth worldwide, as well as an
expansion of device types entering the market. In smartphones alone, the market continues to see growth, with
growth focused on higher-end 4G devices.
Worldwide 3G/4G Handset Shipments
2500
2000
1500
1000
500
LTE
3G
0
2013
2014
2015
2016
2017
2018
2019
IHS Design Forecast Tool Mobile Handsets - H2 2015 (in millions)
In addition, new markets are emerging related to wireless connectivity. IoT is an important new market in
the technology field, which is expected to result in a significant increase in the number of connections, and
unlock new business capabilities. IoT is currently in its earliest stages, and estimates vary broadly as far as how
many connections it will yield. IHS estimates that the IoT market will grow an installed base of more than 70
billion connected devices by 2025, with total new device shipments reaching more than 20 billion yearly by 2025
and particularly high growth in the automotive, industrial and medical fields. Shipments of 3G, 4G and 802.11
IoT connected devices alone are expected to reach close to 6 billion by 2019.
2015 Annual Report
8
IoT Connected Device Installed Base
80,000
70,000
60,000
50,000
40,000
30,000
20,000
10,000
0
2016
2017
2018
2019
2020
2021
2022
2023
2024
2025
IHS IoT Connectivity Intelligence Service – Q3 2015 (in millions)
Selected IoT Connected Device Shipments by Technology
4,500
4,000
3,500
3,000
2,500
2,000
1,500
1,000
500
-
3G
4G
802.11
2013
2014
2015
2016
2017
2018
2019
IHS IoT Connectivity Intelligence Service – Q3 2015 (in millions)
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2015 Annual Report
To achieve economies of scale and support interoperability among different participants, products for the
wireless industry have typically been designed to operate in accordance with certain standards. Wireless
communications standards are formal guidelines for engineers, designers, manufacturers and service providers
that regulate and define the use of the radio frequency spectrum in conjunction with providing detailed
specifications for wireless communications products. A primary goal of the standards is to ensure interoperability
of products marketed by multiple companies. A large number of international and regional wireless Standards
Development Organizations (“SDOs”), including the ITU, ETSI, TIA (USA), IEEE, ATIS (USA), TTA (Korea),
ARIB (Japan) and ANSI, have responsibility for the development and administration of wireless communications
standards. New standards are typically adopted with each new generation of products, are often compatible with
previous generations and are defined to ensure equipment interoperability and regulatory compliance.
Standards have evolved in response to consumer demand for services and expanded capabilities of mobile
devices. Cellular standards have evolved from voice-oriented services to multimedia services that exploit the
higher speeds offered by newer technologies, such as LTE. The wireless communications industry has also made
significant advances in non-cellular wireless technologies. In particular, IEEE 802.11 WLAN has gained
momentum in recent years as a wireless broadband solution in the home, office and select public areas.
SDOs typically ask participating companies to declare formally whether they believe they hold patents or
patent applications essential to a particular standard and whether they are willing to license those patents on
either a royalty-bearing basis on fair, reasonable and nondiscriminatory terms or on a royalty-free basis. To
manufacture, have made, sell, offer to sell or use such products on a non-infringing basis, a manufacturer or other
entity doing so must first obtain a license from the holder of essential patent rights. The SDOs do not have
enforcement authority against entities that fail to obtain required licenses, nor do they have the ability to protect
the intellectual property rights of holders of essential patents.
InterDigital often publicly characterizes aspects of
including license agreements and
development projects, as pertaining to broad mobile industry standards such as, for example, 3G, 4G and Wi-Fi.
In doing this, we generally rely on the positions of the applicable standards-setting organizations in defining the
relevant standards. However,
including after we have
characterized certain transactions.
the definitions may evolve or change over time,
its business,
Business Activities
2015 Patent Licensing Activity
During third quarter 2015, we entered into a new patent license agreement with Sony (the “new Sony
PLA”). In addition, we renewed our joint venture with Sony, Convida Wireless, to continue investments in the
development of IoT technologies and expanded it to include development efforts in 5G technologies. The new
Sony PLA covers the sale by Sony of covered products for the three-year period that commenced on December 1,
2015. In addition, the new Sony PLA covers Sony’s covered product sales that occurred during certain prior
periods and that were not covered under our prior agreement with Sony.
During fourth quarter 2015, we entered into a new worldwide, non-exclusive, royalty bearing patent license
agreement with Kyocera. The agreement covers Kyocera’s sale of certain cellular terminal unit products.
Customers Generating Revenues Exceeding 10% of Total 2015 Revenues
Pegatron Corporation (“Pegatron”), Samsung and Sony comprised approximately 31%, 16% and 14% of our
total 2015 revenues, respectively.
In 2008, we entered into a patent license agreement with Pegatron (the “2008 Pegatron PLA”) that covers
Pegatron and its affiliates. Under the terms of the 2008 Pegatron PLA, we granted Pegatron a non-exclusive, non-
2015 Annual Report
10
transferable, world-wide royalty-bearing license covering the sale of certain products designed to operate in
accordance with 2G and 3G wireless standards (“Licensed Products”). In second quarter and fourth quarter 2013,
we received arbitration awards
in separate proceedings we initiated against Pegatron and Apple,
respectively. Taken together, these arbitration awards clarified that Pegatron owes us royalties on certain
products it produces for Apple. The Pegatron arbitration award confirmed that, to the extent that Pegatron
manufactures Licensed Products for Apple that are not licensed under our 2007 patent license agreement with
Apple (the “2007 Apple PLA”), those products are covered by the 2008 Pegatron PLA and are royalty bearing
under that agreement. Upon the expiration of the 2007 Apple PLA at the end of June 2014, Apple has become
unlicensed as to all products that were covered under the agreement and therefore all Apple sales are unlicensed,
except to the extent certain products are licensed under the terms of our license agreements with certain Apple
suppliers, including Pegatron. In 2015, we recognized $137.9 million of revenue under the 2008 Pegatron PLA,
all of which was associated with sales of Apple products. We are engaged in a legal dispute with Pegatron, a
Taiwan-based company, regarding, among other things, the terms of the 2008 Pegatron PLA, and we are the
subject of an investigation by the Taiwan Fair Trade Commission. See Item 3, Legal Proceedings in this Form
10-K for a discussion of these matters.
In second quarter 2014, we entered into a patent license agreement with Samsung. The multi-year agreement
also resolved all pending litigation between the companies. The royalty-bearing license agreement sets forth
terms covering the sale by Samsung of 3G, 4G and certain future generation wireless products. The agreement
provides Samsung the ability to terminate certain rights and obligations under the license for the period after
2017 but has the potential to provide a license to Samsung for a total of ten years, including 2013. During 2015,
we recognized $69.0 million of revenue associated with this agreement.
As discussed above, during third quarter 2015, we entered into the new Sony PLA. Our prior fixed-fee
patent license agreement with Sony, entered into in fourth quarter 2012, expired at the end of November 2015.
During 2015, we recognized a total of $60.1 million of revenue associated with this prior agreement and the new
Sony PLA, which included $21.8 million of past sales under the new Sony PLA.
Patent Infringement and Declaratory Judgment Proceedings
From time to time, if we believe any party is required to license our patents in order to manufacture, use
and/or sell certain products and such party refuses to do so, we may agree with such party to have royalty rates,
or other terms, set by third party adjudicators (such as arbitrators) or, in certain circumstances, we may institute
legal action against them. This legal action has typically taken the form of a patent infringement lawsuit or an
administrative proceeding such as a Section 337 proceeding before the United States International Trade
Commission (“USITC” or the “Commission”). In a patent infringement lawsuit, we would typically seek
damages for past infringement and an injunction against future infringement. In a USITC proceeding, we would
seek an exclusion order to bar infringing goods from entry into the United States, as well as a cease and desist
order to bar further sales of infringing goods that have already been imported into the United States. Parties may
bring administrative and/or judicial challenges to the validity, enforceability, essentiality and/or applicability of
our patents to their products. Parties may also allege that our efforts to enter into a license with that party do not
comply with any obligations we may have in connection with our participation in standards-setting organizations,
and therefore that we are not entitled to the relief that we seek. For example, a party may allege that we have not
complied with an obligation to offer a license to that party on fair, reasonable and non-discriminatory terms and
conditions, and may also file antitrust claims or regulatory complaints on that or other bases, and may seek
damages or other relief based on such claims. In addition, a party might file a declaratory judgment action to seek
a court’s declaration that our patents are invalid, unenforceable, not infringed by the other party’s products or are
not essential. Our response to such a declaratory judgment action may include claims of infringement. When we
include claims of infringement in a patent infringement lawsuit, a favorable ruling for the Company can result in
the payment of damages for past patent royalties, the setting of a royalty for future sales or issuance by the court
of an injunction enjoining the infringer from manufacturing, using and/or selling the infringing product.
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2015 Annual Report
Contractual Arbitration Proceedings
We and our customers, in the normal course of business, may have disagreements as to the rights and
obligations of the parties under applicable agreements. For example, we could have a disagreement with a
licensee as to the amount of reported sales and royalties. Our license agreements typically provide for audit rights
as well as private arbitration as the mechanism for resolving disputes. Arbitration proceedings can be resolved
through an award rendered by the arbitrators or by settlement between the parties. Parties to arbitration might
have the right to have the award reviewed in a court of competent jurisdiction. However, based on public policy
favoring the use of arbitration, it is generally difficult to have arbitration awards vacated or modified. The party
securing an arbitration award may seek to have that award converted into a judgment through an enforcement
proceeding. The purpose of such a proceeding is to secure a judgment that can be used for, if need be, seizing
assets of the other party.
Competition
With respect to our technology development activities, we face competition from companies, including in-
house development teams at other wireless device companies and semiconductor companies and wireless
operators, developing other and similar technologies that are competitive with our solutions that we may market
or set forth into the standards-setting arena.
Due to the exclusionary nature of patent rights, we do not compete, in a traditional sense, with other patent
holders for licensing relationships or sale transactions. Other patent holders do not have the same rights to the
inventions and technologies encompassed by our patent portfolio. In any device or piece of equipment that
contains intellectual property, the manufacturer may need to obtain licenses from multiple holders of intellectual
property. In licensing our patent portfolio, we compete with other patent holders for a share of the royalties that
certain licensees may argue to be the total royalty that is supported by a certain product or products, which may
face practical limitations. We believe that licenses under a number of our patents are required to manufacture and
sell 3G, 4G and other wireless products. However, numerous companies also claim that they hold 3G, 4G and
other wireless patents that are or may be essential or may become essential to cellular and other wireless
standards. To the extent that multiple parties all seek royalties on the same product, the manufacturers could
claim to have difficulty in meeting the financial requirements of each patent holder. In the past, certain
manufacturers have sought antitrust exemptions to act collectively on a voluntary basis. In addition, certain
manufacturers have sought to limit aggregate licensing fees or rates for essential patents. Similarly, potential
purchasers of our patents often amass patent portfolios for defensive and/or cross-licensing purposes and could
choose to acquire patent assets within the same general technology space from other patent holders.
Employees
As of December 31, 2015, we had approximately 330 employees. None of our employees are represented by
a collective bargaining unit.
Geographic Concentrations
See Note 4, “Geographic/Customer Concentration,” in the Notes to Condensed Consolidated Financial
Statements included in Part II, Item 8, of this Form 10-K for financial information about geographic areas for the
last three years.
Corporate Information
The ultimate predecessor company of InterDigital, Inc. was incorporated in 1972 under the laws of the
Commonwealth of Pennsylvania and conducted its initial public offering in November 1981. Our corporate
headquarters and administrative offices are located in Wilmington, Delaware, USA. Our research and technology
2015 Annual Report
12
development centers are located in the following locations: King of Prussia, Pennsylvania, USA; Melville,
New York, USA; San Diego, California, USA; Montreal, Quebec, Canada; London, England, United Kingdom;
and Seoul, South Korea.
Our Internet address is www.interdigital.com, where, in the “Investors” section, we make available, free of
charge, our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K,
certain other reports and filings required to be filed under the Securities Exchange Act of 1934, as amended, and
all amendments to those reports or filings as soon as reasonably practicable after such material is electronically
filed with or furnished to the United States Securities and Exchange Commission. The information contained on
or connected to our website is not incorporated by reference into this Form 10-K.
Item 1A. RISK FACTORS.
We face a variety of risks that may affect our business, financial condition, operating results, the trading
price of our common stock, or any combination thereof. You should carefully consider the following information
and the other information in this Form 10-K in evaluating our business and prospects and before making an
investment decision with respect to our common stock. If any of these risks were to occur, our business, financial
condition, results of operations or prospects could be materially and adversely affected. In such an event, the
market price of our common stock could decline and you could lose all or part of your investment. The risks and
uncertainties we describe below are not the only ones facing us. Additional risks not presently known to us or
that we currently deem immaterial may also affect our business.
Risks Related to Our Business
Potential patent and litigation reform legislation, potential USPTO and international patent rule changes,
potential legislation affecting mechanisms for patent enforcement and available remedies, and potential
changes to the intellectual property rights (“IPR”) policies of worldwide standards bodies, as well as rulings in
legal proceedings may affect our investments in research and development and our strategies for patent
prosecution, licensing and enforcement and could have a material adverse effect on our licensing business as
well as our business as a whole.
Potential changes to certain U.S. and international patent laws, rules and regulations may occur in the future,
some or all of which may affect our research and development investments, patent prosecution costs, the scope of
future patent coverage we secure, remedies that we may be entitled to in patent litigation, and attorneys’ fees or
other remedies that could be sought against us, and may require us to reevaluate and modify our research and
development activities and patent prosecution, licensing and enforcement strategies.
Similarly,
legislation designed to reduce the jurisdiction and remedial authority of the USITC has
periodically been introduced in Congress. Any potential changes in the law, the IPR policies of standards bodies
or other developments that reduce the number of forums available or the type of relief available in such forums
(such as injunctive relief), restrict permissible licensing practices (such as our ability to license on a worldwide
portfolio basis) or that otherwise cause us to seek alternative forums (such as arbitration or state court), would
in
to enforce our patents, whether
make it more difficult
negotiations. Because we have historically depended on the availability of certain forms of legal process to
enforce our patents and obtain fair and adequate compensation for our investments in research and development
and the unauthorized use of our intellectual property, developments that undermine our ability to do so could
have a negative impact on future licensing efforts.
in adversarial proceedings or
for us
Rulings in our legal proceedings as well as those of third parties may affect our strategies for patent
prosecution, licensing and enforcement. For example, in recent years, the United States International Trade
Commission (the “USITC”) and U.S. courts, including the U.S. Supreme Court and the U.S. Court of Appeals for
the Federal Circuit, have taken some actions that have been viewed as unfavorable to patentees, including the
Company. Decisions that occur in U.S. or in international forums may change the law applicable to various
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2015 Annual Report
patent law issues, such as, for example, patentability, validity, patent exhaustion, patent misuse, remedies,
permissible licensing practices, claim construction, and damages, in ways that are detrimental to the abilities of
patentees to enforce patents and obtain damages awards.
We continue to monitor and evaluate our strategies for prosecution, licensing and enforcement with regard
to these developments; however, any resulting change in such strategies may have an adverse impact on our
business and financial condition.
Increased scrutiny by antitrust authorities may affect our strategies for patent prosecution, licensing and
enforcement and may increase our costs of doing business and/or lead to monetary fines, penalties or other
remedies or sanctions.
Domestic and foreign antitrust authorities have increased their scrutiny of the use of standards-essential
patents in the mobile wireless industry, including the enforcement of such patents against competitors. Such
scrutiny has resulted in, and may lead to additional, inquiries that may lead to enforcement actions against the
Company and/or impact the availability of injunctive and monetary relief, which may adversely affect our
strategies for patent prosecution, licensing and enforcement and increase our costs of operation. Such inquiries
and/or enforcement actions could result in monetary fines, penalties or other remedies or sanctions that could
adversely affect our business and financial condition.
Royalty rates, or other terms, under our patent license agreements could be subject to determination through
arbitration or other third party adjudications or regulatory proceedings, and arbitrators or other third party
adjudicators or regulators could determine that our patent royalty rates should be at levels lower than our
agreed or historical rates or otherwise make determinations resulting in less favorable terms and conditions
under our patent license agreements.
Historically, the terms of our patent license agreements, including our royalty rates, have been reached
through arms-length bilateral negotiations with our licensees. We could agree, as we did with Huawei pursuant to
our December 2013 settlement agreement, to have royalty rates, or other terms, set by third party adjudicators
(such as arbitrators) and it is also possible that courts or regulators could decide to set or otherwise determine the
fair, reasonable and non-discriminatory (“FRAND”) consistency of such terms. Changes to or clarifications of
our obligations to be prepared to offer licenses to standards-essential patents on FRAND terms and conditions
could require such terms, including our royalty rates, to be determined through third party adjudications. Finally,
certain of our current and prospective licensees have already instigated, and others could in the future instigate,
legal proceedings or regulatory proceedings requesting third party adjudicators or regulators, such as China’s
National Development and Reform Commission and Taiwan’s Fair Trade Commission, to set FRAND terms and
conditions for, or determine the FRAND-consistency of current terms and conditions in, our patent license
agreements. To the extent that our patent royalty rates for our patent license agreements are determined through
arbitration or other third party adjudications or regulatory proceedings rather than through bilateral negotiations,
because such proceedings are inherently unpredictable and uncertain and there are currently few precedents for
such determinations, it is possible that royalty rates may be lower than our agreed or historical rates and could
also have a negative impact on royalties we are able to obtain from future licensees, which may have an adverse
effect on our revenue and cash flow. In addition, to the extent that other terms and conditions for our patent
license agreements are determined through such means, such terms and conditions could be less favorable than
our historical terms and conditions, which may have an adverse effect on our licensing business.
Challenges relating to our ability to enter into new license agreements could cause our revenue and cash flow
to decline.
We face challenges in entering into new patent license agreements. One of the most significant challenges
we face is that most potential licensees do not voluntarily seek to enter into license agreements with us before
they commence manufacturing and/or selling devices that use our patented inventions. As a result, we must
approach companies that are reluctant to take licenses and attempt to establish license agreements with them. The
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process of identifying potential users of our inventions and negotiating license agreements with reluctant
prospective licensees requires significant time, effort and expense. Once discussions with unlicensed companies
have commenced, we face the additional challenges imposed by the significant negotiation issues that arise from
time to time. Given these challenges relating to our ability to enter into new license agreements, we cannot assure
that all prospective licensees will be identified or, if they are identified, will be persuaded during negotiations to
enter into a patent license agreement with us, either at all or on terms acceptable to us, and, as a result, our
revenue and cash flow could materially decline. The length of time required to negotiate a license agreement also
leads to delays in the receipt of the associated revenue stream, which could also cause our revenue and cash flow
to decline.
In addition, as discussed more fully above, we are currently operating in a challenging regulatory and
judicial environment, which may, under certain circumstances, lead to delays in the negotiation of and entry into
new patent license agreements. Also, as discussed below and in Item 3, Legal Proceedings, in this Form 10-K, we
are also currently, and may in the future be, involved in legal proceedings with potential licensees, with whom
we do not yet have a patent license agreement. Any such delays in the negotiation or entry into new patent
license agreements and receipt of the associated revenue stream could cause our revenue and cash flow to
decline.
Setbacks in defending and enforcing our patent rights could cause our revenue and cash flow to decline.
Major telecommunications equipment manufacturers have challenged, and we expect will continue to
challenge, the infringement, validity and enforceability of certain of our patents. In some instances, certain of our
patent claims could be substantially narrowed or declared invalid, unenforceable, not essential or not infringed.
We cannot assure that the validity and enforceability of our patents will be maintained or that our patents will be
determined to be applicable to any particular product or standard. Moreover, third parties could attempt to
circumvent certain of our patents through design changes. Any significant adverse finding as to the validity,
infringement, enforceability or scope of our patents and/or any successful design-around of our patents could
result in the loss of patent licensing revenue from existing licensees, through termination or modification of
agreements or otherwise, and could substantially impair our ability to secure new patent licensing arrangements,
either at all or on beneficial terms.
Our revenues are derived primarily from a limited number of licensees or customers.
We earn a significant amount of our revenues from a limited number of licensees or customers, and we
expect that a significant portion of our revenues will continue to come from a limited number of licensees or
customers for the foreseeable future. For example, in 2015, Pegatron, Samsung and Sony accounted for
approximately 31%, 16% and 14% of our total revenues, respectively. In the event that we are unable to renew
one or more of such license agreements upon expiration, our future revenue and cash flow could be materially
adversely affected. In addition, in the event that one or more of our significant licensees or customers fail to meet
their payment or reporting obligations (for example, due to a credit issue or in connection with a legal dispute or
similar proceeding) under their respective license agreements, our future revenue and cash flow could be
materially adversely affected. See Item 3, Legal Proceedings, in this Form 10-K for a description of our material
legal proceedings. In addition, in the event that there is a material decrease in shipments of licensed products by
one of our significant per-unit licensees, such as Pegatron (as a result of a change in the Apple supply chain or
otherwise), our revenues from such licensee would significantly decline and our future revenue and cash flow
could be materially adversely affected.
Due to the nature of our business, we could continue to be involved in a number of costly litigation,
arbitration and administrative proceedings to enforce or defend our intellectual property rights and to defend
our licensing practices.
While some companies seek licenses before they commence manufacturing and/or selling devices that use
our patented inventions, most do not. Consequently, we approach companies and seek to establish license
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agreements for using our inventions. We expend significant time and effort identifying users and potential users
of our inventions and negotiating license agreements with companies that may be reluctant to take licenses.
However, if we believe that a third party is required to take a license to our patents in order to manufacture, sell,
offer for sale, import or use products, we have in the past commenced, and may in the future, commence legal or
administrative action against the third party if they refuse to enter into a license agreement with us. In turn, we
have faced, and could continue to face, counterclaims and other legal proceedings that challenge the essential
nature of our patents, that our patents are invalid, unenforceable or not infringed or that we have not complied
with certain commitments to standards-setting organizations (for example, that our royalty rates or other
licensing terms and conditions are allegedly other than FRAND). Litigation adversaries have also filed against
us, and other third parties may in the future file, validity challenges such as Inter Partes Review proceedings in
the USPTO, which can lead to delays of our patent infringement actions as well as potential findings of
invalidity.
Litigation may be also required to enforce our intellectual property rights, protect our trade secrets, enforce
patent license and confidentiality agreements or determine the validity, enforceability and scope of proprietary
rights of others.
Third parties could commence litigation against us seeking to invalidate our patents or obtain a
determination that our patents are not infringed, are not essential, are invalid or are unenforceable. In addition,
current and prospective licensees have initiated proceedings against us claiming, and others in the future may
claim, that we have not complied with our FRAND commitments and/or engaged in anticompetitive licensing
activities.
The cost of enforcing and defending our intellectual property and of defending our licensing practices has
been and may continue to be significant. As a result, we could be subject to significant legal fees and costs,
including the costs and fees of opposing counsel in certain jurisdictions if we are unsuccessful. In addition,
litigation, arbitration and administrative proceedings require significant key employee involvement
for
significant periods of time, which could divert these employees from other business activities.
Setbacks in defending our patent licensing practices could cause our cash flow and revenue to decline and
could have an adverse effect on our licensing business.
Adverse decisions in litigation or regulatory actions relating to our licensing practices, including, but not
limited to, findings that we have not complied with our FRAND commitments and/or engaged in anticompetitive
licensing activities or that any of our license agreements are void or unenforceable, could have an adverse impact
on our cash flow and revenue. Regulatory bodies may assess fines in the event of adverse findings, and in court
or arbitration proceedings, an adverse decision could lead to a judgment requiring us to pay damages (including
the possibility of treble damages for antitrust claims). In addition, to the extent that legal decisions find patent
license agreements to be void or unenforceable in whole or in part, that could lead to a decrease in the revenue
associated with and cash flow generated by such agreements. Finally, adverse legal decisions related to our
licensing practices could have an adverse effect on our ability to enter into to license agreements, which, in turn,
could cause our cash flow and revenue to decline.
Royalty rates could decrease for future license agreements due to downward product pricing pressures and
competition over a finite pool of patent royalties.
Royalty payments to us under future license agreements could be lower than anticipated. Certain licensees
and others in the wireless industry, individually and collectively, are demanding that royalty rates for patents be
lower than historic royalty rates. There is also increasing downward pricing pressure on certain wireless
products, including handsets, that we believe implement our patented inventions, and some of our royalty rates
are tied to the pricing of handsets. In addition, a number of other companies also claim to hold patents that are
essential with respect to products for the cellular market. Demands by certain licensees to reduce royalties due to
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pricing pressure or the number of patent holders seeking royalties on their cellular technologies, could result in a
decrease in the royalty rates we receive for use of our patented inventions, thereby decreasing future revenue and
cash flow.
Our plans to broaden our patent-based revenue sources through enhanced intellectual property sourcing, joint
ventures, and developing technology in new areas, such as in the IoT space, may not be successful and could
materially adversely affect our long-term business, financial condition and operating results.
As part of our business strategy, we are seeking to broaden our patent-based revenue sources through
targeted acquisitions, research partnerships, joint ventures and the continued development of new technologies,
including relating to IoT. There is no guarantee that we will succeed in acquiring or developing technology and
patents or partnering with inventors and research organizations to add new dimensions to our existing portfolio of
intellectual property and potentially create new patent licensing programs. Also, our development activities may
experience delays, which could reduce our opportunities for patent sales and licensing. In the event that any of
these risks materialize, our long-term business, financial condition and operating results may be materially
adversely affected.
We may engage in acquisitions or other strategic transactions or make investments that could result in
significant changes, costs and/or management disruption and fail to enhance shareholder value.
We may acquire companies, businesses, technology and/or intellectual property, enter into joint ventures or
other strategic transactions. In addition, we may make investments in other entities by purchasing minority equity
interests or corporate bonds/notes in publicly traded or privately held companies. Acquisitions or strategic
investments may increase our costs, including but not limited to accounting and legal fees, and may not generate
financial returns or result in increased adoption or continued use of our technologies. Most strategic investments
entail a high degree of risk and may not become liquid for a period of time, if at all. In some cases, strategic
investments may serve as consideration for a license in lieu of cash royalties. In addition, other investments may
not generate financial returns or may result in losses due to market volatility, the general level of interest rates
and inflation expectations. We could make strategic investments in early-stage companies, which require us to
consolidate or record our share of the earnings or losses of those companies. Our share of any such losses may
adversely affect our financial results until we exit from or reduce our exposure to these investments.
in significant challenges,
Achieving the anticipated benefits of acquisitions depends in part upon our ability to integrate the acquired
companies, businesses and/or assets in an efficient and effective manner. The integration of acquired companies
or businesses may result
including, among others: successfully integrating new
employees, technology and/or products; consolidating research and development operations; minimizing the
diversion of management’s attention from ongoing business matters; and consolidating corporate and
administrative infrastructures. As a result, we may be unable to accomplish the integration smoothly or
successfully. In addition, we cannot be certain that the integration of acquired companies, businesses, technology
and/or intellectual property with our business will result in the realization of the full benefits we anticipate to
result from such acquisitions. In addition, any acquired company or business would be subject to its own risks
that may or may not be the same as the risks already disclosed herein. We may not derive any commercial value
from the acquired technology or intellectual property or from future technologies or products based on the
acquired technology and/or intellectual property, and we may be subject to liabilities that are not covered by the
indemnification protection we may obtain.
Our plans to expand our revenue sources through commercializing our market-ready technologies and
developing new technology with commercial applicability may not be successful and could materially
adversely affect our long-term business, financial condition and operating results.
As part of our business strategy, we are seeking to expand our revenue sources through the continued
development, commercialization and licensing of technology projects. Our technology development activities
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2015 Annual Report
investing in technology development
may experience delays, or the markets for our technology solutions may fail to materialize to the extent or at the
rate we expect, each of which could reduce our opportunities for technology sales and licensing. In addition,
there could be fewer applications for our technology and products than we expect. The development of
technology markets also could be affected by general economic conditions, customer buying patterns, timeliness
of equipment development, and the availability of capital for, and the high cost of, infrastructure improvements.
is costly and may require structural changes to the
Additionally,
organization that could require additional costs,
limitation legal and accounting fees.
Furthermore, delays or failures to enter into additional partnering relationships to facilitate technology
development efforts or delays or failures to enter into technology licensing agreements to secure integration of
additional functionality could impair our ability to introduce into the market portions of our technology and
resulting products, cause us to miss critical market windows, or decrease our ability to remain competitive. In
addition, the commercialization of certain technologies could potentially lead to patent exhaustion or implied
license issues that could limit our ability to derive licensing revenue from certain patents under our patent
licensing program. In the event that any of these risks materialize, our long-term business, financial condition
and operating results may be materially adversely affected.
including without
Our investments in new commercial initiatives may not be successful or generate meaningful revenues.
We have invested, and may continue to invest, in new businesses focused on commercializing technology
that we have developed, incubated internally and/or acquired. Commercial success depends on many factors,
including the demand for the technology, the highly competitive markets for our technology products, regulatory
issues associated with such technology products, and effective marketing and licensing or product sales. In
addition, our new technology offerings may require robust ecosystems of customers and service providers that
may fail to materialize. Further, the establishment and operation of these commercial initiatives requires
significant support, including technical, legal and financial resources. It is possible that these commercial
initiatives will not be successful and/or will not achieve meaningful revenues for a number of years, if at all.
Further, we may attempt to develop technologies or services that we believe we would be able to sell or license
commercially using inside or outside technical, legal and financial resources. If our new commercial initiatives
are not successful, or are not successful in the timeframe we anticipate, we may incur significant costs, our
business may not grow as anticipated and/or our reputation may be harmed. The commercialization of certain
technologies could potentially lead to patent exhaustion or implied license issues that could limit our ability to
derive licensing revenue from certain patents under our patent licensing program. In the event that any of these
risks materialize, our long-term business, financial condition and operating results may be materially adversely
affected.
Our strategy to diversify our patent-based revenue by pursuing alternative patent licensing arrangements and
patent sales may not be successful.
There is no guarantee that we will succeed in our pursuit of select patent licensing arrangements or patent
sales, and, if we are successful, there is no guarantee that the revenue and cash flow generated through such
patent sales or alternative licensing arrangements (including trust arrangements) will be greater than the revenue
and cash flow we would have generated if we had retained and licensed the patents ourselves. In addition,
potential licensees may be reluctant to enter into new patent license agreements, and current licensees may be
reluctant to renew their agreements, either at all or on terms acceptable to the Company, based on the fact that we
have sold portions of our patent portfolio or the belief that we plan to sell or transfer some of the patents we are
asking them to license.
Our revenue and cash flow are dependent upon our licensees’ sales and market conditions and other factors
that are beyond our control or are difficult to forecast.
A significant portion of our licensing revenues are running royalty-based and dependent on sales by our
licensees that are outside our control and that could be negatively affected by a variety of factors, including
global and/or country-specific economic conditions, country-specific natural disasters impacting licensee
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manufacturing and sales, buying patterns of end users, competition for our licensees’ products and any decline in
the sale prices our licensees receive for their covered products. In addition, our operating results also could be
affected by general economic and other conditions that cause a downturn in the market for the licensees of our
products or technologies. Our revenue and cash flow also could be affected by (i) the unwillingness of any
licensee to satisfy all of their royalty obligations on the terms or within the timeframe we expect, (ii) a decline in
the financial condition of any licensee or (iii) the failure of sales to meet market forecasts due to global economic
conditions, political instability, natural disasters, competitive technologies or otherwise. It is also difficult to
predict the timing, nature and amount of licensing revenue associated with past infringement and new licenses,
strategic relationships and the resolution of legal proceedings. The foregoing factors are difficult to forecast and
could adversely affect both our quarterly and annual operating results and financial condition. In addition, some
of our patent license agreements provide for fixed payments or prepayments that cover our licensees’ future sales
for a specified period and reduce future cash receipts from those licensees. As a result, our cash flow has
historically fluctuated from period to period. Depending upon the payment structure of any new patent license
agreements into which we may enter, such cash flow fluctuations may continue in the future.
Our revenue may be affected by the deployment of future-generation wireless standards in place of 3G and 4G
technologies or by the need to extend or modify certain existing license agreements to cover subsequently
issued patents.
Although we own an evolving portfolio of issued and pending patents related to 3G, 4G and 5G cellular
technologies and non-cellular technologies, our patent portfolio licensing program for future-generation wireless
standards may not be as successful in generating licensing income as our current licensing programs. Although
we continue to participate in worldwide standards bodies and contribute our intellectual property to future-
generation wireless standards, our technologies might not be adopted by the relevant standards, we may not be as
successful in the licensing of future-generation products as we have been in licensing 3G and 4G products, or we
may not achieve a level of royalty revenues on such products that is comparable to that which we have
historically received on 3G and 4G products.
The licenses that we grant under our patent license agreements typically only cover products designed to
operate in accordance with specified cellular technologies and that were manufactured or deployed or anticipated
to be manufactured or deployed at the time of entry into the agreement. Also, we have patent license agreements
with licensees that now offer for sale types of products that were not sold by such licensees at the time the patent
license agreements were entered into and, thus, are not licensed by us. We do not derive patent licensing revenue
from the sale of products by our licensees that are not covered by a patent license agreement. In order to grant a
patent license for any such products, we will need to extend or modify our patent license agreements or enter into
new license agreements with such licensees. We may not be able to extend or modify these license agreements,
or enter into new license agreements, on financial terms acceptable to us, without affecting the other material
terms and conditions of our license agreements with such licensees or at all. Further, such extensions,
modifications or new license agreements may adversely affect our revenue on the sale of products covered by the
license prior to any extension, modification or new license.
We face risks from doing business in international markets.
A significant portion of our licensees, potential licensees and customers are international, and our licensees,
potential licensees and customers sell their products to markets throughout the world. Accordingly, we could be
subject to the effects of a variety of uncontrollable and changing factors, including, but not limited to: difficulty
in protecting our intellectual property in foreign jurisdictions; enforcing contractual commitments in foreign
jurisdictions or against foreign corporations; government regulations, tariffs and other applicable trade barriers;
biased enforcement of foreign laws and regulations to promote industrial or economic policies at our expense;
currency control regulations and variability in the value of the U.S. dollar against foreign currency; social,
economic and political instability; natural disasters, acts of terrorism, widespread illness and war; potentially
adverse tax consequences; and general delays in remittance of and difficulties collecting non-U.S. payments. In
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2015 Annual Report
addition, we also are subject to risks specific to the individual countries in which we and our licensees, potential
licensees and customers do business.
We depend on key senior management, engineering, patent and licensing resources.
Our future success depends largely upon the continued service of our executive officers and other key
management and technical personnel. Our success also depends on our ability to continue to attract, retain and
motivate qualified personnel with specialized patent, licensing, engineering and other skills. The market for such
talent in our industry is extremely competitive. In particular, competition exists for qualified individuals with
expertise in patents and in licensing and with significant engineering experience in cellular and air interface
technologies. Our ability to attract and retain qualified personnel could be affected by any adverse decisions in
any litigation, arbitration or regulatory proceeding, by our ability to offer competitive cash and equity
compensation and work environment conditions and by the geographic location of our various offices. The
failure to attract and retain such persons with relevant and appropriate experience could interfere with our ability
to enter into new license agreements and undertake additional technology and product development efforts, as
well as our ability to meet our strategic objectives.
Our technologies may not be become patented, adopted by wireless standards or widely deployed.
We invest significant resources in the development of advanced technology and related solutions. However,
certain of our inventions that we believe will be employed in current and future products, including 4G and
beyond, are the subject of patent applications where no patent has been issued to us yet by the relevant patent
issuing authorities. There is no assurance that these applications will issue as patents, either at all or with claims
that would be required by products in the market currently or in the future. Our investments may not be
recoverable or may not result in meaningful revenue if a sufficient number of our technologies are not patented
and adopted by the relevant standards or if products based on the technologies in which we invest are not widely
deployed. Competing technologies could reduce the opportunities for the adoption or deployment of technologies
we develop. If the technologies in which we invest do not become patented or are not adopted by the relevant
standards or deployed in the mainstream markets, at all or at the rate or within time periods we expect, or if we
are unable to secure partner support for our technologies, our business, financial condition and operating results
could be adversely affected.
Concentration and consolidation in the wireless communications industry could adversely affect our business.
There is some concentration among participants in the wireless communications industry, and the industry
has experienced consolidation of participants and sales of participants or their businesses, and these trends may
continue. For example, in 2015, Samsung, Apple and Huawei collectively accounted for more than 40% of
worldwide shipments of 3G and 4G handsets. Any further concentration or sale within the wireless industry
among handset providers and/or original design manufacturers (“ODMs”) may reduce the number of licensing
opportunities or, in some instances, result in the reduction, loss or elimination of existing royalty obligations. In
addition, acquisitions of or consolidation among ODMs could cause handset providers who outsource
manufacturing to make supply chain changes, which in turn could result in the reduction, loss or elimination of
existing royalty obligations (for example, if manufacturing is moved from an ODM with which we have a patent
license agreement to an ODM with which we do not). Further, if wireless carriers consolidate with companies
that utilize technologies that are competitive with our technologies or that are not covered by our patents, we
could lose market opportunities, which could negatively impact our revenues and financial condition.
Changes to our tax assets or liabilities could have an adverse effect on our consolidated financial condition or
results of operations.
The calculation of tax assets and liabilities involves significant judgment in estimating the impact of
uncertainties in the application of complex tax laws. We are subject to examinations by the Internal Revenue
Service (IRS) and other taxing jurisdictions on various tax matters, including challenges to various positions we
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assert in our filings and foreign tax liability and withholding. With our January 1, 2007 adoption of the guidance
for accounting for uncertainty in income taxes, certain tax contingencies are recognized when they are
determined to be more likely than not to occur. Although we believe we have adequately recorded tax assets and
accrued for tax contingencies that meet this criterion, we may not fully recover our tax assets or may be required
to pay taxes in excess of the amounts we have accrued. As of December 31, 2015 and 2014, there were certain
tax contingencies that did not meet the applicable criteria to record an accrual. In the event that the IRS or
another taxing jurisdiction levies an assessment in the future, it is possible the assessment could have an adverse
effect on our consolidated financial condition or results of operations.
It can be difficult for us to verify royalty amounts owed to us under our licensing agreements, and this may
cause us to lose potential revenue.
The standard terms of our license agreements require our licensees to document the sale of licensed products
and report this data to us on a quarterly basis. Although our standard license terms give us the right to audit
books and records of our licensees to verify this information, audits can be expensive, time consuming,
incomplete and subject to dispute. From time to time, we audit certain of our licensees to verify independently
the accuracy of the information contained in their royalty reports in an effort to decrease the likelihood that we
will not receive the royalty revenues to which we are entitled under the terms of our license agreements, but we
cannot give assurances that these audits will be numerous enough and/or effective to that end.
Delays in renewing or an inability to renew existing license agreements could cause our revenue and cash
flow to decline.
Many of our license agreements have fixed terms. Although we endeavor to renew license agreements with
fixed terms prior to the expiration of the license agreements, due to various factors, including the technology and
business needs and competitive positions of our licensees and, at times, reluctance on the part of our licensees to
participate in renewal discussions, we may not be able to renegotiate the license agreements on acceptable terms
before the expiration of the license agreement, on acceptable terms after the expiration of the license agreement,
or at all. If there is a delay in renegotiating and renewing a license agreement prior to its expiration, there could
be a gap in time during which we may be unable to recognize revenue from that licensee or we may be forced to
renegotiate and renew the license agreement on terms that are more favorable to such licensee, and, as a result,
our revenue and cash flow could be materially adversely affected. In addition, if we fail to renegotiate and renew
our license agreements at all, we could lose existing licensees, and our revenue and cash flow could be materially
adversely affected.
Our industry is subject to rapid technological change, uncertainty and shifting market opportunities.
Our success depends, in part, on our ability to define and keep pace with changes in industry standards,
technological developments and varying customer requirements. Changes in industry standards and needs could
adversely affect the development of, and demand for, our technology, rendering our technology currently under
development obsolete and unmarketable. The patents and applications comprising our portfolio have fixed terms,
and, if we fail to anticipate or respond adequately to these changes through the development or acquisition of
new patentable inventions, patents or other technology, we could miss a critical market opportunity, reducing or
eliminating our ability to capitalize on our patents, technology solutions or both.
The high amount of capital required to obtain radio frequency licenses, deploy and expand wireless networks
and obtain new subscribers could slow the growth of the wireless communications industry and adversely
affect our business.
Our growth is dependent upon the increased use of wireless communications services that utilize our
technology. In order to provide wireless communications services, wireless operators must obtain rights to use
specific radio frequencies. The allocation of frequencies is regulated in the United States and other countries
throughout the world, and limited spectrum space is allocated to wireless communications services. Industry
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2015 Annual Report
growth may be affected by the amount of capital required to obtain licenses to use new frequencies, deploy
wireless networks to offer voice and data services, expand wireless networks to grow voice and data services and
obtain new subscribers. The significant cost of licenses, wireless networks and subscriber additions may slow the
growth of the industry if wireless operators are unable to obtain or service the additional capital necessary to
implement or expand advanced wireless networks. The growth of our business could be adversely affected if this
occurs.
Market projections and data are forward-looking in nature.
Our strategy is based on our own projections and on analyst, industry observer and expert projections, which
are forward-looking in nature and are inherently subject to risks and uncertainties. The validity of their and our
assumptions,
the timing and scope of wireless markets, economic conditions, customer buying patterns,
timeliness of equipment development, pricing of products, growth in wireless telecommunications services that
would be delivered on wireless devices and availability of capital for infrastructure improvements could affect
these predictions. In addition, market data upon which we rely is based on third party reports that may be
inaccurate. The inaccuracy of any of these projections and/or market data could adversely affect our operating
results and financial condition.
We face competition from companies developing other or similar technologies.
We face competition from companies developing other and similar technologies that are competitive with
our solutions that we may market or set forth into the standards-setting arena. Due to competing solutions, our
solutions may not find a viable commercial marketplace or be adopted by the relevant standards. In addition, in
licensing our patent portfolio, we may compete with other companies, many of whom also claim to hold essential
patents, for a share of the royalties that certain licensees may argue to be the total royalty that is supported by a
certain product or products. In any device or piece of equipment that contains intellectual property, the
manufacturer may need to obtain a license from multiple holders of intellectual property. To the extent that
multiple parties all seek royalties on the same product, the manufacturers could claim to have difficulty in
meeting the financial requirements of each patent holder.
Our technology development activities may experience delays.
We may experience technical, financial, resource or other difficulties or delays related to the further
development of our technologies. Delays may have adverse financial effects and may allow competitors with
comparable technology offerings to gain an advantage over us in the marketplace or in the standards setting
arena. There can be no assurance that we will continue to have adequate staffing or that our development efforts
will ultimately be successful. Moreover, certain of our technologies have not been fully tested in commercial use,
and it is possible that they may not perform as expected. In such cases, our business, financial condition and
operating results could be adversely affected, and our ability to secure new licensees and other business
opportunities could be diminished.
We rely on relationships with third parties to develop and deploy technology solutions.
Successful exploitation of our technology solutions is partially dependent on the establishment and success
of relationships with equipment producers and other industry participants. Delays or failure to enter into licensing
or other relationships to facilitate technology development efforts or delays or failure to enter into technology
licensing agreements to secure integration of additional functionality could impair our ability to introduce into
the market portions of our technology and resulting products, cause us to miss critical market windows or impair
our ability to remain competitive.
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Our engineering services business could subject us to specific costs and risks that we might fail to manage
adequately.
We derive a portion of our revenues from engineering services. Any mismanagement of, or negative
development in, a number of areas, including, among others, the perceived value of our intellectual property
portfolio, our ability to convince customers of the value of our engineering services and our reputation for
performance under our service contracts, could cause our revenues from engineering services to decline, damage
our reputation and harm our ability to attract future licensees, which would in turn harm our operating results. If
we fail to deliver as required under our service contracts, we could lose revenues and become subject to liability
for breach of contract. We need to monitor these services adequately in order to ensure that we do not incur
significant expenses without generating corresponding revenues. Our failure to monitor these services adequately
may harm our business, financial position, results of operations or cash flows.
Changes in financial accounting standards or policies may affect our reported financial condition or results of
operations.
From time to time the Financial Accounting Standards Board (the “FASB”) and the SEC change their
guidance governing the form and content of our external financial statements. In addition, accounting standard
setters and those who interpret U.S. generally accepted accounting principles (“GAAP”), such as the FASB and
the SEC may change or even reverse their previous interpretations or positions with regard to how these
standards should be applied. A change in accounting principles or their interpretation can have a significant
effect on our reported results. In certain cases, we could be required to apply new or revised guidance
retroactively or apply existing guidance differently. For example, in May 2014, the FASB and International
Accounting Standards Board issued revenue guidance, Revenue from Contracts with Customers, that, once
adopted by the Company could significantly impact the timing of revenue recognition for new and existing
contracts with licensees. See Item 7, Management’s Discussion and Analysis of Financial Condition and Results
of Operations — Overview — New Accounting Guidance. This and other potential changes in reporting
standards could substantially change our reporting practices in a number of areas, including revenue recognition
and recording of assets and liabilities, and affect our reported financial condition or results of operations.
Currency fluctuations could negatively affect future product sales or royalty revenues or increase the U.S.
dollar cost of our activities and international strategic investments.
We are exposed to risk from fluctuations in currencies, which may change over time as our business
practices evolve, that could impact our operating results, liquidity and financial condition. We operate and invest
globally. Adverse movements in currency exchange rates may negatively affect our business due to a number of
situations, including the following:
• If the effective price of products sold by our licensees were to increase as a result of fluctuations in the
exchange rate of the relevant currencies, demand for the products could fall, which in turn would reduce
our royalty revenues.
• Assets or liabilities of our consolidated subsidiaries may be subject to the effects of currency fluctuations,
which may affect our reported earnings. Our exposure to foreign currencies may increase as we expand
into new markets.
• Certain of our operating and investing costs, such as foreign patent prosecution, are based in foreign
currencies. If these costs are not subject to foreign exchange hedging transactions, strengthening currency
values in selected regions could adversely affect our near-term operating expenses, investment costs and
cash flows. In addition, continued strengthening of currency values in selected regions over an extended
period of time could adversely affect our future operating expenses, investment costs and cash flows.
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2015 Annual Report
Our business and operations could suffer in the event of security breaches.
Attempts by others to gain unauthorized access to information technology systems are becoming more
sophisticated. These attempts, which in some cases could be related to industrial or other espionage, include
covertly introducing malware to computers and networks and impersonating authorized users, among others. We
seek to detect and investigate all security incidents and to prevent their recurrence, but, in some cases, we might
be unaware of an incident or its magnitude and effects. While we have not identified any material incidents of
unauthorized access to date, the theft, unauthorized use or publication of our intellectual property and/or
confidential business or personal information could harm our competitive or negotiating positions, reduce the
value of our investment in research and development and other strategic initiatives, compromise our patent
enforcement strategies or outlook, damage our reputation or otherwise adversely affect our business. In addition,
to the extent that any future security breach results in inappropriate disclosure of our employees’, licensees’, or
customers’ confidential and /or personal information, we may incur liability or additional costs to remedy any
damages caused by such breach. We could also be impacted by existing and proposed laws and regulations, as
well as government policies and practices related to cybersecurity, privacy and data protection.
If wireless handsets are perceived to pose health and safety risks, demand for products of our licensees could
decrease.
Media reports and certain studies have suggested that radio frequency emissions from wireless handsets may
be linked to health concerns, such as brain tumors, other malignancies and genetic damage to blood, and may
interfere with electronic medical devices, such as pacemakers, telemetry and delicate medical equipment.
Growing concerns over radio frequency emissions, even if unfounded, could discourage the use of wireless
handsets and cause a decrease in demand for the products of our licensees. In addition, concerns over safety risks
posed by the use of wireless handsets while driving and the effect of any resulting legislation could reduce
demand for the products of our licensees.
Risks Relating to Our Common Stock and the Notes
The price of our common stock is volatile and may decline regardless of our operating performance.
Historically, we have had large fluctuations in the price of our common stock, and such fluctuations could
continue. From January 3, 2013 to February 17, 2016, the trading price of our common stock has ranged from a
low of $26.25 per share to a high of $60.69 per share. The market price for our common stock is volatile and may
fluctuate significantly in response to a number of factors, most of which we cannot control, including:
• the public’s response to press releases or other public announcements by us or third parties, including our
filings with the SEC and announcements relating to licensing, technology development, litigation, arbitration
and other legal proceedings in which we are involved and intellectual property impacting us or our business;
• announcements concerning strategic transactions, such as commercial initiatives, joint ventures, strategic
investments, acquisitions or divestitures;
• financial projections we may provide to the public, any changes in these projections or our failure to meet
these projections;
• changes in financial estimates or ratings by any securities analysts who follow our common stock, our
failure to meet these estimates or failure of those analysts to initiate or maintain coverage of our common
stock;
• investor perceptions as to the likelihood of achievement of near-term goals;
• changes in market share of significant licensees;
• changes in operating performance and stock market valuations of other wireless communications
companies generally; and
• market conditions or trends in our industry or the economy as a whole.
2015 Annual Report
24
In the past, stockholders have instituted securities class action litigation following periods of market
volatility. If we were involved in securities litigation, we could incur substantial costs and our resources and the
attention of management could be diverted from our business.
Our increased indebtedness could adversely affect our business, financial condition and results of operations
and our ability to meet our payment obligations under such indebtedness.
Our total indebtedness as of December 31, 2015 was approximately $546.0 million. This level of debt could
have significant consequences on our future operations, including:
• making it more difficult for us to meet our payment and other obligations under our 2.50% Senior
Convertible Notes due 2016 (the “2016 Notes) and our 1.50% Senior Convertible Notes due 2020 (the
“2020 Notes and, together with the 2016 Notes, the “Notes”);
• reducing the availability of our cash flow to fund working capital, capital expenditures, acquisitions and
other general corporate purposes, and limiting our ability to obtain additional financing for these
purposes;
• limiting our flexibility in planning for, or reacting to, and increasing our vulnerability to, changes in our
business, the industry in which we operate and the general economy; and
• placing us at a competitive disadvantage compared to our competitors that have less debt or are less
leveraged.
Any of the above-listed factors could have an adverse effect on our business, financial condition and results
of operations and our ability to meet our payment obligations under the Notes.
Our ability to meet our payment and other obligations under the Notes depends on our ability to generate
significant cash flow in the future. This, to some extent, is subject to general economic, financial, competitive,
legislative and regulatory factors as well as other factors that are beyond our control. We cannot be certain that
our business will generate cash flow from operations, or that future borrowings will be available to us, in an
amount sufficient to enable us to meet our payment obligations under the Notes and to fund other liquidity needs.
If we are not able to generate sufficient cash flow to service our debt obligations, we may need to refinance or
restructure our debt, including the Notes, sell assets, reduce or delay capital investments, or seek to raise
additional capital. If we are unable to implement one or more of these alternatives, we may not be able to meet
our payment obligations under the Notes, and this default could cause us to be in default on any other currently
existing or future outstanding indebtedness.
Our stockholders may not receive the level of dividends provided for in our dividend policy or any dividend at
all, and any decrease in or suspension of the dividend could cause our stock price to decline.
Our current dividend policy, contemplates the payment of a regular quarterly cash dividend of $0.20 per
share on our outstanding common stock. We expect to continue to pay quarterly cash dividends on our common
stock at the rate set forth in our current dividend policy. However, the dividend policy and the payment and
timing of future cash dividends under the policy are subject to the final determination each quarter by our Board
of Directors that (i) the dividend will be made in compliance with laws applicable to the declaration and payment
of cash dividends, including Section 1551(b) of the Pennsylvania Business Corporation Law, and (ii) the policy
remains in our best interests, which determination will be based on a number of factors, including our earnings,
financial condition, capital resources and capital requirements, alternative uses of capital, restrictions imposed by
any existing debt, economic conditions and other factors considered relevant by the Board of Directors. Given
these considerations, our Board of Directors may increase or decrease the amount of the dividend at any time and
may also decide to vary the timing of or suspend or discontinue the payment of cash dividends in the future. Any
decrease in the amount of the dividend, or suspension or discontinuance of payment of a dividend, could cause
our stock price to decline.
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2015 Annual Report
If securities or industry analysts fail to continue publishing research about our business, our stock price and
trading volume could decline.
The trading market for our common stock is influenced by the research and reports that industry or
securities analysts publish about us or our business. If one or more of these analysts cease coverage of our
company or fail to publish reports on us regularly, we could lose visibility in the financial markets, which in turn
could cause our stock price or trading volume to decline.
The convertible note hedge transactions and warrant transactions that we entered into in connection with the
offering of the Notes may affect the value of the Notes and the market price of our common stock.
In connection with each offering of the Notes, we entered into convertible note hedge transactions with
certain financial institutions (the “option counterparties”) and sold warrants to the option counterparties. These
transactions will be accounted for as an adjustment to our stockholders’ equity. The convertible note hedge
transactions are expected to reduce the potential equity dilution upon conversion of the Notes. The warrants will
have a dilutive effect on our earnings per share to the extent that the market price of our common stock exceeds
the applicable strike price of the warrants on any expiration date of the warrants.
In connection with establishing their initial hedge of these transactions, the option counterparties (and/or
their affiliates) purchased our common stock in open market transactions and/or privately negotiated transactions
and/or entered various cash-settled derivative transactions with respect to our common stock concurrently with,
or shortly after, the pricing of the Notes. These activities could have the effect of increasing (or reducing the size
of any decrease in) the price of our common stock concurrently with or following the pricing of the Notes. In
addition, the option counterparties (and/or their affiliates) may modify their respective hedge positions from time
to time (including during any observation period related to a conversion of the Notes) by entering into or
unwinding various derivative transactions with respect to our common stock and/or by purchasing or selling our
common stock in open market transactions and/ or privately negotiated transactions.
The potential effect, if any, of any of these transactions and activities on the market price of our common
stock will depend in part on market conditions and cannot be ascertained at this time, but any of these activities
could adversely affect the market price of our common stock.
Future sales or other dilution of our equity could depress the market price of our common stock.
Sales of our common stock in the public market, or the perception that such sales could occur, could
negatively impact the market price of our common stock. We also have several institutional stockholders that
own significant blocks of our common stock. If one or more of these stockholders were to sell large portions of
their holdings in a relatively short time, for liquidity or other reasons, the prevailing market price of our common
stock could be negatively affected.
Under certain circumstances, shares of our common stock could be issued upon conversion of the Notes,
which would dilute the ownership interest of our existing stockholders. In addition, the issuance of additional
common stock, or issuances of securities convertible into or exercisable for our common stock or other equity
linked securities, including preferred stock or warrants, would dilute the ownership interest of our common
stockholders and could depress the market price of our common stock and impair our ability to raise capital
through the sale of additional equity securities.
Approved stock repurchase programs may not result in a positive return of capital to stockholders.
Our board-approved stock repurchase program may not return value to stockholders because the market
price of the stock may decline significantly below the levels at which we repurchased shares of stock. Stock
repurchase programs are intended to deliver stockholder value over the long term, but stock price fluctuations
can reduce the effectiveness of such programs.
2015 Annual Report
26
Provisions of the Notes could discourage an acquisition of us by a third party.
Certain provisions of the Notes could make it more difficult or more expensive for a third party to acquire
us. Upon the occurrence of certain transactions constituting a fundamental change, holders of the Notes will have
the right, at their option, to require us to repurchase all of their Notes or any portion of the principal amount of
such Notes in integral multiples of $1,000. We may also be required to issue additional shares upon conversion in
the event of certain fundamental change transactions. These provisions could limit the price that some investors
might be willing to pay in the future for shares of our common stock.
We are subject to counterparty risk with respect to the convertible note hedge transactions.
The option counterparties are financial institutions or affiliates of financial institutions, and we will be
subject to the risk that the option counterparties may default under the respective convertible note hedge
transactions. Our exposure to the credit risk of the option counterparties is not secured by any collateral. Recent
global economic conditions have resulted in the actual or perceived failure or financial difficulties of many
financial institutions. If an option counterparty becomes subject to insolvency proceedings, we will become an
unsecured creditor in those proceedings with a claim equal to our exposure at that time under the convertible note
hedge transactions. Our exposure will depend on many factors but, generally, the increase in our exposure will be
correlated to the increase in our common stock market price and in volatility of our common stock. In addition,
upon a default by an option counterparty, we may suffer adverse tax consequences and dilution with respect to
our common stock. We can provide no assurance as to the financial stability or viability of the option
counterparties.
The accounting method for convertible debt securities, such as the Notes, could have a material adverse effect
on our reported financial results.
In May 2008, the FASB, issued ASC 470-20. Under ASC 470-20, an entity must separately account for the
liability and equity components of convertible debt instruments, such as the Notes, that may be settled partially in
cash upon conversion in a manner that reflects the issuer’s economic interest cost. ASC 470-20 requires the fair
value of the conversion option of the Notes be reported as a component of stockholders’ equity and included in
the additional paid-in-capital on our consolidated balance sheet. The value of the conversion option of the Notes
will be reported as discount to the Notes. We will report lower net income in our financial results because ASC
470-20 will require interest to include both the current period’s amortization of the debt discount (non-cash
interest) and the instrument’s cash interest, which could adversely affect our reported or future financial results,
the trading price of our common stock and the trading price of the Notes.
Item 1B. UNRESOLVED STAFF COMMENTS.
None.
Item 2.
PROPERTIES.
Our headquarters are located in Wilmington, Delaware, USA. Our research and development activities are
conducted primarily in facilities located in King of Prussia, Pennsylvania, USA; Melville, New York, USA; San
Diego, California, USA; and Montreal, Quebec, Canada. During second quarter 2015, we sold our facility in
King of Prussia, Pennsylvania, to a third party and entered into a limited leaseback arrangement for a period not
to exceed one year. We expect to transfer the personnel and research and development activities currently
performed in the King of Prussia, Pennsylvania, facility to a leased facility in Conshohocken, Pennsylvania, in
second quarter 2016.
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2015 Annual Report
The following table sets forth information with respect to our principal properties:
Location
Approximate
Square Feet
Principal Use
Lease Expiration Date
Conshohocken, Pennsylvania . . . .
30,300
King of Prussia, Pennsylvania . . .
32,000
Melville, New York . . . . . . . . . . .
44,800
Wilmington, Delaware . . . . . . . . .
Montreal, Quebec . . . . . . . . . . . . .
San Diego, California . . . . . . . . . .
36,200
17,300
11,800
Administrative office and
research space
Administrative office and
research space
Administrative office and
research space
Corporate headquarters
Office and research space
Office and research space
October 2026*
May 2016*
February 2020
November 2022
June 2021
April 2018
*
As discussed above, we expect
Conshohocken, Pennsylvania, facility in second quarter 2016.
to move from the King of Prussia, Pennsylvania, facility to the
We are also a party to leases for several smaller spaces, including our offices in London, England, United
Kingdom, and Seoul, South Korea that contain office and research space. In addition, we own a building in
Washington, District of Columbia, USA, that houses administrative office space.
We believe that the facilities described above are suitable and adequate for our present purposes and our
needs in the near future.
Item 3.
LEGAL PROCEEDINGS.
ARBITRATIONS AND COURT PROCEEDINGS (OTHER THAN DE DISTRICT COURT ACTIONS
RELATED TO USITC PROCEEDINGS)
Huawei Arbitration
On December 23, 2013, InterDigital and Huawei agreed to engage in an expedited binding arbitration to
resolve their licensing disputes. Pursuant to their agreement, on April 9, 2014, InterDigital and Huawei initiated
an arbitration with the International Court of Arbitration of the International Chamber of Commerce (ICC)
jointly seeking a determination by an arbitral tribunal of FRAND royalty terms and conditions to be included in a
binding worldwide patent license agreement to take effect upon issuance of the arbitration award. An arbitration
hearing was held on January 12-16, 2015. On May 26, 2015, the panel convened by the ICC delivered a
confidential partial award. The panel convened by the ICC delivered a confidential final award dated July 14,
2015.
On July 9, 2015, InterDigital filed a petition in the District Court for the Southern District of New York for
an order confirming the arbitration award (the “New York Proceeding”). On the same day, Huawei filed an
action in the Paris Court of Appeal requesting annulment of the arbitration award (the “Paris Proceeding”).
On July 24, 2015, Huawei opposed InterDigital’s petition in the New York Proceeding and filed a motion to
stay the New York Proceeding pending the Paris Proceeding. On August 14, 2015, InterDigital amended its
petition in the New York Proceeding to take into account the issuance of the arbitration panel’s final award. A
hearing in the New York Proceeding was held on February 16, 2016. On February 17, 2016, the judge notified
the parties that he had rendered a decision on Huawei’s motion to stay the New York Proceeding, finding that the
New York Proceeding should be stayed pending the Paris Proceeding, subject to a requirement that Huawei post
suitable security, pursuant to Article VI of the New York Convention, in the amount of the final award, together
with interest. The stay is subject to revision should circumstances change, and InterDigital can renew its petition
for an order confirming the award after the outcome of the Paris Proceeding is determined.
2015 Annual Report
28
Huawei filed its brief seeking annulment in the Paris Proceeding on July 24, 2015. A hearing in the Paris
Proceeding is scheduled for March 8, 2016.
To date, Huawei has not made any payments under the arbitration award. We will recognize any related
revenue in the period in which the amount of revenue is fixed or determinable and collectability is reasonably
assured.
Huawei China Proceedings
On February 21, 2012, InterDigital was served with two complaints filed by Huawei Technologies Co., Ltd.
in the Shenzhen Intermediate People’s Court in China on December 5, 2011. The first complaint named as
defendants InterDigital, Inc. and its wholly owned subsidiaries InterDigital Technology Corporation and
InterDigital Communications, LLC (now InterDigital Communications, Inc.), and alleged that InterDigital had
abused its dominant market position in the market for the licensing of essential patents owned by InterDigital by
engaging in allegedly unlawful practices, including differentiated pricing, tying and refusal to deal. The second
complaint named as defendants the Company’s wholly owned subsidiaries InterDigital Technology Corporation,
InterDigital Communications, LLC (now InterDigital Communications, Inc.), InterDigital Patent Holdings, Inc.
and IPR Licensing, Inc. and alleged that InterDigital had failed to negotiate on FRAND terms with
Huawei. Huawei asked the court to determine the FRAND rate for licensing essential Chinese patents to Huawei
and also sought compensation for its costs associated with this matter.
On February 4, 2013, the Shenzhen Intermediate People’s Court issued rulings in the two proceedings. With
respect to the first complaint, the court decided that InterDigital had violated the Chinese Anti-Monopoly Law by
(i) making proposals for royalties from Huawei that the court believed were excessive, (ii) tying the licensing of
essential patents to the licensing of non-essential patents, (iii) requesting as part of its licensing proposals that
Huawei provide a grant-back of certain patent rights to InterDigital and (iv) commencing a USITC action against
Huawei while still in discussions with Huawei for a license. Based on these findings, the court ordered
InterDigital to cease the alleged excessive pricing and alleged improper bundling of InterDigital’s Chinese
essential and non-essential patents, and to pay Huawei 20.0 million RMB (approximately $3.2 million) in
damages related to attorneys’ fees and other charges, without disclosing a factual basis for its determination of
damages. The court dismissed Huawei’s remaining allegations, including Huawei’s claim that InterDigital
improperly sought a worldwide license and improperly sought to bundle the licensing of essential patents on
multiple generations of technologies. With respect to the second complaint, the court determined that, despite the
fact that the FRAND requirement originates from ETSI’s Intellectual Property Rights policy, which refers to
French law, InterDigital’s license offers to Huawei should be evaluated under Chinese law. Under Chinese law,
the court concluded that the offers did not comply with FRAND. The court further ruled that the royalties to be
paid by Huawei for InterDigital’s 2G, 3G and 4G essential Chinese patents under Chinese law should not exceed
0.019% of the actual sales price of each Huawei product.
On March 11, 2013, InterDigital filed notices of appeal with respect to the judgments in both proceedings,
seeking reversal of the court’s February 4, 2013 rulings. On October 16, 2013, the Guangdong Province High
Court issued a ruling affirming the ruling of the Shenzhen Intermediate People’s Court in the second proceeding,
and on October 21, 2013, issued a ruling affirming the ruling of the Shenzhen Intermediate People’s Court in the
first proceeding.
InterDigital believes that the decisions are seriously flawed both legally and factually. For instance, in
determining a purported FRAND rate, the Chinese courts applied an incorrect economic analysis by evaluating
InterDigital’s lump-sum patent license agreement with Apple in hindsight to posit a running royalty rate. Indeed,
the ALJ in USITC Inv. No. 337-TA-800 rejected that type of improper analysis. Moreover, the Chinese courts
had an incomplete record and applied incorrect facts, including with respect to InterDigital’s now-expired license
agreement with Apple, which had been found in an arbitration between InterDigital and Apple to be limited in
scope.
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2015 Annual Report
On April 14, 2014, InterDigital filed a petition for retrial of the second proceeding with the Chinese
Supreme People’s Court (“SPC”), seeking dismissal of the judgment or at least a higher, market-based royalty
rate for a license to InterDigital’s Chinese standards-essential patents (“SEPs”). The petition for retrial argues,
for example, that (1) the lower court improperly determined a Chinese FRAND running royalty rate by using as a
benchmark the Apple lump sum fixed payment license agreement, and looking in hindsight at the unexpectedly
successful sales of Apple iPhones to construct an artificial running royalty rate that neither InterDigital nor Apple
could have intended and that would have varied significantly depending on the relative success or failure in
hindsight of Apple iPhone sales; (2) the Apple license agreement was also an inappropriate benchmark because
its scope of product coverage was significantly limited as compared to the license that the court was considering
for Huawei, particularly when there are other more comparable license agreements; and (3) if the appropriate
benchmarks had been used, and the court had considered the range of royalties offered by other similarly situated
SEP holders in the wireless telecommunications industry, the court would have determined a FRAND royalty
that was substantially higher than 0.019%, and would have found, consistent with findings of the ALJ’s initial
determination in the USITC 337-TA-800 proceeding, that there was no proof that InterDigital’s offers to Huawei
violated its FRAND commitments.
The SPC held a hearing on October 31, 2014, regarding whether to grant a retrial and requested that both
parties provide additional information regarding the facts and legal theories underlying the case. The SPC
convened a second hearing on April 1, 2015 regarding whether to grant a retrial. InterDigital continues to provide
additional information to the SPC in support of its petition for retrial. If the retrial is granted, the SPC will likely
schedule one or more additional hearings before it issues a decision on the merits of the case.
ZTE China Proceedings
On July 10 and 11, 2014, InterDigital was served with two complaints filed by ZTE Corporation in the
Shenzhen Intermediate People’s Court in China on April 3, 2014. The first complaint names as defendants the
Company’s wholly owned subsidiaries InterDigital Technology Corporation, InterDigital Communications, Inc.,
InterDigital Patent Holdings, Inc. and IPR Licensing, Inc. This complaint alleges that InterDigital has failed to
comply with its FRAND obligations for the licensing of its Chinese standards-essential patents. ZTE is asking the
court to determine the FRAND rate for licensing InterDigital’s standards-essential Chinese patents to ZTE and
also seeks compensation for its litigation costs associated with this matter. The second complaint names as
defendants InterDigital, Inc. and its wholly owned subsidiaries InterDigital Technology Corporation and
InterDigital Communications, Inc. This complaint alleges that InterDigital has a dominant market position in
China and the United States in the market for the licensing of essential patents owned by InterDigital, and abused
its dominant market position in violation of the Chinese Anti-Monopoly Law by engaging in allegedly unlawful
practices, including excessively high pricing, tying, discriminatory treatment, and imposing unreasonable trading
conditions. ZTE seeks relief in the amount of 20.0 million RMB (approximately $3.1 million based on the
exchange rate as of December 31, 2015), an order requiring InterDigital to cease the allegedly unlawful conduct
and compensation for its litigation costs associated with this matter.
On August 7, 2014, InterDigital filed petitions challenging the jurisdiction of the Shenzhen Intermediate
People’s Court to hear the actions. On August 28, 2014, the court denied InterDigital’s jurisdictional challenge
with respect to the anti-monopoly law case. InterDigital filed an appeal of this decision on September 26, 2014.
On September 28, 2014, the court denied InterDigital’s jurisdictional challenge with respect to the FRAND case,
and InterDigital filed an appeal of that decision on October 27, 2014. On December 18, 2014, the Guangdong
High Court issued decisions on both appeals upholding the Shenzhen Intermediate Court’s decisions that it had
jurisdiction to hear these cases. On February 10, 2015, InterDigital filed a petition for retrial with the Supreme
People’s Court regarding its jurisdictional challenges to both cases.
The Shenzhen Court held hearings on the anti-monopoly law case on May 11, 13, 15 and 18, 2015. At the
May hearings, ZTE withdrew its claims alleging discriminatory treatment and the imposition of unfair trading
conditions and increased its damages claim to 99.8 million RMB (approximately $15.4 million based on the
2015 Annual Report
30
exchange rate as of December 31, 2015). The Shenzhen Court held hearings in the FRAND case on July 29-31,
2015 and held a second hearing on the anti-monopoly law case on October 12, 2015. It is possible that the court
may schedule further hearings in these cases before issuing its decisions.
LG Arbitration
On March 19, 2012, LG Electronics, Inc. filed a demand for arbitration against the Company’s wholly
owned subsidiaries InterDigital Technology Corporation, IPR Licensing, Inc. and InterDigital Communications,
LLC (now InterDigital Communications, Inc.) with the American Arbitration Association’s International Centre
for Dispute Resolution (“ICDR”), initiating an arbitration in Washington, D.C. LG sought a declaration that it
held a continuing license to certain technology owned by InterDigital under the parties’ patent license agreement
dated January 1, 2006 (the “2006 LG PLA”). On April 18, 2012, InterDigital filed an Answering Statement
objecting to the jurisdiction of the ICDR on the ground that LG’s claims are not arbitrable, and denying all
claims made by LG in its demand for arbitration. The issue of whether LG’s claim to arbitrability is wholly
groundless was appealed to the Federal Circuit. On June 7, 2013, the Federal Circuit issued an opinion holding
that the USITC erred in terminating USITC Proceeding (337-TA-800) as to LG because “there is no plausible
argument that the parties’ dispute in this case arose under their patent license agreement” and finding that “LG’s
assertion of arbitrability was ‘wholly groundless.’” The Federal Circuit reversed the USITC’s order terminating
the USITC proceeding as to LG and remanded to the USITC for further proceedings.
On June 25, 2013, the arbitration tribunal granted the parties’ joint request to stay the arbitration pending the
exhaustion of all appellate rights from the Federal Circuit’s decision. As noted above, LG filed a petition for a
writ of certiorari with the U.S. Supreme Court challenging the Federal Circuit’s ruling on December 31, 2013,
and on April 21, 2014, the Supreme Court granted LG’s petition, vacating the underlying Federal Circuit decision
and remanding the case to the Federal Circuit with instructions to dismiss the case as moot (in light of
InterDigital’s decision to terminate the 337-TA-800 investigation as to LG).
On June 9, 2014, the arbitration tribunal lifted the temporary stay at the request of the parties. The arbitration
tribunal held an evidentiary hearing on July 20-22, 2015 and a supplemental oral argument on October 19, 2015. On
December 29, 2015, the arbitration tribunal issued its final award. Rejecting LG’s arguments, the arbitration tribunal
found that LG’s license with respect to 3G products under the 2006 LG PLA had terminated as of December 31,
2010, at the expiration of the 2006 LG PLA’s five-year term, and that only LG’s paid-up license with respect to
2G-only products survived the expiration of the term. On February 5, 2016, InterDigital filed a petition in the
District Court for the Southern District of New York for an order confirming the arbitration award.
Pegatron Actions
In first quarter 2015, we learned that on or about February 3, 2015, Pegatron Corporation (“Pegatron”), one
of our licensees, filed a civil suit in Taiwan Intellectual Property Court against InterDigital, Inc. and certain of its
subsidiaries alleging breach of the Taiwan Fair Trade Act (the “Pegatron Taiwan Action”). On May 26, 2015,
InterDigital, Inc. received a copy of the civil complaint filed by Pegatron in the Taiwan Intellectual Property
Court. The complaint named as defendants InterDigital, Inc. as well as InterDigital’s wholly owned subsidiaries
InterDigital Technology Corporation and IPR Licensing, Inc. (together, for purposes of this discussion,
“InterDigital”). The complaint alleged that InterDigital abused its market power by improperly setting,
maintaining or changing the royalties Pegatron is required to pay under their 2008 patent license agreement (the
“Pegatron PLA”), and engaging in unreasonable discriminatory treatment and other unfair competition activities
in violation of the Taiwan Fair Trade Act. The complaint sought minimum damages in the amount of
approximately $52 million, which amount could be expanded during the litigation, and that the court order
multiple damages based on its claim that the alleged conduct was intentional. The complaint also sought an order
requiring InterDigital to cease enforcing the royalty provisions of the Pegatron PLA, as well as all other conduct
that allegedly violates the Fair Trade Act.
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2015 Annual Report
On June 5, 2015 InterDigital filed an Arbitration Demand with the American Arbitration Association’s
International Centre for Dispute Resolution (“ICDR”) seeking declaratory relief denying all of the claims in
Pegatron’s Taiwan Action and for breach of contract. On or about June 10, 2015, InterDigital filed a complaint in
the United States District Court for the Northern District of California, San Jose Division (the “CA Northern District
Court”) seeking a Temporary Restraining Order, Preliminary Injunction, and Permanent Anti-suit Injunction against
Pegatron prohibiting Pegatron from prosecuting the Pegatron Taiwan Action. The complaint also seeks specific
performance by Pegatron of the dispute resolution procedures set forth in the Pegatron PLA and compelling
arbitration of the disputes in the Pegatron Taiwan Action. On June 29, 2015, the court granted InterDigital’s motion
for a temporary restraining order and preliminary injunction requiring Pegatron to take immediate steps to dismiss
the Taiwan Action without prejudice. On July 1, 2015, InterDigital was informed that Pegatron had withdrawn its
complaint in the Taiwan Intellectual Property Court and that the case had been dismissed without prejudice.
On August 3, 2015, Pegatron filed an answer and counterclaims to InterDigital’s CA Northern District Court
complaint. Pegatron accused InterDigital of violating multiple sections of the Taiwan Fair Trade Act, violating
Section Two of the Sherman Act, breaching ETSI, IEEE, and ITU contracts, promissory estoppel (pled in the
alternative), violating Section 17200 of the California Business & Professions Code, and violating the Delaware
Consumer Fraud Act. These counterclaims stem from Pegatron’s accusation that InterDigital violated FRAND
obligations. As relief, Pegatron seeks a declaration regarding the appropriate FRAND terms and conditions for
InterDigital’s “declared essential patents,” a declaration that InterDigital’s standard essential patents are
unenforceable due to patent misuse, an order requiring InterDigital to grant Pegatron a license on FRAND terms,
an order enjoining InterDigital’s alleged ongoing breaches of its FRAND commitments, and damages in the
amount of allegedly excess non-FRAND royalties Pegatron has paid to InterDigital, plus interest and treble
damages. On August 7, 2015, Pegatron responded to InterDigital’s arbitration demand, disputing the arbitrability
of Pegatron’s claims. On September 24, 2015, InterDigital moved to compel arbitration and dismiss Pegatron’s
counterclaims or, in the alternative, stay the counterclaims pending the parties’ arbitration. Pegatron’s opposition
to this motion was filed on October 22, 2015, and InterDigital’s reply was filed on November 12, 2015. On
January 20, 2016, the court granted InterDigital’s motion to compel arbitration of Pegatron’s counterclaims and
to stay the counterclaims pending the arbitrators’ determination of their arbitrability. On January 27, 2016, the
parties stipulated to stay all remaining aspects of the CA Northern District case pending such an arbitrability
determination. On the same day, the court granted the stay and administratively closed the case.
Microsoft Sherman Act Delaware Proceedings
On August 20, 2015, Microsoft Mobile, Inc. and MMO (collectively “Microsoft”) filed a complaint in the
United States District Court for the District of Delaware against InterDigital, Inc., InterDigital Communications,
Inc., InterDigital Technology Corporation, InterDigital Patent Holdings, Inc., InterDigital Holdings, Inc., and IPR
Licensing, Inc. The complaint alleges that InterDigital has monopolized relevant markets for 3G and 4G cellular
technology in violation of Section 2 of the Sherman Act. As relief, Microsoft seeks declaratory judgments that
InterDigital has violated Section 2 of the Sherman Act, that “each of InterDigital’s U.S. patents declared by it to
be Essential” to the 3G and 4G standards is unenforceable, and that all agreements InterDigital has entered into
in furtherance of its alleged unlawful conduct are void. Microsoft also seeks an award of treble damages and the
following injunctive relief: requiring InterDigital to grant Microsoft a non-confidential license to its U.S.
standards essential patents (“SEPs”) on FRAND terms as determined by a court, requiring InterDigital to disclose
to Microsoft the terms of its other SEP licenses, preventing InterDigital from enforcing any exclusion orders it
might receive with respect to its SEPs, and requiring InterDigital to re-assign any declared SEPs that it has
assigned to controlled entities.
On November 4, 2015, InterDigital filed a motion to dismiss and to strike Microsoft’s complaint.
InterDigital asserts that Microsoft failed to (i) state a Sherman Act claim, (ii) adequately allege the essential
elements of monopoly power and exclusionary conduct, (iii) plead its fraud claims with specificity, and (iv) plead
any cognizable antitrust injury. InterDigital also claimed that Microsoft’s complaint is barred by the Noerr-
Pennington doctrine and that the court should strike Microsoft’s improper prayers for relief and damages arising
prior to the applicable statute of limitations. A hearing on this motion is scheduled for March 1, 2016.
2015 Annual Report
32
REGULATORY PROCEEDINGS
Investigation by Taiwan Fair Trade Commission
On December 6, 2013, InterDigital received notice from the Taiwan Fair Trade Commission (“TFTC”) that
the TFTC had initiated an investigation to examine alleged anti-competitive behavior under Taiwan’s Fair Trade
Act (FTA). Companies found to violate the FTA may be ordered to cease and rectify the unlawful conduct, take
other necessary corrective action, and/or pay an administrative fine. InterDigital is fully cooperating with the
TFTC’s investigation.
Investigation by National Development and Reform Commission of China
On September 23, 2013, counsel for InterDigital was informed by China’s National Development and
Reform Commission (“NDRC”) that the NDRC had initiated a formal investigation into whether InterDigital has
violated China’s Anti-Monopoly Law (“AML”) with respect to practices related to the licensing of InterDigital’s
standards-essential patents to Chinese companies. Companies found to violate the AML may be subject to a
cease and desist order, fines and disgorgement of any illegal gains. On March 3, 2014, the Company submitted to
NDRC, pursuant to a procedure set out in the AML, a formal application for suspension of the investigation that
included proposed commitments by the Company. On May 22, 2014, NDRC formally suspended its investigation
of the Company based on the commitments proposed by the Company. The Company’s commitments with
respect to the licensing of its patent portfolio for wireless mobile standards to Chinese manufacturers of cellular
terminal units (“Chinese Manufacturers”) are as follows:
1. Whenever InterDigital engages with a Chinese Manufacturer to license InterDigital’s patent portfolio
for 2G, 3G and 4G wireless mobile standards, InterDigital will offer such Chinese Manufacturer the
option of taking a worldwide portfolio license of only its standards-essential wireless patents, and
comply with F/RAND principles when negotiating and entering into such licensing agreements with
Chinese Manufacturers.
2. As part of its licensing offer, InterDigital will not require that a Chinese Manufacturer agree to a
royalty-free, reciprocal cross-license of such Chinese Manufacturer’s similarly categorized standards-
essential wireless patents.
3.
Prior to commencing any action against a Chinese Manufacturer in which InterDigital may seek
exclusionary or injunctive relief for the infringement of any of its wireless standards-essential patents,
InterDigital will offer such Chinese Manufacturer the option to enter into expedited binding arbitration
under fair and reasonable procedures to resolve the royalty rate and other terms of a worldwide license
under
the Chinese Manufacturer accepts
InterDigital’s binding arbitration offer or otherwise enters into an agreement with InterDigital on a
binding arbitration mechanism, InterDigital will, in accordance with the terms of the arbitration
agreement and patent license agreement, refrain from seeking exclusionary or injunctive relief against
such company.
InterDigital’s wireless standards-essential patents.
If
The commitments contained in item 3 above will expire five years from the effective date of the suspension
of the investigation, or May 22, 2019.
USITC PROCEEDINGS AND RELATED DELAWARE DISTRICT COURT PROCEEDINGS
Nokia and ZTE 2013 USITC Proceeding (337-TA-868) and Related Delaware District Court Proceedings
USITC Proceeding (337-TA-868)
On January 2, 2013,
the Company’s wholly owned subsidiaries InterDigital Communications, Inc.,
InterDigital Technology Corporation, IPR Licensing, Inc. and InterDigital Holdings, Inc. filed a complaint with
the United States International Trade Commission (the “USITC” or “Commission”) against Samsung Electronics
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2015 Annual Report
Co., Ltd., Samsung Electronics America, Inc. and Samsung Telecommunications America, LLC, Nokia
Corporation and Nokia Inc., Huawei Technologies Co., Ltd., Huawei Device USA, Inc. and FutureWei
Technologies, Inc. d/b/a Huawei Technologies (USA) and ZTE Corporation and ZTE (USA) Inc. (collectively,
the “337-TA-868 Respondents”), alleging violations of Section 337 of the Tariff Act of 1930 in that they
engaged in unfair trade practices by selling for importation into the United States,
importing into the
United States and/or selling after importation into the United States certain 3G and 4G wireless devices
(including WCDMA-, cdma2000- and LTE-capable mobile phones, USB sticks, mobile hotspots,
laptop
computers and tablets and components of such devices) that infringe one or more of up to seven of InterDigital’s
U.S. patents. The complaint also extended to certain WCDMA and cdma2000 devices incorporating Wi-Fi
functionality. InterDigital’s complaint with the USITC sought an exclusion order that would bar from entry into
the United States infringing 3G or 4G wireless devices (and components), including LTE devices, that are
imported by or on behalf of the 337-TA-868 Respondents, and also sought a cease-and-desist order to bar further
sales of infringing products that have already been imported into the United States. Certain of the asserted patents
were also asserted against Nokia, Huawei and ZTE in earlier pending USITC proceedings (including the Nokia,
Huawei and ZTE 2011 USITC Proceeding (337-TA-800) and the Nokia 2007 USITC Proceeding (337-TA-613),
as set forth below) and therefore were not asserted against those 337-TA-868 Respondents in this investigation.
On December 23, 2013, InterDigital and Huawei reached a settlement agreement to enter into binding
arbitration to resolve their global patent licensing disputes (see “Huawei Arbitration” below). Pursuant to the
settlement agreement, InterDigital and Huawei moved to dismiss all litigation matters pending between the
parties except the action filed by Huawei in China to set a fair, reasonable and non-discriminatory (“FRAND”)
rate for the licensing of InterDigital’s Chinese standards-essential patents (discussed below under “Huawei China
Proceedings”),
is permitted to further appeal. As a result, effective
February 12, 2014, the Huawei Respondents were terminated from the 337-TA-868 investigation.
the decision in which InterDigital
From February 10 to February 20, 2014, ALJ Essex presided over the evidentiary hearing in this
investigation. The patents in issue in this investigation as of the hearing were U.S. Patent Nos. 7,190,966 (the
“’966 patent”) and 7,286,847 (the “’847 patent”) asserted against ZTE and Samsung, and U.S. Patent
No. 7,941,151 (the “’151 patent”) asserted against ZTE, Samsung and Nokia.
On June 3, 2014, InterDigital and Samsung filed a joint motion to terminate the investigation as to Samsung
on the basis of settlement. The ALJ granted the joint motion by initial determination issued on June 9, 2014, and
the USITC determined not to review the initial determination on June 30, 2014.
On June 13, 2014, the ALJ issued an Initial Determination (“ID”) in the 337-TA-868 investigation. In the
ID, the ALJ found that no violation of Section 337 had occurred in connection with the importation of 3G/4G
devices by ZTE or Nokia, on the basis that the accused devices do not infringe asserted claims 1-6, 8-9, 16-21 or
23-24 of the ’151 patent, claims 1, 3, 6, 8, 9, or 11 of the ’966 patent, or claims 3 or 5 of the ’847 patent. The
ALJ also found that claim 16 of the ’151 patent was invalid as indefinite. Among other determinations, the ALJ
further determined that InterDigital did not violate any FRAND obligations, a conclusion also reached by the
ALJ in the 337-TA-800 investigation, and that Respondents have engaged in patent “hold out.”
On June 30, 2014, InterDigital filed a Petition for Review with the USITC seeking review and reversal of
certain of the ALJ’s conclusions in the ID. On the same day, Respondents filed a Conditional Petition for Review
urging alternative grounds for affirmance of the ID’s finding that Section 337 was not violated and a Conditional
Petition for Review with respect to FRAND issues.
In June 2014, Microsoft Mobile Oy (“MMO”) was added as a respondent in the investigation.
On August 14, 2014, the Commission determined to review in part the June 13, 2014 ID but terminated the
investigation with a finding of no violation.
2015 Annual Report
34
On October 10, 2014, InterDigital filed a petition for review with the Federal Circuit, appealing certain of
the adverse determinations in the Commission’s August 8, 2014 final determination including those related to the
’966 and ’847 patents. On June 2, 2015, InterDigital moved to voluntarily dismiss the Federal Circuit appeal,
because, even if it were to prevail, it did not believe there would be sufficient time following the court’s decision
and mandate for the USITC to complete its proceedings on remand such that the accused products would be
excluded before the ’966 and ’847 patents expire in June 2016. The court granted the motion and dismissed the
appeal on June 18, 2015.
Related Delaware District Court Proceedings
On January 2, 2013,
the Company’s wholly owned subsidiaries InterDigital Communications, Inc.,
InterDigital Technology Corporation, IPR Licensing, Inc. and InterDigital Holdings, Inc. filed four related
district court actions in the United States District Court for the District of Delaware (the “Delaware District
Court”) against the 337-TA-868 Respondents. These complaints allege that each of the defendants infringes the
same patents with respect to the same products alleged in the complaint filed by InterDigital in USITC
Proceeding (337-TA-868). The complaints seek permanent injunctions and compensatory damages in an amount
to be determined, as well as enhanced damages based on willful infringement, and recovery of reasonable
attorneys’ fees and costs.
On January 24, 2013, Huawei filed its answer and counterclaims to InterDigital’s Delaware District Court
complaint. Huawei asserted counterclaims for breach of contract, equitable estoppel, waiver of right to enjoin and
declarations that InterDigital has not offered or granted Huawei licenses on FRAND terms, declarations seeking
the determination of FRAND terms and declarations of noninfringement, invalidity and unenforceability of the
asserted patents. In addition to the declaratory relief specified in its counterclaims, Huawei seeks specific
performance of InterDigital’s purported contracts with Huawei and standards-setting organizations, appropriate
damages in an amount to be determined at trial, reasonable attorneys’ fees and such other relief as the court may
deem appropriate.
On January 31, 2013, ZTE filed its answer and counterclaims to InterDigital’s Delaware District Court
complaint; ZTE asserted counterclaims for breach of contract, equitable estoppel, waiver of right to enjoin and
declarations that InterDigital has not offered ZTE licenses on FRAND terms, declarations seeking the
determination of FRAND terms and declarations of noninfringement, invalidity and unenforceability. In addition
to the declaratory relief specified in its counterclaims, ZTE seeks specific performance of InterDigital’s
purported contracts with ZTE and standards-setting organizations, appropriate damages in an amount to be
determined at trial, reasonable attorneys’ fees and such other relief as the court may deem appropriate.
On February 28, 2013, Nokia filed its answer and counterclaims to InterDigital’s Delaware District Court
complaint, and then amended its answer and counterclaims on March 5, 2013. Nokia asserted counterclaims for
breach of contract, breach of implied contract, unfair competition under Cal. Bus. & Prof. Code § 17200,
equitable estoppel, a declaration setting FRAND terms and conditions, a declaration that InterDigital is estopped
from seeking an exclusion order based on its U.S. declared-essential patents, a declaration of patent misuse, a
declaration that InterDigital has failed to offer FRAND terms, a declaration that Nokia has an implied license to
the asserted patents, and declarations of non-infringement, invalidity and unenforceability. In addition to the
declaratory relief specified in its counterclaims, Nokia seeks an order that InterDigital specifically perform its
purported contracts by not seeking a USITC exclusion order for its essential patents and by granting Nokia a
license on FRAND terms and conditions, an injunction preventing InterDigital from participating in a USITC
investigation based on essential patents, appropriate damages in an amount to be determined, including all
attorney’s fees and costs spent in participating in all three USITC Investigations (337-TA-868, 337-TA-800 and
337-TA-613), and any other relief as the court may deem just and proper.
On March 13, 2013, InterDigital filed an amended Delaware District Court complaint against Nokia and
Samsung, respectively, to assert allegations of infringement of the recently issued ‘244 patent. On April 1, 2013,
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2015 Annual Report
Nokia filed its answer and counterclaims to InterDigital’s amended Delaware District Court complaint. On
April 24, 2013, Samsung filed its answer and a counterclaim to InterDigital’s amended Delaware District Court
complaint.
On March 21, 2013, pursuant to stipulation, the Delaware District Court granted InterDigital leave to file an
amended complaint against Huawei and ZTE, respectively, to assert allegations of infringement of the ‘244
patent. On March 22, 2013, Huawei and ZTE filed their respective answers and counterclaims to InterDigital’s
amended Delaware District Court complaint. On April 9, 2013, InterDigital filed a motion to dismiss Huawei’s
and ZTE’s counterclaims relating to their FRAND allegations. On April 22, 2013, InterDigital filed a motion to
dismiss Nokia’s counterclaims relating to its FRAND allegations. On July 12, 2013, the Delaware District Court
held a hearing on InterDigital’s motions to dismiss. By order issued the same day, the Delaware District Court
granted InterDigital’s motions, dismissing counterclaims for equitable estoppel, implied license, waiver of the
right to injunction or exclusionary relief, and violation of California Bus. & Prof. Code § 17200 with prejudice. It
further dismissed the counterclaims for breach of contract and declaratory relief related to InterDigital’s FRAND
commitments with leave to amend.
On August 6, 2013, Huawei, Nokia, and ZTE filed answers and amended counterclaims for breach of
contract and for declaratory judgments seeking determination of FRAND terms. The counterclaims also continue
to seek declarations of noninfringement, invalidity, and unenforceability. Nokia also continued to assert a
counterclaim for a declaration of patent misuse. On August 30, 2013, InterDigital filed a motion to dismiss the
declaratory judgment counterclaims relating to the request for determination of FRAND terms. On May 28,
2014, the court granted InterDigital’s motion and dismissed defendants’ FRAND-related declaratory judgment
counterclaims, ruling that such declaratory judgments would serve no useful purpose.
On December 30, 2013, InterDigital and Huawei filed a stipulation of dismissal on account of the
confidential settlement agreement and agreement to arbitrate their disputes in this action. On the same day, the
Delaware District Court granted the stipulation of dismissal.
On February 11, 2014, the Delaware District Court judge entered an InterDigital, Nokia, and ZTE stipulated
Amended Scheduling Order that bifurcated issues relating to damages, FRAND-related affirmative defenses, and
any FRAND-related counterclaims.
On August 28, 2014, the court granted in part a motion by InterDigital for summary judgment that the
asserted ’151 patent is not unenforceable by reason of inequitable conduct, holding that only one of the
references forming the basis of defendants’ allegations would remain in issue, and granted a motion by
InterDigital for summary judgment that the asserted claims of the ’966 and ’847 patents are not invalid for lack
of enablement.
On August 5, 2014, InterDigital and Samsung filed a stipulation of dismissal in light of the parties’
settlement agreement. On the same day, the court granted the stipulation of dismissal and dismissed the action
with prejudice.
By order dated August 28, 2014, MMO was joined in the case as a defendant.
The ZTE trial addressing infringement and validity of the ‘966, ‘847, ‘244 and ‘151 patents was held from
October 20 to October 27, 2014. During the trial, the judge determined that further construction of certain claim
language of the ‘151 patent was required, and the judge decided to hold another trial as to ZTE’s infringement of
the ‘151 patent at a later date. On October 28, 2014, the jury returned a unanimous verdict in favor of
InterDigital, finding that the ‘966, ‘847 and ‘244 patents are all valid and infringed by ZTE 3G and 4G cellular
devices. The court issued formal judgment to this effect on October 29, 2014.
On November 26, 2014, ZTE filed a motion for judgment as a matter of law that the asserted claims of the
‘966, ‘847 and ’244 patents are not infringed and, in the alternative, for a new trial. InterDigital filed an
2015 Annual Report
36
opposition on December 15, 2014, and ZTE filed a reply on January 7, 2015. The motion is fully briefed and
remains pending.
The ZTE trial addressing infringement of the ’151 patent was held from April 20 to April 22, 2015. On
April 22, 2015, the jury returned a verdict in favor of ZTE, finding that the ‘151 patent is not infringed by ZTE
3G and 4G cellular devices.
On April 23, 2015, InterDigital filed a motion to partially dismiss its complaint pertaining to the ‘151 patent
against Nokia and MMO, as well as Nokia and MMO’s counterclaims that relate to the ‘151 patent (including
inequitable conduct), and on April 27, 2015, the judge granted the motion.
On April 27, 2015, the court ruled that Nokia Corporation should be severed for a separate trial addressing
infringement of the ’244 patent.
On May 5, 2015, the court scheduled the Nokia Inc./MMO jury trial addressing infringement of the ’244
patent for November 16, 2015. On May 29, 2015, the court entered a new scheduling order for damages and
FRAND-related issues due to changes in the schedule of the liability portion of the MMO proceedings,
scheduling trials related to damages and FRAND-related issues for October 2016 with ZTE and November 2016
with MMO.
On September 14, 2015, a panel of Administrative Law Judges of the United States Patent and Trademark
Office Patent Trial and Appeal Board (the “PTAB”) issued a final written decision in two Inter Partes Review
(“IPR”) cases concerning the ’244 patent. These IPR proceedings were commenced on petitions filed by ZTE
Corporation and ZTE (USA) Inc. and by Microsoft Corporation, respectively. Specifically, the panel determined
that a number of claims of the ’244 patent are unpatentable as obvious. IPR Licensing, Inc. appealed to the U.S.
Court of Appeals for the Federal Circuit seeking review of the PTAB’s decision. The appeals are pending. On
October 13, 2015, by stipulation of the parties, the Delaware District Court stayed the action involving MMO and
Nokia Inc., including the November 2015 and November 2016 trials concerning infringement of the ‘244 patent
and damages and FRAND-related issues, respectively, pending completion of the IPR, including all appeals and
subsequent proceedings before the PTAB. This stay is with respect to MMO and Nokia Inc. only, and does not
apply to the Delaware action pending against ZTE.
On May 12, 2015, Nokia/MMO moved for summary judgment of non-infringement of the ’244 patent,
alleging that the accused devices do not practice a particular claim element of the ’244 patent. On June 2, 2015,
InterDigital opposed Nokia/MMO’s motion, and filed a cross-motion for partial summary judgment that the
accused devices infringe the claim element at issue in Nokia/MMO’s motion for summary judgment. On
October 13, 2015, the Delaware District Court denied the pending summary judgment cross-motions without
prejudice in light of the stay discussed above, indicating that the motions could be considered refiled if and when
the stay is lifted if either party requests it.
On December 21, 2015, the court entered another scheduling order that vacated the October 2016 date for
the ZTE trial related to damages and FRAND-related issues as set forth in the May 2015 scheduling order. The
parties will discuss a new schedule for the ZTE FRAND-related issues in a joint status report in March 2016.
Nokia and ZTE 2011 USITC Proceeding (337-TA-800) and Related Delaware District Court Proceeding
USITC Proceeding (337-TA-800)
On July 26, 2011, InterDigital’s wholly owned subsidiaries InterDigital Communications, LLC (now
InterDigital Communications, Inc.), InterDigital Technology Corporation and IPR Licensing, Inc. filed a
complaint with the USITC against Nokia Corporation and Nokia Inc., Huawei Technologies Co., Ltd. and
FutureWei Technologies, Inc. d/b/a Huawei Technologies (USA) and ZTE Corporation and ZTE (USA) Inc.
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2015 Annual Report
(collectively, the “337-TA-800 Respondents”), alleging violations of Section 337 of the Tariff Act of 1930 in that
they engaged in unfair trade practices by selling for importation into the United States, importing into the United
States and/or selling after importation into the United States certain 3G wireless devices (including WCDMA-
and cdma2000-capable mobile phones, USB sticks, mobile hotspots and tablets and components of such devices)
that infringe several of InterDigital’s U.S. patents. The action also extended to certain WCDMA and cdma2000
devices incorporating WiFi functionality. InterDigital’s complaint with the USITC sought an exclusion order that
would bar from entry into the United States any infringing 3G wireless devices (and components) that are
imported by or on behalf of the 337-TA-800 Respondents, and also sought a cease-and-desist order to bar further
sales of infringing products that have already been imported into the United States. In May 2012, Huawei Device
USA, Inc. was added as a 337-TA-800 Respondent.
The ALJ held an evidentiary hearing from February 12-21, 2013. The patents in issue as of the hearing were
U.S. Patent Nos. 8,009,636 (the “’636 patent”), 7,706, 830 (the “’830 patent”), 7,502,406 (the “’406 patent”),
7,616,970 (the “’970 patent”), 7,706,332 (the “‘332 patent”), 7,536,013 (the “‘013 patent”) and 7,970,127 (the
“‘127 patent”). The ALJ’s Initial Determination (“ID”) issued on June 28, 2013, finding no violation because the
asserted patents were not infringed and/or invalid. Among other determinations, with respect to the 337-TA-800
Respondents’ FRAND and other equitable defenses, the ALJ found that Respondents had failed to prove either
that InterDigital violated any FRAND obligations, that InterDigital failed to negotiate in good faith, or that
InterDigital’s licensing offers were discriminatory. The ALJ also found that InterDigital is not precluded from
seeking injunctive relief based on any alleged FRAND commitments.
Petitions for review of the ID to the Commission were filed by InterDigital and the 337-TA-800
Respondents on July 15, 2013. On September 4, 2013, the Commission determined to review the ID in its
entirety.
On December 19, 2013, the Commission issued its final determination. The Commission adopted, with
some modification, the ALJ’s finding of no violation of Section 337 as to Nokia, Huawei, and ZTE. The
Commission did not rule on any other issue, including FRAND and domestic industry, and stated that all other
issues remain under review.
On December 20, 2013, InterDigital filed in the Federal Circuit a petition for review seeking reversal of the
Commission’s final determination. On February 18, 2015, the Federal Circuit issued a decision affirming the
USITC’s determinations that the claims of the ’830, ’636, ’406 and ’332 patents were not infringed, that the
claims of the ’970 patent are invalid, and that the Respondents did not violate Section 337. On April 6, 2015,
InterDigital filed a combined petition for panel rehearing and rehearing en banc as to the ’830 and ’636 patents.
The petition was denied on May 12, 2015, and the court’s mandate issued on May 19, 2015.
Related Delaware District Court Proceeding
injunction and compensatory damages in an amount
On July 26, 2011, the same date that InterDigital filed USITC Proceeding (337-TA-800), it filed a parallel
action in the United States District Court for the District of Delaware against the 337-TA-800 Respondents
alleging infringement of the same asserted patents identified in USITC Proceeding (337-TA-800). The Delaware
District Court complaint seeks a permanent
to be
determined, as well as enhanced damages based on willful infringement, and recovery of reasonable attorneys’
fees and costs. On September 23, 2011, the defendants in the Delaware District Court complaint filed a motion to
stay the Delaware District Court action pending the parallel proceedings in the USITC. Because the USITC has
instituted USITC Proceeding (337-TA-800), the defendants have a statutory right to a mandatory stay of the
Delaware District Court proceeding pending a final determination in the USITC. On October 3, 2011,
InterDigital amended the Delaware District Court complaint, adding LG as a defendant and adding the same
additional patent that InterDigital requested be added to USITC Proceeding (337-TA-800). On October 11, 2011,
the Delaware District Court granted the defendants’ motion to stay. The case is currently stayed through
March 16, 2016.
2015 Annual Report
38
On January 14, 2014, InterDigital and Huawei filed a stipulation of dismissal of their disputes in this action
on account of the confidential settlement agreement mentioned above. On the same day, the Delaware District
Court granted the stipulation of dismissal.
Nokia 2007 USITC Proceeding (337-TA-613), Related Delaware District Court Proceeding and Federal
Circuit Appeal
USITC Proceeding (337-TA-613)
In August 2007, InterDigital filed a USITC complaint against Nokia Corporation and Nokia, Inc., alleging a
violation of Section 337 of the Tariff Act of 1930 in that Nokia engaged in an unfair trade practice by selling for
importation into the United States, importing into the United States and/or selling after importation into the
United States certain 3G mobile handsets and components that infringe two of InterDigital’s patents. In
November and December 2007, a third patent and a fourth patent were added to the Company’s complaint
against Nokia. The complaint sought an exclusion order barring from entry into the United States infringing 3G
mobile handsets and components that are imported by or on behalf of Nokia. InterDigital’s complaint also sought
a cease-and-desist order to bar further sales of infringing Nokia products that have already been imported into the
United States.
On August 14, 2009, the ALJ overseeing USITC Proceeding (337-TA-613) issued an Initial Determination
finding no violation of Section 337 of the Tariff Act of 1930. The Initial Determination found that InterDigital’s
patents were valid and enforceable, but that Nokia did not infringe these patents. In the event that a Section 337
violation were to be found by the Commission, the ALJ recommended the issuance of a limited exclusion order
barring entry into the United States of infringing Nokia 3G WCDMA handsets and components, as well as the
issuance of appropriate cease-and-desist orders.
On October 16, 2009, the Commission issued a notice that it had determined to review in part the Initial
Determination, and that it affirmed the ALJ’s determination of no violation and terminated the investigation. The
Commission determined to review the claim construction of the patent claim terms “synchronize” and “access
signal” and also determined to review the ALJ’s validity determinations. On review, the Commission modified
the ALJ’s claim construction of “access signal” and took no position with regard to the claim term “synchronize”
or the validity determinations. The Commission determined not to review the remaining issues decided in the
Initial Determination.
On November 30, 2009, InterDigital filed with the Federal Circuit a petition for review of certain rulings by
the USITC. In its appeal, InterDigital sought reversal of the Commission’s claim constructions and non-
infringement findings with respect
to certain claim terms in the ’966 and ’847 patents, vacatur of the
Commission’s determination of no Section 337 violation and a remand for further proceedings before the
Commission. On August 1, 2012, the Federal Circuit issued its decision in the appeal, holding that the
Commission had erred in interpreting the claim terms at issue and reversing the Commission’s finding of non-
infringement. The Federal Circuit adopted InterDigital’s interpretation of such claim terms and remanded the
case back to the Commission for further proceedings. In addition, the Federal Circuit rejected Nokia’s argument
that InterDigital did not satisfy the domestic industry requirement. On September 17, 2012, Nokia filed a
combined petition for rehearing by the panel or en banc with the Federal Circuit. On January 10, 2013, the
Federal Circuit denied Nokia’s petition.
On January 17, 2013, the Federal Circuit issued its mandate remanding USITC Proceeding (337-TA-613) to
the Commission for further proceedings. On February 12, 2014, the Commission issued a notice, order and
opinion remanding the investigation to an ALJ. In doing so, the Commission determined certain issues and
identified others that would be subject to further proceedings by the ALJ. The Commission assigned the
investigation to an ALJ for limited remand proceedings consistent with its February 12, 2014 opinion.
In June 2014, MMO was added as a respondent in the investigation.
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2015 Annual Report
The evidentiary hearing in the remand proceeding was held January 26—28, 2015. On April 27, 2015, the
ALJ issued his Remand Initial Determination (“RID”). The ALJ found that the imported accused handsets
(1) contain chips that were not previously adjudicated and (2) infringe the asserted claims of the ‘966 and ‘847
patents, that there was no evidence of patent hold-up by InterDigital, that there is evidence of reverse hold-up by
the respondents, and that the public interest does not preclude issuance of an exclusion order.
On May 11, 2015, Nokia Corporation and MMO each filed petitions to the Commission to review the RID.
On June 25, 2015, the Commission issued a notice of its decision to review the RID in part. The Commission
determined to review the RID’s findings concerning the application of the Commission’s prior construction of
one claim limitation in Investigation Nos. 337-TA-800 and 337-TA-868, the RID’s findings as to whether the
accused products satisfy that claim limitation, and the RID’s public interest findings. The Commission issued its
final determination on August 28, 2015, finding that issue preclusion applied with respect to the construction of
the claim limitations at issue, and issue preclusion also required a finding of non-infringement. The Commission
determined there was no violation of Section 337 and terminated the 337-TA-613 investigation. The Commission
found that consideration of the public interest issues was moot and did not address them.
Related Delaware District Court Proceeding
In addition, in August 2007, on the same date as the filing of USITC Proceeding (337-TA-613), InterDigital
also filed a complaint in the Delaware District Court alleging that Nokia’s 3G mobile handsets and components
infringe the same two InterDigital patents identified in the original USITC complaint. The complaint seeks a
permanent injunction and damages in an amount to be determined. This Delaware action was stayed on
January 10, 2008, pursuant to the mandatory, statutory stay of parallel district court proceedings at the request of
a respondent in a USITC investigation. The Delaware District Court permitted InterDigital to add to the stayed
Delaware action the third and fourth patents InterDigital asserted against Nokia in the USITC action.
Nokia Delaware Proceeding
in the Delaware District Court against
In January 2005, Nokia filed a complaint
InterDigital
Communications Corporation (now InterDigital, Inc.) and its wholly owned subsidiary InterDigital Technology
Corporation, alleging that InterDigital has used false or misleading descriptions or representations regarding the
Company’s patents’ scope, validity and applicability to products built to comply with 3G standards (the “Nokia
Delaware Proceeding”). Nokia’s amended complaint seeks declaratory relief, injunctive relief and damages,
including punitive damages, in an amount to be determined. InterDigital subsequently filed counterclaims based
on Nokia’s licensing activities as well as Nokia’s false or misleading descriptions or representations regarding
Nokia’s 3G patents and Nokia’s undisclosed funding and direction of an allegedly independent study of the
essentiality of 3G patents. InterDigital’s counterclaims seek injunctive relief as well as damages, including
punitive damages, in an amount to be determined.
On December 10, 2007, pursuant to a joint request by the parties, the Delaware District Court entered an
order staying the proceedings pending the full and final resolution of USITC Proceeding (337-TA-613).
Specifically, the full and final resolution of USITC Proceeding (337-TA-613) includes any initial or final
determinations of the ALJ overseeing the proceeding, the USITC and any appeals therefrom and any remand
proceedings thereafter. Pursuant to the order, the parties and their affiliates are generally prohibited from
initiating against the other parties, in any forum, any claims or counterclaims that are the same as the claims and
counterclaims pending in the Nokia Delaware Proceeding, and should any of the same or similar claims or
counterclaims be initiated by a party, the other parties may seek dissolution of the stay.
On November 24, 2015, InterDigital and Nokia voluntarily dismissed this case without prejudice to either
party.
2015 Annual Report
40
Nokia Arbitration Concerning Presentations
In November 2006, InterDigital Communications Corporation (now InterDigital, Inc.) and its wholly owned
subsidiary InterDigital Technology Corporation filed a request for arbitration with the International Chamber of
Commerce against Nokia (the “Nokia Arbitration Concerning Presentations”), claiming that certain presentations
Nokia has attempted to use in support of its claims in the Nokia Delaware Proceeding (described above) are
confidential and, as a result, may not be used in the Nokia Delaware Proceeding pursuant to the parties’
agreement.
The December 10, 2007 order entered by the Delaware District Court
to stay the Nokia Delaware
Proceeding also stayed the Nokia Arbitration Concerning Presentations pending the full and final resolution of
USITC Proceeding (337-TA-613).
On November 24, 2015, InterDigital and Nokia jointly withdrew from this arbitration without prejudice to
either party.
OTHER
We are party to certain other disputes and legal actions in the ordinary course of business, including
arbitrations and legal proceedings with licensees regarding the terms of their agreements and the negotiation
thereof. We do not currently believe that these matters, even if adversely adjudicated or settled, would have a
material adverse effect on our financial condition, results of operations or cash flows. None of the above matters
have met the requirements for accrual as of December 31, 2015.
Item 4. MINE SAFETY DISCLOSURES.
Not applicable.
41
2015 Annual Report
PART II
Item 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS
AND ISSUER PURCHASES OF EQUITY SECURITIES.
Market Information
The NASDAQ Stock Market (“NASDAQ”) is the principal market for our common stock, which is traded
under the symbol “IDCC.” The following table sets forth the high and low sales prices of our common stock for
each quarterly period in 2015 and 2014, as reported by NASDAQ.
2015
First quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Second quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Third quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fourth quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2014
First quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Second quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Third quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fourth quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Holders
As of February 16, 2016, there were 657 holders of record of our common stock.
High
Low
$56.27
60.69
57.77
54.95
$47.76
49.57
44.28
46.78
High
Low
$33.60
49.10
48.93
54.90
$26.25
31.45
39.40
38.64
Dividends
Cash dividends on outstanding common stock declared in 2015 and 2014 were as follows (in thousands,
except per share data):
2015
2014
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
First quarter
Second quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Third quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fourth quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
First quarter
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Second quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Third quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fourth quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Per Share
Total
Cumulative by
Fiscal Year
$0.20
0.20
0.20
0.20
$0.80
$0.10
0.20
0.20
0.20
$0.70
$ 7,232
7,243
7,183
7,068
$28,726
$ 3,954
8,033
7,666
7,500
$27,153
$ 7,232
14,475
21,658
28,726
$ 3,954
11,987
19,653
27,153
In June 2014, we announced that our Board of Directors had approved a 100% increase in the Company’s
quarterly cash dividend, to $0.20 per share. We currently expect to continue to pay dividends comparable to our
quarterly $0.20 per share cash dividend in the future; however, continued payment of cash dividends and changes
in the Company’s dividend policy will depend on the Company’s earnings, financial condition, capital resources
and capital requirements, alternative uses of capital, restrictions imposed by any existing debt, economic
conditions and other factors considered relevant by our Board of Directors.
2015 Annual Report
42
Performance Graph
The following graph compares five-year cumulative total returns of the Company, the NASDAQ Composite
Index and the NASDAQ Telecommunications Stock Index. The graph assumes $100 was invested in the
common stock of InterDigital and each index as of December 31, 2010 and that all dividends were re-invested.
Such returns are based on historical results and are not intended to suggest future performance.
COMPARISON OF 5-YEAR CUMULATIVE TOTAL RETURN
among InterDigital, Inc., the NASDAQ Composite
Index and the NASDAQ Telecommunications Index
S
R
A
L
L
O
D
250
200
150
100
50
0
12/10
12/11
12/12
12/13
12/14
12/15
InterDigital, Inc.
NASDAQ Composite
NASDAQ Telecommunications
InterDigital, Inc.
NASDAQ Composite
NASDAQ Telecommunications
12/10
12/11
12/12
12/13
12/14
12/15
100.00 105.78 104.41
75.51 137.59
100.00 100.53 116.92 166.19 188.78
100.00
89.84
91.94 128.06 133.34
129.53
199.95
128.91
The above performance graph shall not be deemed “filed” for purposes of Section 18 of the Securities
Exchange Act of 1934, as amended (the “Exchange Act”), or incorporated by reference into any filing of
InterDigital under the Securities Act of 1933, as amended, or the Exchange Act, except as shall be expressly set
forth by specific reference in such filing.
43
2015 Annual Report
Issuer Purchases of Equity Securities
Repurchase of Common Stock
The following table provides information regarding Company purchases of its common stock during fourth
quarter 2015.
Period
Total Number
of Shares (or
Units)
Purchased(1)
Average
Price Paid
Per Share
(or Unit)
Total Number of
Shares (or Units)
Purchases as Part
of Publicly
Announced Plans
or Programs (2)
Maximum Number (or
Approximate Dollar
Value) of Shares (or
Units) That May Yet Be
Purchased Under the
Plans or Programs (3)
October 1, 2015 — October 31, 2015 . . . . . . .
November 1, 2015 — November 30, 2015 . . .
December 1, 2015 — December 31, 2015 . . . .
147,000
—
—
Total
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
147,000
$50.03
$ —
$ —
$50.03
147,000
—
—
147,000
$150,965,564
$150,965,564
$150,965,564
$150,965,564
(1) Total number of shares purchased during each period reflects share purchase transactions that were
completed (i.e., settled) during the period indicated.
(2) Shares were purchased pursuant to our $400.0 million share repurchase program (the “2014 Repurchase
Program”), $300 million of which was authorized by the Company’s Board of Directors on June 11, 2014
and announced on June 12, 2014 and $100 million of which was authorized by the Company’s Board of
Directors and announced on June 11, 2015. The 2014 Repurchase Program has no expiration date. The
Company may repurchase shares under the 2014 Repurchase Program through open market purchases, pre-
arranged trading plans, or privately negotiated purchases.
(3) Amounts shown in this column reflect the amounts remaining under the 2014 Repurchase Program.
In addition, from January 1, 2016 through February 17, 2016, we repurchased 0.6 million shares at a cost of
$24.7 million under the 2014 Repurchase Program.
2015 Annual Report
44
Item 6.
SELECTED FINANCIAL DATA.
The following data should be read in conjunction with the Consolidated Financial Statements, related Notes
and other financial information contained in this Form 10-K.
2015
2014
2013
2012
2011
(in thousands except per share data)
Consolidated statements of operations data:
Revenues (a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 441,435 $ 415,821 $ 325,361 $ 663,063 $301,742
Income from operations (b) . . . . . . . . . . . . . . . . $ 208,549 $ 168,960 $
84,756 $ 419,030 $134,757
Income tax provision (c)
. . . . . . . . . . . . . . . . . . $ (64,621) $ (52,108) $ (25,836) $ (136,830) $ (35,140)
Net income applicable to InterDigital, Inc.
common shareholders . . . . . . . . . . . . . . . . . . . $ 119,225 $ 104,342 $
2.65 $
2.62 $
Net income per common share — basic . . . . . . $
Net income per common share — diluted . . . . . $
Weighted average number of common shares
3.31 $
3.27 $
38,165 $ 271,804 $ 89,468
1.97
1.94
0.93 $
0.92 $
6.31 $
6.26 $
outstanding — basic . . . . . . . . . . . . . . . . . . . .
36,048
39,420
41,115
43,070
45,411
Weighted average number of common shares
outstanding — diluted . . . . . . . . . . . . . . . . . .
36,463
39,879
41,424
43,396
46,014
Cash dividends declared per common
share (d) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
0.80 $
0.70 $
0.40 $
1.90 $
0.40
Consolidated balance sheets data:
Cash and cash equivalents . . . . . . . . . . . . . . . . . $ 510,207 $ 428,567 $ 497,714 $ 349,843 $342,211
335,783
423,501
Short-term investments . . . . . . . . . . . . . . . . . . .
540,441
610,994
Working capital
. . . . . . . . . . . . . . . . . . . . . . . . .
991,430
1,474,485
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
187,171
486,769
Total debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
471,682
510,519
Total InterDigital, Inc. shareholders’ equity . . .
Noncontrolling interest . . . . . . . . . . . . . . . . . . . .
—
11,376
Total shareholders’ equity . . . . . . . . . . . . . . . . . $ 521,895 $ 475,677 $ 533,820 $ 518,705 $471,682
200,737
703,576
1,110,251
205,881
528,650
5,170
227,436
603,134
1,052,374
196,156
518,705
—
275,361
582,688
1,192,962
216,206
468,328
7,349
(a)
In 2015, our revenues included $65.8 million in past sales primarily related to new patent license and
settlement agreements. In 2014, our revenues included $125.0 million in past sales primarily related to new
patent license agreements. In 2013, our revenues included $127.0 million of past sales primarily related to
arbitration awards. In 2012, our revenues included $384 million associated with patent sales.
(b) Our income from operations included charges of $1.5 million and $12.5 million in 2013 and 2012,
respectively, associated with actions to reposition the company’s operations.
(c)
(d)
In 2014, our income tax provision included the impact of a $4.2 million net tax benefit, primarily
attributable to available U.S. federal research and development tax credits, which was partially offset by an
audit settlement. In 2012, our income tax provision included a tax benefit of $6.7 million related to the
release of valuation allowances on deferred tax assets, which we now expect to utilize. In 2011, our income
tax provision included benefits of $6.8 million related to the favorable resolution of tax contingencies and
$1.5 million associated with after-tax interest income on tax refunds.
In June 2014, we announced that our Board of Directors had approved a 100% increase in the Company’s
quarterly cash dividend, to $0.20 per share. On December 5, 2012, we announced that our Board of
Directors had declared a special cash dividend of $1.50 per share on InterDigital common stock. The special
cash dividend was payable on December 28, 2012 to stockholders of record as of the close of business on
December 17, 2012.
45
2015 Annual Report
Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
OVERVIEW
The following discussion should be read in conjunction with the Selected Financial Data, the Consolidated
Financial Statements and the Notes thereto contained in this Form 10-K.
Throughout the following discussion and elsewhere in this Form 10-K, we refer to “recurring revenues” and
“past sales.” Recurring revenues are comprised of “current patent royalties” and “current technology solutions
revenue.” Past sales are comprised of “past patent royalties” and “past technology solutions revenue.”
Business
InterDigital designs and develops advanced technologies that enable and enhance wireless communications
and capabilities. Since our founding in 1972, our engineers have designed and developed a wide range of
innovations that are used in digital cellular and wireless products and networks, including 2G, 3G, 4G and IEEE
802-related products and networks. We are a leading contributor of intellectual property to the wireless
communications industry.
Given our long history and focus on advanced research and development, InterDigital has one of the most
significant patent portfolios in the wireless industry. As of December 31, 2015, InterDigital’s wholly owned
subsidiaries held a portfolio of approximately 20,400 patents and patent applications related to a range of
technologies including the fundamental technologies that enable wireless communications. In that portfolio are a
number of patents and patent applications that we believe are or may be essential or may become essential to
cellular and other wireless standards, including 3G, 4G and the IEEE 802 suite of standards, as well as patent
applications that we believe may become essential to 5G standards that are under development. That portfolio
has largely been built through internal development, supplemented by joint development projects with other
companies as well as select patent acquisitions. Products incorporating our patented inventions include: mobile
devices, such as cellular phones, tablets, notebook computers and wireless personal digital assistants; wireless
infrastructure equipment, such as base stations; and components, dongles and modules for wireless devices.
InterDigital derives revenues primarily from patent licensing and sales, technology solutions licensing and
sales and engineering services. In 2015, 2014, and 2013, our total revenues were $441.4 million, $415.8 million
and $325.4 million, respectively. Our recurring revenues in 2015, 2014, and 2013 were $372.8 million, $288.8
million and $198.3 million, respectively.
In 2015, the amortization of fixed-fee royalty payments accounted for approximately 35% of our recurring
revenues. These fixed-fee revenues are not affected by the related licensees’ success in the market or the general
economic climate. The majority of the remaining portion of our recurring revenue is variable in nature due to the
per-unit structure of the related license agreements. Approximately 79% of this per-unit, variable portion for
2015 related to sales by our collection of Taiwanese licensees, the majority of which revenue was derived from
the sale of Apple products.
Revenue
Recurring revenue in 2015 of $372.8 million increased 29% from the prior year. This $84.0 million year-
over-year increase in recurring revenue was primarily driven by an increase in per-unit royalties driven by
increased shipments by Pegatron, as well as an increase in fixed-fee revenues. The increase in fixed-fee revenues
was primarily attributable to a full year of revenue amortization for new agreements signed in 2014, which was
partially offset by the absence of revenue from patent license agreements that expired during 2014.
Additionally, during 2015, we recognized $68.7 million of past sales revenue, primarily attributable to the
new patent license agreements and settlement agreements discussed below, as compared to $125.0 million
2015 Annual Report
46
recognized in 2014. The 2014 past sales amount was primarily attributable to revenue recognized as a result of
new patent license agreements.
Refer to “Results of Operations — 2015 Compared with 2014” for further discussion of our 2015 revenue.
New Agreements and Settlements
During second quarter 2015, we entered into a settlement agreement with Arima Communications
Corporation (“Arima”). The agreement maintains the existing patent license agreement and resolves all pending
payment disputes between the companies. In addition, the agreement resulted in the dismissal of all current
litigations and arbitrations between the companies in all jurisdictions. We recognized $27.2 million of past patent
royalties related to this settlement.
During third quarter 2015, we entered into a new patent license agreement with Sony (the “new Sony
PLA”). In addition, we renewed our joint venture with Sony, Convida Wireless, to continue investments in the
development of IoT technologies and expanded it to include development efforts in 5G technologies. As
discussed more fully in Note 14, “Variable Interest Entities,” Convida Wireless is a variable interest entity and is
consolidated within our financial statements.
Our agreement with Sony is a multiple-element arrangement for accounting purposes, which includes,
among other elements, the new Sony PLA. The new Sony PLA covers the sale by Sony of covered products for
the three-year period that commenced on December 1, 2015. In addition, the new Sony PLA covers Sony’s
covered product sales that occurred during certain prior periods and that were not covered under our prior
agreement with Sony. We recognized past sales of $21.8 million from this agreement in third quarter 2015, and
are recognizing future revenue from the new Sony PLA on a straight-line basis over its term. A portion of the
consideration received was in the form of patents. Refer to Note 2, “Summary of Significant Accounting
Policies,” for additional information related to the estimates and methods used to determine the fair value of the
patents acquired.
During fourth quarter 2015, we entered into a new worldwide, non-exclusive, royalty bearing patent license
agreement with Kyocera. Our agreement with Kyocera is a multiple-element arrangement for accounting
purposes. The agreement covers Kyocera’s sale of certain cellular terminal unit products. We recognized $16.4
million of past patent royalties related to this settlement during fourth quarter 2015. A portion of the
consideration received was in the form of patents. Refer to Note 2, “Summary of Significant Accounting
Policies,” for additional information related to the estimates and methods used to determine the fair value of the
patents acquired.
Additionally, during fourth quarter 2015, we entered into a settlement agreement with a technology
solutions customer. The agreement resolves all pending payment disputes between the parties. We recognized
$2.8 million of past technology solutions revenue, $1.8 million of interest income, a $0.5 million reversal of a
bad debt reserve and $0.4 million of contra-expenses related to this settlement.
Huawei Arbitration
In December 2013, InterDigital and Huawei reached a settlement agreement to enter into binding arbitration
to resolve their global patent licensing dispute. Pursuant to their agreement, InterDigital and Huawei initiated an
arbitration in April 2014 jointly seeking a determination by an arbitral tribunal of FRAND royalty terms and
conditions to be included in a binding worldwide patent license agreement to take effect upon issuance of the
arbitration award. An arbitration hearing was held in January 2015, and the arbitration panel delivered a
confidential partial award in May 2015 and a confidential final award in July 2015. In July 2015, InterDigital
filed a petition in the District Court for the Southern District of New York for an order confirming the arbitration
award (the “New York Proceeding”), and Huawei filed an action in the Paris Court of Appeal requesting
47
2015 Annual Report
annulment of the arbitration award (the “Paris Proceeding”). Huawei also filed a motion to stay the New York
Proceeding pending the Paris Proceeding. A hearing in the New York Proceeding was held on February 16, 2016.
On February 17, 2016, the judge notified the parties that he had rendered a decision on Huawei’s motion to stay
the New York Proceeding, finding that the New York Proceeding should be stayed pending the Paris Proceeding,
subject to a requirement that Huawei post suitable security, pursuant to Article VI of the New York Convention,
in the amount of the final award, together with interest. The stay is subject to revision should circumstances
change, and InterDigital can renew its petition for an order confirming the award after the outcome of the Paris
Proceeding is determined. A hearing is scheduled in the Paris Proceeding for March 2016.
To date, Huawei has not made any payments under the arbitration award. We will recognize any related
revenue in the period in which the amount of revenue is fixed or determinable and collectability is reasonably
assured.
Please see Part I, Item 3, of this Form 10-K for a fuller discussion of these proceedings.
Expiration of Patent License Agreements
Our patent license agreements with a number of licensees are scheduled to expire during 2016. Collectively,
these agreements accounted for $19.7 million, or approximately 4%, of our total revenue in 2015. Individually,
none of these agreements accounted for more than 2% of our total revenue in 2015.
Subsequent Event
We anticipate a severance charge in the range of $1.5 million to $2.0 million during first quarter 2016
related to ongoing efforts to optimize our cost structure.
Cash and Short-Term Investments
At December 31, 2015, we had $933.7 million of cash and short-term investments and up to an additional
$472.3 million of payments due under signed agreements,
including $53.9 million recorded in accounts
receivable that is due within twelve months of the balance sheet date. A substantial portion of our cash and short-
term investments relates to fixed and prepaid royalty payments we have received that relate to future sales of our
licensees’ products. As a result, our future cash receipts from existing licenses subject to fixed and prepaid
royalties will be lower than if the royalty payments were structured to coincide with the underlying sales. During
2015, we recorded $408.0 million of cash receipts related to patent
licensing and technology solutions
agreements as follows (in thousands):
Current royalties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fixed-fee royalty payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Past per-unit patent royalties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepaid royalties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Technology solutions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Past technology solutions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Past fixed royalty payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash In
$223,270
135,027
24,766
13,460
7,145
3,300
1,057
$408,025
2015 Annual Report
48
Approximately $212.9 million of our $395.3 million deferred revenue balance relates to fixed-fee royalty
payments that are scheduled to amortize as follows (in thousands):
2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$106,229
98,881
3,909
1,392
1,392
1,068
$212,871
The remaining $182.4 million of deferred revenue primarily relates to prepaid royalties that will be recorded
as revenue as our licensees report their sales of covered products.
Repurchase of Common Stock
In May 2012, our Board of Directors authorized a share repurchase program, which was then expanded in
June 2012 to increase the amount of the program from $100 million to $200 million (the “2012 Repurchase
Program”). Of the $200 million authorized under the 2012 Repurchase Program, $106.8 million was utilized
prior to the termination of the program in June 2014. In June 2014, our Board of Directors authorized a new
share repurchase program, which was expanded in June 2015 to increase the amount of the program from $300
million to $400 million (the “2014 Repurchase Program”). We may repurchase shares under the 2014
Repurchase Program through open market purchases, pre-arranged trading plans or privately negotiated
purchases.
The table below sets forth for the periods presented the number of shares repurchased and the dollar value of
shares repurchased under the 2012 Repurchase Program and the 2014 Repurchase Program, in thousands.
2012 Repurchase Program 2014 Repurchase Program Total Both Programs
# of
Shares
Value
# of
Shares
Value
# of
Shares
2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prior to 2013 . . . . . . . . . . . . . . . . . . . . . .
— $
—
917
2,552
— 1,836
— 3,554
—
—
29,135
77,694
1,836
$ 96,410
3,554
152,625
—
917
— 2,552
Value
$ 96,410
152,625
29,135
77,694
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3,469
$106,829
5,390
$249,035
8,859
$355,864
In addition, from January 1, 2016 through February 17, 2016, we repurchased 0.6 million shares at a cost of
$24.7 million under the 2014 Repurchase Program.
Intellectual Property Rights Enforcement
If we believe any party is required to license our patents in order to manufacture and sell certain products
and such party refuses to do so, we may agree with such party to have royalty rates, or other terms, set by third
party adjudicators (such as arbitrators) or, in certain circumstances, we may institute legal action against them to
enforce our patent rights. This legal action typically takes the form of a patent infringement lawsuit or an
administrative proceeding. In addition, we and our licensees, in the normal course of business, might seek to
resolve disagreements between the parties with respect to the rights and obligations of the parties under the
applicable license agreement through arbitration or litigation.
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2015 Annual Report
In 2015, our intellectual property enforcement costs decreased to $31.8 million from $52.1 million and
$75.0 million in 2014 and 2013, respectively. This represented 26% of our 2015 total patent administration and
licensing costs of $120.4 million. Intellectual property enforcement costs will vary depending upon activity
levels, and it is likely they will continue to be a significant expense for us in the future.
Comparability of Financial Results
When comparing 2015 financial results against the financial results of other periods, the following items
should be taken into consideration:
• Our 2015 revenue includes:
• $65.8 million of past sales primarily related to the new patent license and settlement agreements;
and
• $2.9 million of past technology solutions revenue primarily related to the settlement with a
technology solutions customer discussed above.
• Our 2015 operating expenses include:
• $8.0 million of expense to increase accrual rates for some of our incentive compensation plans;
and
• $0.9 million of contra-expenses associated with the reversal of a bad debt reserve and
reimbursement of legal fees related to the settlement with a technology solutions customer
discussed above.
• Our 2015 other expense includes:
• $1.8 million of interest income related to the settlement with a technology solutions customer
discussed above.
• Our 2015 income tax provision includes:
• an approximately $2.1 million net tax benefit, primarily attributable to available U.S. federal
research and development tax credits.
Critical Accounting Policies and Estimates
Our consolidated financial statements are based on the selection and application of accounting principles
generally accepted in the United States of America (“GAAP”), which require us to make estimates and
assumptions that affect the amounts reported in both our consolidated financial statements and the accompanying
notes. Future events and their effects cannot be determined with absolute certainty. Therefore, the determination
of estimates requires the exercise of judgment. Actual results could differ from these estimates and any such
differences may be material to the financial statements. Our significant accounting policies are described in
Note 2 to our Consolidated Financial Statements and are included in Item 8 of Part II of this Form 10-K. We
believe the accounting policies that are of particular importance to the portrayal of our financial condition and
results and that may involve a higher degree of complexity and judgment in their application compared to others
are those relating to revenue recognition, compensation and income taxes. If different assumptions were made or
different conditions existed, our financial results could have been materially different.
Revenue Recognition
We derive the vast majority of our revenue from patent licensing. The timing and amount of revenue
recognized from each licensee depends upon a variety of factors, including the specific terms of each agreement
and the nature of the deliverables and obligations. Such agreements are often complex and include multiple
elements. These agreements can include, without limitation, elements related to the settlement of past patent
2015 Annual Report
50
infringement liabilities, up-front and non-refundable license fees for the use of patents and/or know-how, patent
and/or know-how licensing royalties on covered products sold by licensees, cross-licensing terms between us and
other parties, the compensation structure and ownership of intellectual property rights associated with contractual
technology development arrangements, advanced payments and fees for service arrangements and settlement of
intellectual property enforcement. For agreements entered into or materially modified prior to 2011, due to the
inherent difficulty in establishing reliable, verifiable, and objectively determinable evidence of the fair value of
the separate elements of these agreements, the total revenue resulting from such agreements has often been
recognized over the performance period. Beginning in January 2011, all new or materially modified agreements
are being accounted for under the Financial Accounting Standards Board (“FASB”) revenue recognition
guidance, “Revenue Arrangements with Multiple Deliverables.” This guidance requires consideration to be
allocated to each element of an agreement that has stand alone value using the relative fair value method. In other
circumstances, such as those agreements involving consideration for past and expected future patent royalty
obligations, after consideration of the particular facts and circumstances, the appropriate recording of revenue
between periods may require the use of judgment. In all cases, revenue is only recognized after all of the
following criteria are met: (1) written agreements have been executed; (2) delivery of technology or intellectual
property rights has occurred or services have been rendered; (3) fees are fixed or determinable; and
(4) collectibility of fees is reasonably assured.
We establish a receivable for payments expected to be received within twelve months from the balance
sheet date based on the terms in the license. Our reporting of such payments often results in an increase to both
accounts receivable and deferred revenue. Deferred revenue associated with fixed-fee royalty payments is
classified on the balance sheet as short-term when it is scheduled to be amortized within twelve months from the
balance sheet date. All other deferred revenue is classified as long-term, as amounts to be recognized over the
next twelve months are not known.
Patent License Agreements
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. 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 Past Patent Royalties: 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 past patent
royalties 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 collectibility 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: These are 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
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2015 Annual Report
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: These are 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 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. As a result, it is impractical for us to recognize revenue in the period in which the
underlying sales occur, and, in most cases, 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. When a licensee is required to gross-up their
royalty payment to cover applicable foreign withholding tax requirements, the additional consideration is
recorded as revenue.
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.
Patent Sales
During 2012, we expanded our business strategy of monetizing our intellectual property to include the sale
of select patent assets. As patent sales executed under this strategy represent a component of our ongoing major
or central operations and activities, we will record the related proceeds as revenue. We will recognize the
revenue when there is persuasive evidence of a sales arrangement, fees are fixed or determinable, delivery has
occurred and collectibility is reasonably assured. These requirements are generally fulfilled upon closing of the
patent sale transaction.
Technology Solutions and Engineering Services
Technology solutions revenue consists primarily of revenue from royalty payments. We recognize revenue
from royalty payments using the same methods described above under our policy for recognizing revenue from
patent license agreements. Technology solutions revenues also consist of revenues from software licenses and
engineering services. Software license revenues are recognized in accordance with the original and revised
guidance for software revenue recognition. When the arrangement with a customer includes significant
production, modification, or customization of the software, we recognize the related revenue using the
percentage-of-completion method in accordance with the accounting guidance for construction-type and certain
production-type contracts. Under this method, revenue and profit are recognized throughout the term of the
contract, based on actual labor costs incurred to date as a percentage of the total estimated labor costs related to
the contract. Changes in estimates for revenues, costs and profits are recognized in the period in which they are
determinable. When such estimates indicate that costs will exceed future revenues and a loss on the contract
exists, a provision for the entire loss is recognized at that time.
We recognize revenues associated with engineering service arrangements that are outside the scope of the
accounting guidance for construction-type and certain production-type contracts on a straight-line basis, unless
evidence suggests that the revenue is earned in a different pattern, over the contractual term of the arrangement
or the expected period during which those specified services will be performed, whichever is longer. In such
cases we often recognize revenue using proportional performance and measure the progress of our performance
2015 Annual Report
52
based on the relationship between incurred labor hours and total estimated labor hours or other measures of
progress, if available. Our most significant cost has been labor and we believe both labor hours and labor cost
provide a measure of the progress of our services. The effect of changes to total estimated contract costs is
recognized in the period such changes are determined.
Multiple Element Arrangements
During 2015, we signed three agreements that were considered multiple-element arrangements for
accounting purposes. In accordance with our revenue recognition policy, we identified each element of the
arrangement, estimated its relative fair value for purposes of allocating the arrangement consideration and
determined when each of those elements should be recognized. Using the accounting guidance applicable to
multiple-element revenue arrangements, we allocated the consideration to each element for accounting purposes
using our best estimate of the term and value of each element. The development of a number of these inputs and
assumptions in the model requires a significant amount of management judgment and is based upon a number of
factors, including the assumed royalty rates, sales volumes, discount rate and other relevant factors. Changes in
any of a number of these assumptions could have had a substantial impact on the relative fair value assigned to
each element for accounting purposes. These inputs and assumptions represent management’s best estimates at
the time of the transactions.
The impact that a five percent change to the allocation of past patent royalties under these three agreements
would have had on 2015 revenue is summarized in the following table (in thousands):
Allocation to past patent royalties
Change in estimate
+5%
-%5
Change in Revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$6,330
$(6,330)
Revenue from Non-financial Sources
During 2015, 2014, and 2013, our patent licensing royalties were derived from patent license agreements
(“PLAs”) with 24, 25, and 21 independent licensees, respectively. During 2015, 2014 and 2013, we recognized
revenue from four PLAs, two PLAs and one PLA, respectively, for which patents comprised less than one-third
of the total consideration paid or due to us under those agreements. In addition, during 2015 and 2014, we
recognized revenue from one PLA that was executed in 2014 in connection with a patent purchase agreement
(“PPA”) with the licensee. Total cash paid or due to our licensee under this PPA is approximately 56% of the
total cash due to us under this licensee’s PLA. During 2015, 2014, and 2013, approximately 5%, 7%, and 3%,
respectively, of our total revenue was based on the estimated fair value of the patents in the above transactions.
We estimated the fair value of the patents in the above transactions by a combination of a discounted cash flow
analysis (the income approach) and an analysis of comparable market transactions (the market approach). For the
income approach, the inputs and assumptions used to develop these estimates were based on a market participant
perspective and included estimates of projected royalties, discount rates, economic lives and income tax rates,
among others. For the market approach, judgment was applied as to which market transactions were most
comparable to this transaction. The development of a number of these inputs and assumptions requires a
significant amount of management judgment and is based upon a number of factors, including the selection of
industry comparables, assumed royalty rates, sales volumes, economic lives of the patents and other relevant
factors. Changes in any of a number of these assumptions could have had a substantial impact on the fair value
assigned to the patents for accounting purposes. These inputs and assumptions represent management’s best
estimates at the time of the transaction. The impact that a five percent change in the estimated value of the
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2015 Annual Report
patents would have had on 2015 revenue, patent amortization and pre-tax income is summarized in the following
table (in thousands):
Value of patents acquired in connection with PLAs
Revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less: Patent amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Pre-tax income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Change in estimate
+5%
-%5
$1,105
493
$ 612
$(1,105)
(493)
$ (612)
Compensation Programs
We use a variety of compensation programs to both attract and retain employees, and to more closely align
employee compensation with company performance. These programs include, but are not limited to, short-term
incentive awards tied to performance goals and cash awards to inventors for filed patent applications and patent
issuances, as well as stock option awards, time-based restricted stock unit (“RSU”) awards and performance-
based awards under our long-term compensation program (“LTCP”). Our LTCP typically includes annual grants
with a three-year vesting period; as a result, in any one year, we are typically accounting for three active LTCP
cycles.
The aggregate amount of performance compensation expense we record in a period, under both short-term
and long-term performance compensation programs, requires the input of subjective assumptions and is a
function of our estimated progress toward performance compensation goals at the beginning of the period, and
our estimated progress or final assessment of progress toward performance compensation goals at the end of the
period. Our estimated progress toward goals under performance equity grants is based on meeting a minimum
confidence level in accordance with accounting rules for share-based compensation. Achievement rates can vary
by performance cycle and from period to period, resulting in variability in our compensation expense.
If we had accrued all performance compensation cost throughout 2015 on the assumption that all plans
would be paid out at 100%, we would have recorded $5.6 million less in compensation expense in 2015 than we
actually recorded. There are two LTCP cycles that will carry over into 2016, for which if we record the
performance-based incentive components at current accrual rates during 2016, we estimate that we will record
$4.9 million in incentive-based compensation for those cycles in 2016.
We account for compensation costs associated with share-based transactions based on the fair value of the
instruments issued, net of any estimated award forfeitures. This requires us to make subjective assumptions
around the value of the equity at the time of issuance and the expected forfeiture rates, which in both cases are
generally based on historical experience. The estimated value of stock options includes assumptions around
expected life, stock volatility, and dividends. The expected life of our stock option awards are based on the
simplified method as prescribed by Staff Accounting Bulletin Topic 14. In all periods, our policy has been to set
the value of RSUs and restricted stock awards equal to the value of our underlying common stock on the date of
measurement. For grants with graded vesting, we amortize the associated unrecognized compensation cost using
an accelerated method. For grants that cliff vest, we amortize the associated unrecognized compensation cost on
a straight-line basis over their vesting term. In 2006, we adopted the short-cut method to establish the historical
additional paid-in-capital pool (“APIC Pool”) related to the tax effects of employee share-based compensation.
Any positive balance would be available to absorb tax shortfalls (which occur when the tax deductions resulting
from share-based compensation are less than the related book expense) recognized subsequent to the adoption of
the stock-based compensation guidance.
2015 Annual Report
54
The below table summarizes our performance-based and other share-based compensation expense for 2015,
2014 and 2013, in thousands:
2015
2014
2013
Short-term incentive compensation . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . .
Time-based awards (d)
Performance-based awards (d)
. . . . . . . . . . . . . . . . . . .
Other share-based compensation . . . . . . . . . . . . . . . . . .
$19,098
7,874
5,340 (a)
2,090
$20,404
6,734
8,947 (b)
2,814
$10,550
4,641
7,260 (c)
4,039
Total performance-based and other share-based
compensation expense . . . . . . . . . . . . . . . . . . . . . . . . . .
$34,402
$38,899
$26,490
(a)
(b)
(c)
Included in 2015 is a charge of $1.1 million to increase the accrual rates under our LTCP driven by the
Company’s success toward achieving goals for the related cycles.
Included in 2014 is a charge of $4.8 million to increase the accrual rates under our LTCP driven by the
Company’s success toward achieving goals for the related cycles.
Included in 2013 is a charge of $6.5 million to increase the accrual rates under our LTCP driven by the
Company’s success toward achieving goals for the related cycles.
(d) A portion of the 2015 expense relates to cash awards. All expense for 2014 and 2013 relates to equity
awards.
Income Taxes
Income taxes are accounted for under the asset and liability method. Under this method, deferred tax assets
and liabilities are recognized for the estimated future tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and liabilities and their respective tax bases, and operating
loss and tax credit carry forwards. Deferred tax assets and liabilities are measured using enacted tax rates in
effect for the year in which those temporary differences are expected to be recovered or settled. The effect on
deferred tax assets and liabilities of a change in tax rates is recognized in the Consolidated Statement of Income
in the period that includes the enactment date. A valuation allowance is recorded to reduce the carrying amounts
of deferred tax assets if management has determined that it is more likely than not that such assets will not be
realized.
In addition, the calculation of tax liabilities involves significant judgment in estimating the impact of
uncertainties in the application of complex tax laws. We are subject to examinations by the Internal Revenue
Service (“IRS”) and other taxing jurisdictions on various tax matters, including challenges to various positions
we assert in our filings. In the event that the IRS or another taxing jurisdiction levies an assessment in the future,
it is possible the assessment could have a material adverse effect on our consolidated financial condition or
results of operations.
The financial statement recognition of the benefit for a tax position is dependent upon the benefit being
more likely than not to be sustainable upon audit by the applicable tax authority. If this threshold is met, the tax
benefit is then measured and recognized at the largest amount that is greater than 50 percent likely of being
realized upon ultimate settlement. In the event that the IRS or another taxing jurisdiction levies an assessment in
the future, it is possible the assessment could have a material adverse effect on our consolidated financial
condition or results of operations.
Between 2006 and 2015, we paid approximately $295.1 million in foreign taxes for which we have claimed
foreign tax credits against our U.S. tax obligations. Of this amount, $195.3 million relates to taxes paid to foreign
governments that have tax treaties with the U.S. It is possible that as a result of tax treaty procedures, the
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2015 Annual Report
U.S. government may reach an agreement with the related foreign governments that will result in a partial refund
of foreign taxes paid with a related reduction in our foreign tax credits. Due to both foreign currency fluctuations
and differences in the interest rate charged by the U.S. government compared to the interest rates, if any, used by
the foreign governments, any such agreement could result in net interest expense and/or foreign currency gain or
loss.
During 2015, we estimated a research and development credit for the 2015 period that resulted in an
approximately $2.1 million tax benefit net of any unrecognized tax benefits. During 2014, we completed the
research and development credit studies for the periods from 2010 to 2013 and amended our United States
federal income tax returns for the periods from 2010 through 2012 to claim the research and development credit
for those periods. After all periods were amended and the 2013 federal income tax return was filed, we
recognized a net benefit after consideration of any unrecognized tax benefits from the tax credits in the amount of
$5.7 million. Additionally, in 2014, we recognized a benefit after consideration of any unrecognized tax benefits
of $0.9 million for the estimated research and development credit for 2014. In addition, in 2014, we recorded
$0.7 million of unrecognized tax benefits related to other matters.
New Accounting Guidance
Accounting Standards Update: Balance Sheet Classification of Deferred Taxes
In November 2015, as part of their simplification initiative, the FASB issued amendments to guidance for
reporting deferred taxes. According to the revised standard, an entity will be required to present deferred tax
assets and deferred tax liabilities as noncurrent in a classified balance sheet. Under current guidance, entities
separate deferred tax assets and deferred tax liabilities as current or noncurrent based on the classification of the
related asset or liability for financial reporting. The guidance is effective for interim and annual periods
beginning on or after December 15, 2016 but early adoption is permitted. We elected to early adopt this guidance
effective fourth quarter 2015, and we retrospectively applied the change within our Consolidated Balance Sheets
included in this Annual Report on Form 10-K. The impact of this change to our December 31, 2014 Consolidated
Balance Sheet was a reduction of $54.0 million to current deferred tax assets and a corresponding increase of
$54.0 million to noncurrent deferred tax assets. See Note 2, Summary of Significant Accounting Policies, for
further information on our deferred tax assets.
Accounting Standards Update: Debt Issuance Costs
In March 2015, as part of their simplification initiative, the FASB issued amendments to guidance for
reporting debt issuance costs. According to the revised standard, an entity will recognize debt issuance costs as a
direct deduction from the debt liability as opposed to an asset. The costs will continue to be amortized and
included within interest expense in the entity’s financial statements. The guidance is effective for interim and
annual periods beginning on or after December 15, 2015 but early adoption is permitted. We elected to early
adopt
this guidance effective first quarter 2015, and we retrospectively applied the change within our
Consolidated Balance Sheets included in this Annual Report on Form 10-K. The impact of this change to our
December 31, 2014 Consolidated Balance Sheet was a reduction of $1.3 million and a reduction of $0.3 million
to Prepaid and other current assets and Other non-current assets, respectively, and a corresponding $1.6 million
reduction to Long-term debt. See Note 2, Summary of Significant Accounting Policies, for further information on
our debt issuance costs.
Accounting Standards Update: Consolidation
In February 2015, the FASB issued ASU No. 2015-2, “Consolidation (Topic 820): Amendments to the
Consolidation Analysis.” ASU 2015-2 provides a revised consolidation model for all reporting entities to use in
evaluating whether they should consolidate certain legal entities. All legal entities will be subject to reevaluation
under this revised consolidation model. The revised consolidation model, among other things, (i) modifies the
evaluation of whether limited partnerships and similar legal entities are voting interest entities, or VIEs,
2015 Annual Report
56
(ii) eliminates the presumption that a general partner should consolidate a limited partnership and (iii) modifies
the consolidation analysis of reporting entities that are involved with VIEs through fee arrangements and related
party relationships. ASU 2015-2 is effective for fiscal years, and interim reporting periods within those fiscal
years, beginning after December 15, 2015. We are still evaluating what impact, if any, this ASU will have on our
consolidated financial position, results of operations or cash flows.
Accounting Standards Update: Revenue Recognition
In May 2014, the FASB issued guidance on revenue from contracts with customers that will supersede most
current revenue recognition guidance, including industry-specific guidance. The underlying principle is that an
entity will recognize revenue to depict the transfer of goods or services to customers at an amount that the entity
expects to be entitled to in exchange for those goods or services. The guidance provides a five-step analysis of
transactions to determine when and how revenue is recognized. Other major provisions include capitalization of
certain contract costs, consideration of time value of money in the transaction price, and allowing estimates of
variable consideration to be recognized before contingencies are resolved in certain circumstances. The guidance
also requires enhanced disclosures regarding the nature, amount, timing and uncertainty of revenue and cash
flows arising from an entity’s contracts with customers. The guidance is effective for the interim and annual
periods beginning on or after December 15, 2017 (early adoption is permitted as of annual reporting periods
beginning after December 15, 2016, including interim reporting periods within those annual periods). The
guidance permits the use of either a retrospective or cumulative effect transition method. We have not yet
selected a transition method. We are currently evaluating the effect that adopting this guidance will have on our
financial position, results of operations and cash flows.
Legal Proceedings
We are routinely involved in disputes associated with enforcement and licensing activities regarding our
intellectual property, including litigations, arbitrations and other proceedings. These litigations, arbitrations and
other proceedings are important means to enforce our intellectual property rights. We are a party to other disputes
and legal actions not related to our intellectual property, but also arising in the ordinary course of our business.
Refer to Part I, Item 3, of this Form 10-K for a description of our material legal proceedings.
FINANCIAL POSITION, LIQUIDITY AND CAPITAL RESOURCES
Our primary sources of liquidity are cash, cash equivalents and short-term investments, as well as cash
generated from operations. We believe we have the ability to obtain additional liquidity through debt and equity
financings. Based on our past performance and current expectations, we believe our available sources of funds,
including cash, cash equivalents and short-term investments and cash generated from our operations, will be
sufficient to finance our operations, capital requirements, our debt obligations (including the repayment of our
$230 million aggregate principal amount of 2.50% senior convertible notes due in March 2016 (the “2016
Notes”)), existing stock repurchase program and dividend program for the next twelve months.
On March 11, 2015, we completed an offering of $316.0 million in aggregate principal amount of 1.50%
Senior Convertible Notes due 2020 (the “2020 Notes,” and together with the 2016 Notes, the “Notes”). The net
proceeds from the offering were approximately $306.7 million, after deducting the initial purchasers’ discount,
commissions and offering expenses. A portion of the net proceeds from the offering was used to fund the cost of
the convertible note hedge transactions entered into in connection with the offering of the 2020 Notes. We also
used $43.6 million of the remaining net proceeds to repurchase shares of our common stock concurrently with
the pricing of the offering of the 2020 Notes. We expect to use the remaining net proceeds from the offering for
general corporate purposes, which may include, among other things, the repurchase or retirement of our other
outstanding indebtedness.
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2015 Annual Report
Cash, cash equivalents and short-term investments
At December 31, 2015 and December 31, 2014, we had the following amounts of cash, cash equivalents and
short-term investments (in thousands):
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . .
Short-term investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$510,207
423,501
$428,567
275,361
$ 81,640
148,140
Total cash and cash equivalents and short-term
investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$933,708
$703,928
$229,780
December 31,
2015
December 31,
2014
Increase /
(Decrease)
The increase in cash, cash equivalents and short-term investments was primarily attributable to the net
proceeds of $306.7 million from the offering of the 2020 Notes discussed above and $114.5 million of cash
provided by operating activities. These increases were partially offset by the cost of repurchasing common stock
of $96.4 million, $49.8 million in capital investments, including capitalized patent costs and patent acquisitions,
dividend payments of $28.9 million and a net cost of $16.5 million for the bond hedge and warrant transactions.
Cash flows from operations
We generated the following cash flows from our operating activities in 2015 and 2014 (in thousands):
For the Year Ended December 31,
2015
2014
Increase /
(Decrease)
Cash flows provided by operating activities . . . . . . . . . . .
$114,499
$242,013
$(127,514)
Our cash flows provided by operating activities are principally derived from cash receipts from patent
license and technology solutions agreements offset by cash operating expenses and income tax payments. The
decrease in cash flows provided by operating activities of $127.5 million was primarily attributable to a decrease
in cash receipts of $152.6 million. The decrease is attributable to higher cash receipts in 2014 due to new
agreements signed in that year, partially offset by higher current royalties in 2015 from existing licensees,
primarily Pegatron and our other Taiwan-based licensees. This decrease in cash receipts was partially offset by a
decrease in cash outflows of $44.6 million primarily due to income taxes paid and lower cash operating expenses.
Additionally, other working capital adjustments contributed $19.5 million to the decrease, primarily due to
2015 Annual Report
58
payment of accrued compensation. The table below provides the significant items comprising our cash flows
provided by operating activities during the years ended December 31, 2015 and 2014 (in thousands).
For the Year Ended December 31,
2015
2014
Increase /
(Decrease)
Cash Receipts:
Fixed-fee royalty payments (a)
. . . . . . . . . . . . . . . . . . . . . .
Current royalties (b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepaid royalties (c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Technology solutions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Patent sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 136,084
223,270
38,226
10,445
—
$ 389,000
155,432
2,500
11,649
1,999
$(252,916)
67,838
35,726
(1,204)
(1,999)
Total cash receipts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 408,025
$ 560,580
$(152,555)
Cash Outflows:
Cash operating expenses (d) . . . . . . . . . . . . . . . . . . . . . . . . .
Income taxes paid (e) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(169,954)
(85,780)
(185,421)
(114,876)
Total cash outflows . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(255,734)
(300,297)
15,467
29,096
44,563
Other working capital adjustments . . . . . . . . . . . . . . . . . . .
(37,792)
(18,270)
(19,522)
Cash flows provided by operating activities . . . . . . . . . . . .
$ 114,499
$ 242,013
$(127,514)
(a) Fixed-fee royalty payments for the years ended December 31, 2015 and 2014 include $1.1 million and
$118.4 million, respectively, of cash receipts recognized as past sales revenue.
(b) Current patent royalty payments for the year ended December 31, 2014 include $3.7 million of cash receipts
recognized as past sales revenue.
(c) Prepaid patent royalty payments for the year ended December 31, 2015 include $24.8 million of cash
receipts recognized as past sales revenue.
(d) Cash operating expenses include operating expenses less depreciation of fixed assets, amortization of
patents, and non-cash compensation.
(e)
Income taxes paid include foreign withholding taxes.
59
2015 Annual Report
Working capital
We believe that working capital, adjusted to exclude cash, cash equivalents, short-term investments and
current deferred revenue provides additional information about non-cash assets and liabilities that might affect
our near-term liquidity. While we believe cash and short-term investments are important measures of our
liquidity, the remaining components of our current assets and current liabilities, with the exception of deferred
revenue, could affect our near-term liquidity and/or cash flow. We have no material obligations associated with
our deferred revenue, and the amortization of deferred revenue has no impact on our future liquidity and or cash
flow. Our adjusted working capital, a non-GAAP financial measure, reconciles to working capital, the most
directly comparable GAAP financial measure, at December 31, 2015 and December 31, 2014 (in thousands) as
follows:
For the Year Ended December 31,
2015
2014
Increase /
(Decrease)
Current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less: current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$1,010,967
399,973
$787,857
205,169
$ 223,110
194,804
Working capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Subtract:
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Short-term investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Add:
Current deferred revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
610,994
582,688
28,306
510,207
423,501
428,567
275,361
81,640
148,140
106,229
124,695
(18,466)
Adjusted working capital
. . . . . . . . . . . . . . . . . . . . . . . . . . .
$ (216,485)
$
3,455
$(219,940)
The $219.9 million decrease in adjusted working capital in 2015 compared to 2014 is primarily attributable
to the reclassification of $227.2 million from long-term to short-term debt related to the 2016 Notes, partially
offset by a decrease in accounts payable of $15.7 million. The decrease in accounts payable was primarily due to
the payment of a final installment on a 2014 patent purchase.
Cash used in or provided by investing and financing activities
We used net cash in investing activities of $214.0 million and $140.3 million, respectively, in 2015 and
2014. We purchased $147.9 million and $75.0 million, net of sales, of short-term marketable securities in 2015
and 2014, respectively. The change was primarily due to higher cash balances as a result of the issuance of the
2020 Notes and new agreements signed during 2014 and 2015 as discussed above. Investment costs associated
with capitalized patent costs and acquisition of patent costs decreased to $49.8 million in 2015 from $58.2
million in 2014, primarily due to a decreased investment in patent acquisitions in 2015. Additionally, we made
strategic investments of $12.6 million in 2015.
Net cash provided by financing activities increased by $352.0 million in 2015 primarily due to the net
proceeds of $306.7 million from the issuance and sale of the 2020 Notes, a decrease in repurchases of common
stock of $56.2 million, an increase in other financing activities of $6.5 million and an increase in proceeds from
non-controlling interests of $4.3 million, partially offset by $16.5 million of net costs for the bond hedge and
warrant transactions and an increase in dividend payments of $5.2 million.
Other
Our combined short-term and long-term deferred revenue balance at December 31, 2015 was approximately
$395.3 million, a decrease of $22.8 million from December 31, 2014. We have no material obligations associated
with such deferred revenue. The decrease in deferred revenue was primarily due to $163.4 million of deferred
2015 Annual Report
60
revenue recognized, which was partially offset by a gross increase in deferred revenue of $114.0 million,
primarily associated with the new agreements discussed above. Also included within our deferred revenue
balance at December 31, 2015 was $26.6 million of non-cash consideration received in conjunction with the new
patent license agreements signed during 2015. This deferred revenue recognized was comprised of $131.8
million of amortized fixed-fee royalty payments and $31.6 million in per-unit exhaustion of prepaid royalties
(based upon royalty reports provided by our licensees).
Based on current license agreements, we expect the amortization of fixed-fee royalty payments to reduce the
December 31, 2015 deferred revenue balance of $395.3 million by $106.2 million over the next twelve months.
Additional reductions to deferred revenue over the next twelve months will be dependent upon the level of per-
unit royalties our licensees report against prepaid balances.
Contractual Obligations
On April 4, 2011, InterDigital entered into an indenture by and between the Company and The Bank of New
York Mellon Trust Company, N.A., as trustee, pursuant to which the 2016 Notes were issued. The 2016 Notes
bear interest at a rate of 2.50% per year, payable in cash on March 15 and September 15 of each year,
commencing September 15, 2011. The Notes will mature on March 15, 2016, unless earlier converted or
repurchased.
On March 11, 2015, InterDigital entered into an indenture, by and between the Company and The Bank of
New York Mellon Trust Company, N.A., as trustee, pursuant to which the 2020 Notes were issued. The 2020
Notes bear interest at a rate of 1.50% per year, payable in cash on March 1 and September 1 of each year,
commencing September 1, 2015, and mature on March 1, 2020, unless earlier converted or repurchased.
For more information on the Notes, see Note 6, “Obligations,” in the Notes to Consolidated Financial
Statements included in Part II, Item 8, of this Form 10-K.
The following table summarizes our contractual obligations as of December 31, 2015 (in thousands):
Payments Due by Period
2016 Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2020 Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Contractual interest payments on the Notes . . . . . . . . . .
Operating lease obligations . . . . . . . . . . . . . . . . . . . . . .
Purchase obligations (a) . . . . . . . . . . . . . . . . . . . . . . . . .
Total
$230,000
316,000
24,205
22,925
25,200
Less Than
1 year
$230,000
—
7,615
4,186
25,200
1-3 Years
3-5 Years
Thereafter
$ — $
— 316,000
7,110
4,868
—
9,480
6,091
—
— $ —
—
—
7,781
—
Total contractual obligations . . . . . . . . . . . . . . . . . . . . .
$618,330
$267,001
$15,571
$327,978
$7,781
(a) Purchase obligations consist of agreements to purchase goods and services that are legally binding on us, as
well as accounts payable. Our consolidated balance sheet at December 31, 2015 includes a $1.5 million
noncurrent liability for uncertain tax positions. The future payments related to uncertain tax positions have
not been presented in the table above due to the uncertainty of the amounts and timing of cash settlement
with the taxing authorities.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements as defined by Item 303(a)(4) of Regulation S-K.
61
2015 Annual Report
RESULTS OF OPERATIONS
2015 Compared with 2014
Revenues
The following table compares 2015 revenues to 2014 revenues (in thousands):
For the Year Ended
December 31,
2015
2014
(Decrease)/Increase
Per-unit royalty revenue . . . . . . . . . . . . . . . . . . . . . . . . . .
Fixed-fee amortized royalty revenue . . . . . . . . . . . . . . . .
$234,836
131,837
$157,250
121,903
$ 77,586
9,934
Current patent royalties (a) . . . . . . . . . . . . . . . . . . . . . . . .
Past patent royalties (b) . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total patent licensing royalties . . . . . . . . . . . . . . . . . . . . .
Patent sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Current technology solutions revenue (a) . . . . . . . . . . . . .
. . . . . . . . . . . . . . .
Past technology solutions revenue (b)
366,673
65,814
432,487
—
6,096
2,852
279,153
124,236
403,389
1,999
9,633
800
87,520
(58,422)
29,098
(1,999)
(3,537)
2,052
49%
8%
31%
(47)%
7%
100%
(37)%
257%
Total revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$441,435
$415,821
$ 25,614
6%
(a) Recurring revenues consist of current patent royalties and current technology solutions revenue.
(b) Past sales consist of past patent royalties and past technology solutions revenue.
The $25.6 million increase in total revenue was primarily attributable to the $87.5 million increase in
current patent royalties. The increase of per-unit royalty revenue of $77.6 million was primarily related to
increased shipments by Pegatron and other Taiwan-based licensees. The $9.9 million increase in fixed-fee
amortized royalty revenue was primarily attributable to new patent license agreements signed during second
quarter 2014. The increase in total revenue was also partially attributable to an increase in past technology
solutions revenue of $2.1 million related to the settlement agreement signed during 2015, as discussed above.
These increases were partially offset by a decrease of $58.4 million in past patent royalties. The decrease in past
sales was primarily related to three new patent license agreements signed during second quarter 2014, partially
offset by past sales in the current year period attributable to the new agreements discussed above. Additionally,
current technology solutions revenue decreased by $3.5 million primarily due to decreased shipments of covered
products by one of our technology solutions customers. Patent sales decreased by $2.0 million due to the absence
of any patent sales in 2015.
In 2015 and 2014, 61% and 51% of our total revenues, respectively, were attributable to companies that
individually accounted for 10% or more of our total revenues. In 2015 and 2014, the following licensees or
customers accounted for 10% or more of our total revenues:
Pegatron (a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Samsung (b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Sony (c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
For the Year Ended
December 31,
2015
2014
31%
16%
14%
18%
33%
< 10%
(a) We are engaged in a legal dispute with Pegatron, a Taiwan-based company, regarding, among other things,
the terms of our patent license agreement, and we are the subject of an investigation by the Taiwan Fair
Trade Commission. See Note 8, “Litigation and Legal Proceedings,” in the Notes to Condensed
Consolidated Financial Statements in Item 8 of this Form 10-K.
2015 Annual Report
62
(b) 2014 revenues include $86.3 million of past patent royalties.
(c) 2015 revenues include $21.9 million of past patent royalties.
Operating Expenses
The following table summarizes the change in operating expenses by category (in thousands):
For the Year Ended
December 31,
2015
2014
Increase/(Decrease)
Patent administration and licensing . . . . . . . . . . . . . . . . . .
Development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Selling, general and administrative . . . . . . . . . . . . . . . . . .
$120,401
72,702
39,783
$133,808
75,300
37,753
$(13,407)
(2,598)
2,030
(10)%
(3)%
5%
Total operating expenses . . . . . . . . . . . . . . . . . . . . . . . . . .
$232,886
$246,861
$(13,975)
(6)%
Operating expenses decreased 6% to $232.9 million in 2015 from $246.9 million in 2014. The $14.0 million
decrease in total operating expenses was primarily due to (decreases)/increases in the following items (in
thousands):
Intellectual property enforcement and non-patent litigation . . . . . . . . . . . . . . . . . . . . . . . . .
Performance-based incentive compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consulting services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cost of patent sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Personnel-related costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Bad debt expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commercial initiatives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(Decrease)/
Increase
$(19,572)
(4,165)
(1,022)
(700)
(634)
(392)
(86)
5,675
6,921
Total decrease in operating expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$(13,975)
The $14.0 million decrease in operating expenses was primarily attributable to the $19.6 million decrease in
intellectual property enforcement and non-patent litigation primarily related to decreased costs associated with
the USITC actions, which was partially offset by costs associated with licensee arbitrations. The $4.2 million
decrease in performance-based incentive compensation, including both short-term and long-term compensation,
was primarily attributable to higher accrual rate true-ups in 2014 as a result of new license agreements signed
during 2014. The $1.0 million decrease in consulting services primarily resulted from a reduction in the use of
external resources for research and development projects. The $0.7 million decrease in cost of patent sales was
due to the absence of patent sales in 2015. Personnel-related costs decreased $0.6 million primarily due to a prior
year adjustment related to payroll taxes and employment level tax credits, primarily as a result of an ongoing
audit. Bad debt expense decreased $0.4 million as a result of the settlement agreement with the technology
solutions customer signed during 2015, as discussed above. The $5.7 million increase in depreciation and
amortization was primarily due to patent acquisitions made during the past two years, along with the organic
annual growth of our patent portfolio. The $6.9 million increase in commercial
initiatives expense was
attributable to activities to commercialize IoT and next generation networks technologies.
Patent administration and licensing expense: The $13.4 million decrease in patent administration and
licensing expense primarily resulted from the above-noted decreases in intellectual property enforcement and
performance-based incentive compensation, partially offset by increases in patent amortization and patent
maintenance and evaluation costs primarily related to the increased growth of the patent portfolio due to patents
acquired pursuant to the new agreements as discussed above.
63
2015 Annual Report
Development expense: The $2.6 million decrease in development expense was primarily attributable to the
above-noted decreases in performance-based incentive compensation, consulting services and personnel costs,
partially offset by an increase in costs related to commercial initiatives as described above.
Selling, general and administrative expense: The $2.0 million increase in selling, general and
administrative expense was primarily attributable to increases in personnel-related costs and consulting services
primarily related to corporate and commercial initiatives.
Other (Expense) Income
The following table compares 2015 other (expense) income to 2014 other (expense) income (in thousands):
For the Year Ended
December 31,
2015
2014
(Decrease)/Increase
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest and investment income . . . . . . . . . . . . . . . . . . . . .
Other (a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$(30,417)
3,858
(975)
$(16,084)
1,399
(747)
$(14,333)
2,459
(228)
89%
176%
31%
$(27,534)
$(15,432)
$(12,102)
78%
(a)
Includes other-than-temporary impairments.
The change in other expenses is primarily driven by the increase in interest expense resulting from the 2020
Notes issued during first quarter 2015, partially offset by $1.8 million of interest income related to the settlement
agreement with a technology solutions customer, as discussed above.
Income Taxes
In 2015, our effective tax rate was approximately 35.7% as compared to 33.9% in 2014, based on the
statutory federal tax rate net of discrete federal and state taxes. The increase in the effective tax rate from 2014 to
2015 resulted primarily from the 2014 net benefit received from research and development tax credits covering
the periods 2010 through 2014. The inclusion of additional periods in 2014 accounted for a 2.7% lower effective
tax rate in 2014. This benefit in 2014 was partially offset by a 1% effective tax rate increase resulting from
higher audit settlements in 2014.
2015 Annual Report
64
2014 Compared with 2013
Revenues
The following table compares 2014 revenues to 2013 revenues (in thousands):
For the Year Ended
December 31,
2014
2013
Increase/(Decrease)
Per-unit royalty revenue . . . . . . . . . . . . . . . . . . . . . . . . . .
Fixed-fee amortized royalty revenue . . . . . . . . . . . . . . . .
$157,250
121,903
$122,709
67,658
$ 34,541
54,245
Current patent royalties (a) . . . . . . . . . . . . . . . . . . . . . . . .
Past patent royalties (b) . . . . . . . . . . . . . . . . . . . . . . . . . .
Total patent licensing royalties . . . . . . . . . . . . . . . . . . . .
Patent sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Current technology solutions revenue (a)
. . . . . . . . . . . .
Past technology solutions revenue (b) . . . . . . . . . . . . . . .
279,153
124,236
403,389
1,999
9,633
800
190,367
73,808
264,175
—
7,960
53,226
88,786
50,428
139,214
1,999
1,673
(52,426)
28%
80%
47%
68%
53%
100%
21%
(98)%
Total revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$415,821
$325,361
$ 90,460
28%
(a) Recurring revenues consist of current patent royalties and current technology solutions revenue.
(b) Past sales consist of past patent royalties and past technology solutions revenue.
The $90.5 million increase in total revenue was primarily attributable to the $88.8 million increase in
current patent royalties and a $50.4 million increase in past patent royalties. New patent license agreements
signed during 2014 contributed $186.1 million in total to the increased fixed-fee and past patent royalties. These
increases were partially offset by a decrease of $13.6 million in fixed-fee amortized royalty revenue related to
agreements that have expired or were terminated in 2014, and past patent royalties in 2013 included
approximately $71.4 million recognized as a result of arbitration awards received in 2013. Additionally, per-unit
royalty revenue increased $34.5 million, and was primarily related to a $49.8 million increase associated with
increased shipments by, and the coverage of additional products under, our agreement with Pegatron. This
increase in per-unit royalties from Pegatron was partially offset by a total decrease of $15.3 million attributable
to certain of our other per-unit licensees with concentrations in the smartphone market. Current technology
solutions revenue increased by $1.7 million primarily due to the inclusion of royalties on certain products upon
the resolution in 2013 of our arbitration with Intel Mobile Communications GmbH (“Intel”). These increases
were partially offset by a decrease in past technology solutions revenue of $52.4 million, primarily due to
revenue that was recognized in 2013 as a result of the award received upon the resolution of the Intel arbitration.
In 2014 and 2013, 51% and 60% of our total revenues, respectively, were attributable to companies that
individually accounted for 10% or more of our total revenues. In 2014 and 2013, the following licensees or
customers accounted for 10% or more of our total revenues:
Samsung (a)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Pegatron (b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Intel (c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Sony . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(a) 2014 revenues include $86.3 million of past patent royalties.
(b) 2013 revenues include $71.4 million of past patent royalties.
(c) 2013 revenues include $53.3 million of past technology solutions revenue.
For the Year Ended
December 31,
2014
2013
33% —%
30%
18%
18%
< 10%
12%
< 10%
65
2015 Annual Report
Operating Expenses
The following table summarizes the change in operating expenses by category (in thousands):
For the Year Ended
December 31,
2014
2013
Increase/
(Decrease)
Patent administration and licensing . . . . . . . . . . . . . . . . .
Development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Selling, general and administrative . . . . . . . . . . . . . . . . . .
Repositioning . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$133,808
75,300
37,753
—
$143,037
64,729
31,295
1,544
$ (9,229)
10,571
6,458
(1,544)
(6)%
16%
21%
(100)%
Total operating expenses . . . . . . . . . . . . . . . . . . . . . . . . . .
$246,861
$240,605
$ 6,256
3%
Operating expenses increased 3% to $246.9 million in 2014 from $240.6 million in 2013. The $6.3
million increase in total operating expenses was primarily due to increases/(decreases) in the following items (in
thousands):
Performance-based incentive compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consulting services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commercial initiatives and Signal Trust
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Personnel-related costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cost of patent sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Patent maintenance and evaluation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Intellectual property enforcement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total decrease in operating expenses not including repositioning charge . . . . . . . . . . . . . . .
Repositioning charge . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Increase/
(Decrease)
$ 13,441
8,490
4,603
4,460
1,844
700
120
(2,963)
(22,895)
7,800
(1,544)
Total decrease in operating expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 6,256
The $13.4 million increase in performance-based incentive compensation, including both short-term and
long-term compensation, was primarily attributable to both a true-up to increase the beginning period
compensation to the current accrual rate and higher accrual rates in 2014 as compared to significantly lower
accrual rates in 2013. The $8.5 million increase in depreciation and amortization was primarily due to patent
acquisitions made during the past two years, along with the organic annual growth of our patent portfolio.
The $4.6 million increase in consulting services was primarily related to the support of research and development
projects and corporate initiatives that have ramped up during 2014. The $4.5 million increase in commercial
initiatives and Signal Trust expense was related to a new commercial initiative launched in 2014 and the Signal
Trust, which was created in fourth quarter 2013. Personnel-related costs increased $1.8 million primarily due to
hiring activity during 2014. The $0.7 million increase in cost of patent sales was related to patents sold during
2014, and represents the remaining net book value of the patents sold. The $3.0 million decrease in patent
maintenance and evaluation costs was primarily related to decreased due diligence costs associated with both
patent acquisition and patent sale activities. The $22.9 million decrease in intellectual property enforcement and
non-patent litigation primarily related to decreased costs associated with the USITC actions and licensee
arbitrations.
Patent administration and licensing expense: The $9.2 million decrease in patent administration and
licensing expense primarily resulted from the above-noted decreases in intellectual property enforcement and
2015 Annual Report
66
patent maintenance and evaluation costs, partially offset by increases in performance-based incentive
compensation and patent amortization described above.
Development expense: The $10.6 million increase in development expense was primarily attributable to
the above-noted increases in performance-based compensation, consulting services, and costs related to
commercial initiatives and the Signal Trust as described above.
Selling, general and administrative expense: The $6.5 million increase in selling, general and
administrative expense was primarily attributable to the above-noted increases in performance-based
compensation and personnel-related costs.
Repositioning expense: As part of our ongoing expense management, we initiated a Voluntary Early
Retirement Program (“VERP”) in September 2012. Approximately 60 employees elected to participate in the
VERP across five locations. We incurred charges of zero and $1.5 million relating to the VERP in 2014 and
2013, respectively.
Other (Expense) Income
The following table compares 2014 other (expense) income to 2013 other (expense) income (in thousands):
For the Year Ended
December 31,
2014
2013
(Decrease)/Increase
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other (a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest and investment income . . . . . . . . . . . . . . . . . . . . .
$(16,084)
(747)
1,399
$(15,475)
(22,058)
14,296
$
(609)
21,311
(12,897)
$(15,432)
$(23,237)
$ 7,805
4%
(97)%
(90)%
(34)%
(a)
Includes other-than-temporary impairments.
The change in other expense primarily resulted from the recognition of a $21.7 million investment
impairment on our investment in Pantech Co., Ltd. (“Pantech”) during 2013, partially offset by a decrease in
investment income attributable to $11.8 million of interest income associated with arbitration awards received
during 2013.
Income Taxes
In 2014, our effective tax rate was approximately 33.9% as compared to 42.0% in 2013, based on the
statutory federal tax rate net of discrete federal and state taxes. The decrease in the effective tax rate from 2013 to
2014 was attributable to a net benefit from research and development tax credits covering the periods 2010
through 2014 resulting in a 3.8% lower effective tax rate, which was partially offset by a 1.1% effective tax rate
increase associated with an audit settlement. The decrease in the effective tax rate also resulted a 4% reduction in
effective tax rate associated with the impact of lower state tax expense resulting, in part, from the Company’s
income mix between patent licensing royalties and technology solutions revenue.
STATEMENT PURSUANT TO THE PRIVATE SECURITIES LITIGATION REFORM ACT OF
1995 — FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K contains forward-looking statements within the meaning of Section 21E
of the Securities Exchange Act of 1934, as amended. Such statements include certain information in “Part I,
Item 1. Business” and “Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and
Results of Operations” and other information regarding our current beliefs, plans and expectations, including
67
2015 Annual Report
without limitation the matters set forth below. Words such as “anticipate,” “estimate,” “expect,” “project,”
“intend,” “plan,” “forecast,” “believe,” “could,” “would,” “should,” “if,” “may,” “might,” “future,” “target,”
“goal,” “trend,” “seek to,” “will continue,” “predict,” “likely,” “in the event,” variations of any such words or
similar expressions contained herein are intended to identify such forward-looking statements. Forward-looking
statements in this Annual Report on Form 10-K include, without limitation, statements regarding:
(i) Our objective to continue to be a leading designer and developer of technology solutions and
intellectual property for the mobile industry and to monetize those solutions and intellectual property
through a combination of licensing, sales and other revenue opportunities;
(ii) Our plans for executing on our business strategy, including our plans to develop and source
innovative technologies related to wireless, establish and grow our patent-based revenue, pursue commercial
opportunities for our advanced platforms and solutions, and maintain a collaborative relationship with key
industry players and worldwide standards bodies;
(iii) Our belief that our portfolio includes a number of patents and patent applications that are or may
be essential or may become essential to cellular and other wireless standards, including 3G, 4G and the
IEEE 802 suite of standards, as well as patent applications that we believe may become essential to 5G
standards that are under development;
(iv) Our belief that a number of our CDMA and OFDM/OFDMA inventions are, may be or may
become essential to the implementation of CDMA and OFDM/OFDMA-based systems in use today;
(v) Our belief that companies making,
importing, using or selling products compliant with the
standards covered by our patent portfolio require a license under our patents and will require a license under
patents that may issue from our pending patent applications;
(vi) Our belief that our ongoing research efforts and associated patenting activities enable us to sell
patent assets that are not vital to our core licensing programs, as well as to execute patent swaps that can
strengthen our overall portfolio;
(vii) Our belief that our standalone commercial initiatives are potential sources of revenue;
(viii) The predicted increases in worldwide mobile device shipments, including shipments of handsets,
and the estimated growth of the IoT market, including the size of the connected device installed base and
number of connected device shipments, over the next several years;
(ix) The types of licensing arrangements and various royalty structure models that we anticipate using
under our future license agreements;
(x) The possible outcome of audits of our license agreements when underreporting or underpayment is
revealed;
(xi) Our belief that our facilities are suitable and adequate for our present purposes and our needs in the
near future;
(xii) Our expectation that
the transfer to Conshohocken, Pennsylvania, of our King of Prussia,
Pennsylvania, personnel and operations will occur in second quarter 2016;
(xiii) Our expectation that we will continue to pay a quarterly cash dividend on our common stock
comparable to our quarterly $.20 per share cash dividend in the future;
(xiv) Our belief that intellectual property enforcement costs will likely continue to be a significant
expense for us in the future;
(xv) Our belief that our available sources of funds will be sufficient to finance our operations, capital
requirements, debt obligations, existing stock repurchase program and dividend program for the next twelve
months;
2015 Annual Report
68
(xvi) The potential effects of new accounting standards on our financial statements or results of
operations;
(xvii) Our expectations with regard to any current tax audits;
(xiii) The expected amortization of fixed-fee royalty payments over the next twelve months to reduce
our deferred revenue balance;
(xix) Our anticipated severance charge in the range of $1.5 million to $2.0 million during first quarter
2016 related to ongoing efforts to optimize our cost structure; and
(xx) The expected timing, outcome and impact of our various litigation, arbitration and administrative
matters.
Although the forward-looking statements in this Form 10-K reflect
the good faith judgment of our
management, such statements can only be based on facts and factors currently known by us. Consequently,
forward-looking statements concerning our business, results of operations and financial condition are inherently
subject to risks and uncertainties. We caution readers that actual results and outcomes could differ materially
from those expressed in or anticipated by such forward-looking statements due to a variety of factors, including,
without limitation, the following:
(i) unanticipated difficulties or delays related to the further development of our technologies;
(ii) the failure of the markets for our technologies to materialize to the extent or at the rate that we
expect;
(iii) changes in our plans, strategy or initiatives;
(iv)
the challenges related to entering into new and renewed patent
unanticipated delays, difficulties or acceleration in the negotiation and execution of patent
agreements;
license agreements and
license
(v) our ability to leverage our strategic relationships and secure new patent license and technology
solutions agreements on acceptable terms;
(vi) the impact of current trends in the industry that could result in reductions in and/or caps on royalty
rates under new patent license agreements;
(vii) changes in the market share and sales performance of our primary licensees, delays in product
shipments of our licensees, delays in the timely receipt and final reviews of quarterly royalty reports from
our licensees, delays in payments from our licensees and related matters;
(viii) the timing and/or outcome of our various litigation, arbitration, regulatory or administrative
proceedings, including any awards or judgments relating to such proceedings, additional legal proceedings,
changes in the schedules or costs associated with legal proceedings or adverse rulings in such legal
proceedings;
(ix) the determination of royalty rates, or other terms, under our patent license agreements through
arbitration or other third party adjudications, or the establishment by arbitrators or other third party
adjudicators of patent royalty rates at levels lower than our agreed or historical rates;
(x) the impact of potential patent legislation, USPTO rule changes and international patent rule changes
on our patent prosecution and licensing strategies;
(xi) the impact of rulings in legal proceedings, potential legislation affecting the jurisdiction and
authority of the USITC and potential changes to the IPR policies of worldwide standards bodies on our
investments in research and development and our strategies for patent prosecution,
licensing and
enforcement;
(xii) the timing and/or outcome of any state or federal tax examinations or audits, changes in tax laws
and the resulting impact on our tax assets and liabilities;
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2015 Annual Report
(xiii) the effects of any dispositions, acquisitions or other strategic transactions by the Company;
(xiv) decreased liquidity in the capital markets; and
(xv) unanticipated increases in our cash needs or decreases in available cash.
You should carefully consider these factors as well as the risks and uncertainties outlined in greater detail in
Part I, Item 1A, in this Form 10-K before making any investment decision with respect to our common stock.
These factors, individually or in the aggregate, may cause our actual results to differ materially from our
expected and historical results. You should understand that it is not possible to predict or identify all such factors.
In addition, you should not place undue reliance on the forward-looking statements contained herein, which are
made only as of the date of this Form 10-K. We undertake no obligation to revise or update publicly any forward-
looking statement for any reason, except as otherwise required by law.
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Cash Equivalents and Investments
The primary objectives of our investment activities are to preserve principal and maintain liquidity while at
the same time capturing a market rate of return. To achieve these objectives, we maintain our portfolio of cash
and cash equivalents, and short-term and long-term investments in a variety of securities, including government
obligations, corporate bonds and commercial paper.
Interest Rate Risk — We invest our cash in a number of diversified high quality investment-grade fixed and
floating rate securities with a fair value of $933.7 million at December 31, 2015. Our exposure to interest rate
risks is not significant due to the short average maturity, quality and diversification of our holdings. We do not
hold any derivative, derivative commodity instruments or other similar financial instruments in our investment
portfolio. The risk associated with fluctuating interest rates is generally limited to our investment portfolio. We
believe that a hypothetical 10% change in period-end interest rates would not have a significant impact on our
results of operations or cash flows.
The following table provides information about our interest-bearing securities that are sensitive to changes
in interest rates as of December 31, 2015. The table presents principal cash flows, weighted-average yield at cost
and contractual maturity dates. Additionally, we have assumed that these securities are similar enough within the
specified categories to aggregate these securities for presentation purposes.
Interest Rate Sensitivity
Principal Amount by Expected Maturity
Average Interest Rates
(in thousands)
2016
2017
2018
2019
2020
Thereafter
Total
Money market and demand
accounts . . . . . . . . . . . . .
Cash equivalents . . . . . . . . .
Short-term investments . . . .
Average Interest rate . . . . . .
$333,671
$176,536
$373,677
$ — $ — $ —
$ — $ — $ —
$1,999
$1,997
$45,830
$—
$—
$—
0.4%
1.0%
1.3%
—% —%
$—
$—
$—
—%
$333,671
$176,536
$423,502
0.4%
Cash and cash equivalents and available-for-sale securities are recorded at fair value.
Bank Liquidity Risk — As of December 31, 2015, we had approximately $202.4 million in operating
accounts that are held with domestic and international financial institutions. The majority of these balances are
held with domestic financial institutions. While we monitor daily cash balances in our operating accounts and
2015 Annual Report
70
adjust the cash balances as appropriate, these cash balances could be lost or become inaccessible if the
underlying financial institutions fail or if they are unable to meet the liquidity requirements of their depositors.
Notwithstanding, we have not incurred any losses and have had full access to our operating accounts to date.
Foreign Currency Exchange Rate Risk — We are exposed to limited risk from fluctuations in currencies,
which might change over time as our business practices evolve, that could impact our operating results, liquidity
and financial condition. We operate and invest globally. Adverse movements in currency exchange rates might
negatively affect our business due to a number of situations. Currently, our international licensing agreements are
typically made in U.S. dollars and are generally not subject to foreign currency exchange rate risk. We do not
engage in foreign exchange hedging transactions at this time.
Between 2006 and 2015, we paid approximately $295.1 million in foreign taxes for which we have claimed
foreign tax credits against our U.S. tax obligations. It is possible that as a result of tax treaty procedures, the
U.S. government may reach an agreement with the related foreign governments that will result in a partial refund
of foreign taxes paid with a related reduction in our foreign tax credits. Due to both foreign currency fluctuations
and differences in the interest rate charged by the U.S. government compared to the interest rates, if any, used by
the foreign governments, any such agreement could result in interest expense and/or foreign currency gain or
loss.
Investment Risk — We are exposed to market risk as it relates to changes in the market value of our short-
term and long-term investments in addition to the liquidity and creditworthiness of the underlying issuers of our
investments. We hold a diversified investment portfolio, which includes, fixed and floating-rate, investment-
grade marketable securities, mortgage and asset-backed securities and U.S. government and other securities. The
instruments included in our portfolio meet high credit quality standards, as specified in our investment policy
guidelines. This policy also limits our amount of credit exposure to any one issue, issuer and type of instrument.
Given that the guidelines of our investment policy prohibit us from investing in anything but highly rated
instruments, our investments are not subject to significant fluctuations in fair value due to the volatility of the
credit markets and prevailing interest rates for such securities. Our marketable securities, consisting of
government obligations, corporate bonds and commercial paper, are classified as available-for-sale with a fair
value of $423.5 million as of December 31, 2015.
Equity Risk — We are exposed to changes in the market-traded price of our common stock as it influences
the calculation of earnings per share. In connection with the offering of the Notes, we entered into convertible
note hedge transactions with option counterparties. We also sold warrants to the option counterparties. These
transactions have been accounted for as an adjustment to our shareholders’ equity. The convertible note hedge
transactions are expected to reduce the potential equity dilution upon conversion of the Notes. The warrants
along with any shares issuable upon conversion of the Notes will have a dilutive effect on our earnings per share
to the extent that the average market price of our common stock for a given reporting period exceeds the
applicable strike price or conversion price of the warrants or convertible Notes, respectively.
71
2015 Annual Report
Item 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
PAGE
NUMBER
CONSOLIDATED FINANCIAL STATEMENTS:
Report of Independent Registered Public Accounting Firm . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Balance Sheets as of December 31, 2015 and 2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Income for the years ended December 31, 2015, 2014 and 2013 . . . . . .
Consolidated Statements of Comprehensive Income for the years ended December 31, 2015, 2014
and 2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Shareholders’ Equity for the years ended December 31, 2015, 2014 and
2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Cash Flows for the years ended December 31, 2015, 2014 and 2013 . . .
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
73
74
75
76
77
78
79
SCHEDULES:
Schedule II — Valuation and Qualifying Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
123
All other schedules are omitted because they are either not required or applicable or equivalent information
has been included in the financial statements and notes thereto.
2015 Annual Report
72
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Shareholders of InterDigital, Inc.:
In our opinion, the consolidated financial statements listed in the accompanying index present fairly, in all
material respects, the financial position of InterDigital, Inc. and its subsidiaries at December 31, 2015 and
December 31, 2014, and the results of their operations and their cash flows for each of the three years in the
period ended December 31, 2015 in conformity with accounting principles generally accepted in the
United States of America. In addition, in our opinion, the financial statement schedule listed in the accompanying
index presents fairly, in all material respects, the information set forth therein when read in conjunction with the
related consolidated financial statements. Also in our opinion, the Company maintained, in all material respects,
effective internal control over financial reporting as of December 31, 2015, based on criteria established in
Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO). The Company’s management is responsible for these financial statements and
financial statement schedule, for maintaining effective internal control over financial reporting and for its
assessment of the effectiveness of internal control over financial reporting, included in “Management’s Annual
Report on Internal Control Over Financial Reporting” appearing under Item 9A. Our responsibility is to express
opinions on these financial statements, on the financial statement schedule, and on the Company’s internal
control over financial reporting based on our integrated audits. We conducted our audits in accordance with the
standards of the Public Company Accounting Oversight Board (United States). Those standards require that we
plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of
material misstatement and whether effective internal control over financial reporting was maintained in all
material respects. Our audits of the financial statements included examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the accounting principles used and significant
estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal
control over financial reporting included obtaining an understanding of internal control over financial reporting,
assessing the risk that a material weakness exists, and testing and evaluating the design and operating
effectiveness of internal control based on the assessed risk. Our audits also included performing such other
procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable
basis for our opinions.
As discussed in Note 2 to the consolidated financial statements, the Company changed the manner in which
it classifies deferred tax assets and deferred tax liabilities in 2015.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles. A company’s internal control over financial reporting
includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable
assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance
with generally accepted accounting principles, and that receipts and expenditures of the company are being made
only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable
assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the
company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect
misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that
controls may become inadequate because of changes in conditions, or that the degree of compliance with the
policies or procedures may deteriorate.
/s/ PricewaterhouseCoopers LLP
Philadelphia, Pennsylvania
February 18, 2016
73
2015 Annual Report
INTERDIGITAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except per share data)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Short-term investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts receivable, less allowances of $0 and $1,750 . . . . . . . . . . . . . . . . . .
Prepaid and other current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
PROPERTY AND EQUIPMENT, NET . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
PATENTS, NET . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
DEFERRED TAX ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
OTHER NON-CURRENT ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
TOTAL ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
LIABILITIES AND SHAREHOLDERS’ EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued compensation and related expenses . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Taxes payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dividend payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
LONG-TERM DEBT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
LONG-TERM DEFERRED REVENUE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
OTHER LONG-TERM LIABILITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
TOTAL LIABILITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS’ EQUITY:
Preferred Stock, $0.10 par value, 14,399 shares authorized, 0 shares issued
and outstanding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Common Stock, $0.01 par value, 100,000 shares authorized, 70,130 and
69,800 shares issued and 35,414 and 36,920 shares outstanding . . . . . . . . .
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated other comprehensive (loss) income . . . . . . . . . . . . . . . . . . . . . .
Treasury stock, 34,716 and 32,880 shares of common held at cost . . . . . . . . .
Total InterDigital, Inc. shareholders’ equity . . . . . . . . . . . . . . . . . . . . . . . .
Noncontrolling interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY . . . . . . . . . . . . . . .
DECEMBER 31,
2015
DECEMBER 31,
2014
$ 510,207
423,501
53,868
23,391
1,010,967
12,148
277,579
160,572
13,219
463,518
$1,474,485
$ 227,174
19,002
26,013
106,229
1,405
7,068
13,082
399,973
259,595
289,039
3,983
952,590
$ 428,567
275,361
51,702
32,227
787,857
12,546
265,540
125,802
1,217
405,105
$1,192,962
$
—
34,654
27,089
124,695
—
7,456
11,275
205,169
216,206
293,342
2,568
717,285
—
—
701
663,073
847,033
(178)
1,510,629
1,000,110
510,519
11,376
521,895
$1,474,485
698
614,162
757,050
118
1,372,028
903,700
468,328
7,349
475,677
$1,192,962
The accompanying notes are an integral part of these statements.
2015 Annual Report
74
INTERDIGITAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share data)
FOR THE YEAR ENDED DECEMBER 31,
2015
2014
2013
REVENUES:
Patent licensing royalties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Patent sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Technology solutions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$432,488
—
8,947
$403,389
1,999
10,433
$264,174
—
61,187
Total Revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
441,435
415,821
325,361
OPERATING EXPENSES:
Patent administration and licensing . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Selling, general and administrative . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Repositioning . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
120,401
72,702
39,783
—
Total Operating Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
232,886
Income from operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
OTHER EXPENSE (NET) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income before income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
INCOME TAX PROVISION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
208,549
(27,534)
181,015
(64,621)
133,808
75,300
37,753
—
246,861
168,960
(15,432)
153,528
(52,108)
143,037
64,729
31,295
1,544
240,605
84,756
(23,237)
61,519
(25,836)
NET INCOME . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$116,394
$101,420
$ 35,683
Net loss attributable to noncontrolling interest . . . . . . . . . . . . . . . . . . . .
(2,831)
(2,922)
(2,482)
NET INCOME ATTRIBUTABLE TO INTERDIGITAL, INC.
. . . . . . . .
$119,225
$104,342
$ 38,165
NET INCOME PER COMMON SHARE — BASIC . . . . . . . . . . . . . . . .
$
3.31
$
2.65
$
0.93
WEIGHTED AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING — BASIC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
36,048
39,420
41,115
NET INCOME PER COMMON SHARE — DILUTED . . . . . . . . . . . . . .
$
3.27
$
2.62
$
0.92
WEIGHTED AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING — DILUTED . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
36,463
39,879
41,424
CASH DIVIDENDS DECLARED PER COMMON SHARE . . . . . . . . . .
$
0.80
$
0.70
$
0.40
The accompanying notes are an integral part of these statements.
75
2015 Annual Report
INTERDIGITAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in thousands)
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unrealized (loss) gain investments, net of tax . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other-than-temporary impairment losses related to available for sale securities,
net of income taxes of $0, $65, $0 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
For the Year Ended December 31,
2015
2014
2013
$116,394
(296)
$101,420
12
$35,683
(878)
—
120
—
Comprehensive income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$116,098
$101,552
$34,805
Comprehensive loss attributable to noncontrolling interest . . . . . . . . . . . . . . . . .
(2,831)
(2,922)
(2,482)
Total comprehensive income attributable to InterDigital, Inc.
. . . . . . . . . . . . . .
$118,929
$104,474
$37,287
The accompanying notes are an integral part of these statements.
2015 Annual Report
76
INTERDIGITAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(in thousands, except per share data)
Common Stock
Shares Amount
Additional
Paid-In
Capital
Retained
Earnings
Accumulated
Other
Comprehensive
Income (Loss)
Treasury Stock
Shares Amount
Non-
Controlling
Interest
Total
Shareholders’
Equity
BALANCE, DECEMBER 31, 2012 . . . . . . . . 69,459
—
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from noncontrolling interests . . . . . . .
—
Net (loss) income attributable to
noncontrolling interest
. . . . . . . . . . . . . . . . .
Net change in unrealized gain on short-term
investments . . . . . . . . . . . . . . . . . . . . . . . . . .
Dividends Declared . . . . . . . . . . . . . . . . . . . . . .
Exercise of Common Stock options . . . . . . . . .
Issuance of Common Stock, net
. . . . . . . . . . . .
Tax benefit from exercise of stock options . . . .
Amortization of unearned compensation . . . . .
Repurchase of Common Stock . . . . . . . . . . . . .
Reclassifications of share-based
compensation . . . . . . . . . . . . . . . . . . . . . . . . .
—
—
—
49
106
—
—
—
—
$695
—
—
$579,852
—
—
$659,235
38,165
—
$ 864
—
—
—
—
—
—
1
—
—
—
—
—
—
—
297
1,032
(2,459)
815
15,940
—
—
(16,682)
—
—
—
—
—
2,848
—
—
(878)
—
—
—
—
—
—
—
28,409 $ (721,941) $ —
—
7,652
—
—
—
—
$ 518,705
38,165
7,652
—
—
—
—
—
—
—
917
—
— (2,482)
(2,482)
—
—
—
—
—
—
(29,134)
—
—
—
—
—
—
—
—
—
(878)
(16,385)
1,032
(2,458)
815
15,940
(29,134)
2,848
BALANCE, DECEMBER 31, 2013 . . . . . . . . 69,614
$696
$598,325
$680,718
$ (14)
29,326 $ (751,075) $ 5,170
$ 533,820
Net income attributable to InterDigital, Inc. . . .
Proceeds from noncontrolling interests . . . . . . .
Net (loss) income attributable to
noncontrolling interest
. . . . . . . . . . . . . . . . .
Net change in unrealized gain on short-term
investments . . . . . . . . . . . . . . . . . . . . . . . . . .
Dividends Declared . . . . . . . . . . . . . . . . . . . . . .
Exercise of Common Stock options . . . . . . . . .
Issuance of Common Stock, net
. . . . . . . . . . . .
Tax benefit from exercise of stock options . . . .
Amortization of unearned compensation . . . . .
Repurchase of Common Stock . . . . . . . . . . . . .
—
—
—
—
—
21
165
—
—
—
—
—
—
—
—
—
2
—
—
—
— 104,342
—
—
—
—
—
857
402
(2,740)
(1,176)
18,494
—
—
(28,010)
—
—
—
—
—
—
—
—
132
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
3,554
—
—
—
5,101
104,342
5,101
— (2,922)
(2,922)
—
—
—
—
—
—
(152,625)
—
—
—
—
—
—
—
132
(27,153)
402
(2,738)
(1,176)
18,494
(152,625)
BALANCE, DECEMBER 31, 2014 . . . . . . . . 69,800
$698
$614,162
$757,050
$ 118
32,880 $ (903,700) $ 7,349
$ 475,677
Net income attributable to InterDigital, Inc. . . .
Proceeds from noncontrolling interests . . . . . . .
Distribution preference . . . . . . . . . . . . . . . . . . .
Net (loss) income attributable to
noncontrolling interest
. . . . . . . . . . . . . . . . .
Net change in unrealized gain on short-term
investments . . . . . . . . . . . . . . . . . . . . . . . . . .
Dividends Declared . . . . . . . . . . . . . . . . . . . . . .
Exercise of Common Stock options . . . . . . . . .
Issuance of Common Stock, net
. . . . . . . . . . . .
Tax benefit from exercise of stock options . . . .
Amortization of unearned compensation . . . . .
Repurchase of Common Stock . . . . . . . . . . . . .
Equity Component of Debt, net of tax . . . . . . .
Convertible note hedge transactions, net of
tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Warrant transactions . . . . . . . . . . . . . . . . . . . . .
Deferred financing costs allocated to equity . . .
—
—
—
—
—
—
5
325
—
—
—
—
—
—
—
—
—
—
—
—
—
—
3
—
—
—
—
—
—
—
— 119,225
—
—
—
—
—
—
—
694
46
(9,849)
2,457
15,139
—
38,567
(38,594)
42,881
(2,430)
—
(29,242)
—
—
—
—
—
—
—
—
—
—
—
—
—
(296)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
1,836
—
—
—
—
—
—
9,358
—
— (2,500)
119,225
9,358
(2,500)
— (2,831)
(2,831)
—
—
—
—
—
—
(96,410)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(296)
(28,548)
46
(9,846)
2,457
15,139
(96,410)
38,567
(38,594)
42,881
(2,430)
BALANCE, DECEMBER 31, 2015 . . . . . . . . 70,130
$701
$663,073
$847,033
$(178)
34,716 $(1,000,110) $11,376
$ 521,895
The accompanying notes are an integral part of these statements
77
2015 Annual Report
INTERDIGITAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
FOR THE YEAR ENDED
DECEMBER 31,
2015
2014
2013
$ 116,394
$ 101,420
$ 35,683
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortization of deferred financing fees and accretion of debt discount
. . . . . . . . . . . . . . . . . . . . .
Deferred revenue recognized . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Increase in deferred revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tax benefit from share-based compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Share-based compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Impairment of investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-cash cost of patent sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Decrease (Increase) in assets:
47,793
20,869
(163,354)
113,962
(34,770)
—
15,139
198
—
238
42,246
10,325
(163,139)
272,885
(62,979)
(1,176)
18,494
559
700
572
Receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred charges and other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(2,166)
8,489
26,128
6,156
Increase (Decrease) in liabilities:
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued compensation and other expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued taxes payable and other tax contingencies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2,503
(12,297)
1,501
(10,396)
5,853
(5,635)
33,385
9,726
(174,014)
209,930
4,861
—
15,940
21,720
—
424
77,044
(9,753)
14,655
(24,522)
3,096
Net cash provided by operating activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
114,499
242,013
218,175
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of short-term investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Sales of short-term investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Purchases of property and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Capitalized patent costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Acquisition of patents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-term investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(643,087)
495,201
(3,700)
(29,766)
(20,000)
(12,623)
(438,157)
363,175
(7,095)
(31,932)
(26,300)
—
(417,728)
443,074
(4,591)
(34,057)
(25,013)
—
Net cash used in investing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(213,975)
(140,309)
(38,315)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from exercise of stock options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from issuance of senior convertible notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from other financing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Purchase of convertible bond hedge . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from issuance of warrants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Payments of debt issuance costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from non-controlling interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dividends paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tax benefit from share-based compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Repurchase of common stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
46
316,000
4,500
(59,376)
42,881
(9,403)
9,358
(28,937)
2,457
(96,410)
402
—
—
—
—
—
5,101
(23,729)
—
(152,625)
1,032
—
—
—
—
—
7,652
(12,354)
815
(29,134)
Net cash provided by (used in) financing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
181,116
(170,851)
(31,989)
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS . . . . . . . . . . . . . . . . . . . . . .
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD . . . . . . . . . . . . . . . . . . . . . . . . . . . .
81,640
428,567
(69,147)
497,714
147,871
349,843
CASH AND CASH EQUIVALENTS, END OF PERIOD . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 510,207
$ 428,567
$ 497,714
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
7,988
5,750
Income taxes paid, including foreign withholding taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
85,780
114,876
Non-cash investing and financing activities:
Dividend payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-cash acquisition of patents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued capitalized patent costs and acquisition of patents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
7,068
24,123
18,155
7,456
19,250
20,546
5,750
24,961
4,031
—
(452)
The accompanying notes are an integral part of these statements.
2015 Annual Report
78
INTERDIGITAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2015
1. BACKGROUND
InterDigital designs and develops advanced technologies that enable and enhance wireless communications
and capabilities. Since our founding in 1972, we have designed and developed a wide range of innovations that
are used in digital cellular and wireless products and networks, including 2G, 3G, 4G and IEEE 802-related
products and networks. We are a leading contributor of intellectual property to the wireless communications
industry.
2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The accompanying consolidated financial statements include all of our accounts and all entities which we
have a controlling interest, which are required to be consolidated in accordance with the Generally Accepted
Accounting Principles in the United States (“GAAP”). All significant intercompany accounts and transactions
have been eliminated in consolidation.
In determining whether we are the primary beneficiary of a variable interest entity and therefore required to
consolidate, we apply a qualitative approach that determines whether we have both the power to direct the
economically significant activities of the entity and the obligation to absorb losses of, or the right to receive
benefits from, the entity that could potentially be significant to that entity. These considerations impact the way
we account for our existing collaborative relationships and other arrangements. We continuously assess whether
we are the primary beneficiary of a variable interest entity as changes to existing relationships or future
transactions may result
in us consolidating or deconsolidating our partner(s) to collaborations and other
arrangements.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and
liabilities as of the date of the financial statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from these estimates. If different assumptions were made or different
conditions had existed, our financial results could have been materially different.
Cash and Cash Equivalents
We classify all highly liquid investment securities with original maturities of three months or less at date of
purchase as cash equivalents. Our investments are comprised of mutual and exchange traded funds, commercial
paper, United States and municipal government obligations and corporate securities. Management determines the
appropriate classification of our investments at the time of acquisition and re-evaluates such determination at
each balance sheet date.
Cash and cash equivalents at December 31, 2015 and 2014 consisted of the following (in thousands):
Money market and demand accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commercial paper . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$333,671
176,536
$307,995
120,572
$510,207
$428,567
December 31,
2015
2014
79
2015 Annual Report
Short-Term Investments
At December 31, 2015 and 2014, all marketable securities have been classified as available-for-sale and are
carried at fair value, with unrealized gains and losses reported net-of-tax as a separate component of
shareholders’ equity. Substantially all of our investments are investment grade government and corporate debt
securities that have maturities of less than 3 years, and we have both the ability and intent to hold the investments
until maturity. During 2015 and 2014, we recorded other-than-temporary impairments of approximately $0.2
million and $0.6 million, respectively. These amounts were included within the realized losses for these periods
shown in the table below. Net unrealized gain on short-term investments was $0.1 million at December 31, 2014.
Net unrealized loss on short-term investments was $0.3 million and $0.9 million at December 31, 2015 and 2013,
respectively. Realized gains and losses for 2015, 2014 and 2013 were as follows (in thousands):
Year
Gains
Losses
Net
2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ — $(309)
$(681)
$ 48
$(678)
$166
$(309)
$(633)
$(512)
Short-term investments as of December 31, 2015 and 2014 consisted of the following (in thousands):
Commercial paper . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
U.S. government agency instruments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Corporate bonds and asset backed securities . . . . . . . . . . . . . . . . . . . . . . . . . .
$200,811
183,950
38,740
$ 86,877
151,618
36,866
$423,501
$275,361
December 31,
2015
2014
At December 31, 2015 and 2014, $373.7 million and $151.4 million, respectively, of our short-term
investments had contractual maturities within one year. The remaining portions of our short-term investments
had contractual maturities primarily within two to five years.
Concentration of Credit Risk and Fair Value of Financial Instruments
Financial instruments that potentially subject us to concentration of credit risk consist primarily of cash
equivalents, short-term investments and accounts receivable. We place our cash equivalents and short-term
investments only in highly rated financial instruments and in United States government instruments.
Our accounts receivable are derived principally from patent license and technology solutions agreements. At
December 31, 2015, four licensees comprised 97% of our net accounts receivable balance. At December 31,
2014, three licensees represented 94% of our net accounts receivable balance. We perform ongoing credit
evaluations of our licensees, who generally include large, multinational, wireless telecommunications equipment
manufacturers. We believe that the book values of our financial instruments approximate their fair values.
Fair Value Measurements
We use various valuation techniques and assumptions when measuring fair value of our assets and
liabilities. We utilize market data or assumptions that market participants would use in pricing the asset or
liability, including assumptions about risk and the risks inherent in the inputs to the valuation technique. This
guidance established a hierarchy that prioritizes fair value measurements based on the types of input used for the
various valuation techniques (market approach, income approach and cost approach). The levels of the hierarchy
are described below:
Level 1 Inputs — Level 1 includes financial instruments for which quoted market prices for identical
instruments are available in active markets.
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80
Level 2 Inputs — Level 2 includes financial instruments for which there are inputs other than quoted prices
included within Level 1 that are observable for the instrument such as quoted prices for similar instruments
in active markets, quoted prices for identical or similar instruments in markets with insufficient volume or
infrequent transactions (less active markets) or model-driven valuations in which significant inputs are
observable or can be derived principally from, or corroborated by, observable market data, including market
interest rate curves, referenced credit spreads and pre-payment rates.
Level 3 Inputs — Level 3 includes financial instruments for which fair value is derived from valuation
techniques including pricing models and discounted cash flow models in which one or more significant
inputs are unobservable,
including the company’s own assumptions. The pricing models incorporate
transaction details such as contractual terms, maturity and, in certain instances, timing and amount of future
cash flows, as well as assumptions related to liquidity and credit valuation adjustments of marketplace
participants.
Our assessment of the significance of a particular input to the fair value measurement requires judgment and
may affect the valuation of financial assets and financial liabilities and their placement within the fair value
hierarchy. We use quoted market prices for similar assets to estimate the fair value of our Level 2 investments.
Our financial assets are included within short-term investments on our consolidated balance sheets, unless
otherwise indicated. Our financial assets that are accounted for at fair value on a recurring basis are presented in
the tables below as of December 31, 2015 and December 31, 2014 (in thousands):
Fair Value as of December 31, 2015
Level 1
Level 2
Level 3
Total
Assets:
Money market and demand accounts (a) . . . . . . . . . . .
Commercial paper (b) . . . . . . . . . . . . . . . . . . . . . . . . . .
U.S. government securities . . . . . . . . . . . . . . . . . . . . . .
Corporate bonds, asset backed and other securities . . .
$
$333,671
—
—
183
— $— $333,671
377,347
183,950
38,740
—
—
—
377,347
183,950
38,557
$333,854
$599,854
$— $933,708
Included within cash and cash equivalents.
Includes $176.5 million of commercial paper that is included within cash and cash equivalents.
Fair Value as of December 31, 2014
Level 1
Level 2
Level 3
Total
Assets:
Money market and demand accounts (a) . . . . . . . . . . .
Commercial paper (b) . . . . . . . . . . . . . . . . . . . . . . . . . .
U.S. government securities . . . . . . . . . . . . . . . . . . . . . .
Corporate bonds and asset backed securities . . . . . . . .
$
$307,995
—
—
671
— $— $307,995
207,449
151,618
36,866
—
—
—
207,449
151,618
36,195
Included within cash and cash equivalents.
Includes $120.6 million of commercial paper that is included within cash and cash equivalents.
$308,666
$395,262
$— $703,928
(a)
(b)
(a)
(b)
The principal amount, carrying value and related estimated fair value of the Company’s long-term debt
reported in the Condensed Consolidated Balance Sheets as of December 31, 2015 and December 31, 2014 are as
follows (in thousands):
December 31, 2015
Carrying
Value
Principal
Amount
Fair
Value
December 31, 2014
Carrying
Value
Principal
Amount
Fair
Value
Total Long-Term Debt
. . . . . . . . . . . . . . .
$546,000
$486,769
$533,203
$230,000
$216,206
$255,300
81
2015 Annual Report
The aggregate fair value of the principal amount of the long-term debt (Level 2 Notes as defined in Note 6
“Obligations”) was calculated using inputs such as actual trade data, benchmark yields, broker/dealer quotes and
other similar data, which were obtained from independent pricing vendors, quoted market prices or other sources.
As discussed in Note 3, “Significant Events,” we acquired patents as part of the multiple-element
arrangements entered into in 2015. We have recorded these patents based on their total estimated fair value
of $24.1 million and will amortize them over their estimated useful lives. We estimated the fair value of the
patents in each transaction by a combination of an analysis of comparable market transactions (the market
approach) and discounted cash flow analysis (the income approach). For the market approach, judgment was
applied as to which market transactions were most comparable to the transaction. For the income approach, the
inputs and assumptions used to develop these estimates were based on a market participant perspective and
included estimates of projected royalties, discount rates, economic lives and income tax rates, among others.
Property and Equipment
Property and equipment are stated at cost. Depreciation and amortization of property and equipment are
provided using the straight-line method. The estimated useful lives for computer equipment, computer software,
engineering and test equipment and furniture and fixtures are generally three to five years. Leasehold
improvements are amortized over the lesser of their estimated useful lives or their respective lease terms, which
are generally five to ten years. Buildings are being depreciated over twenty-five years. Expenditures for major
improvements and betterments are capitalized, while minor repairs and maintenance are charged to expense as
incurred. Leases meeting certain capital lease criteria are capitalized and the net present value of the related lease
payments is recorded as a liability. Amortization of capital leased assets is recorded using the straight-line
method over the lesser of the estimated useful lives or the lease terms.
Upon the retirement or disposition of property, plant and equipment, the related cost and accumulated
depreciation or amortization are removed, and a gain or loss is recorded.
Internal-Use Software Costs
We capitalize costs associated with software developed for internal use that are incurred during the software
development stage. Such costs are limited to expenses incurred after management authorizes and commits to a
computer software project, believes that it is more likely than not that the project will be completed, the software
will be used to perform the intended function with an estimated service life of two years or more, and the
completion of conceptual formulation, design and testing of possible software project alternatives (the
preliminary design stage). Costs incurred after final acceptance testing has been successfully completed are
expensed. Capitalized computer software costs are amortized over their estimated useful life of three years.
All computer software costs capitalized to date relate to the purchase, development and implementation of
engineering, accounting and other enterprise software.
Other-than-Temporary Impairments
We review our investment portfolio during each reporting period to determine whether there are identified
events or circumstances that would indicate there is a decline in the fair value that is considered to be other-than-
temporary. For non-public investments, if there are no identified events or circumstances that would have a
significant adverse effect on the fair value of the investment, then the fair value is not estimated. If an investment
is deemed to have experienced an other-than-temporary decline below its cost basis, we reduce the carrying
amount of the investment to its quoted or estimated fair value, as applicable, and establish a new cost basis for
the investment. We charge the impairment to the Other Expense (Net) line of our Consolidated Statements of
Income.
2015 Annual Report
82
Investments in Other Entities
We may make strategic investments in companies that have developed or are developing technologies that
are complementary to our business. We account for our investments using either the cost or equity method of
accounting. Under the cost method, we do not adjust our investment balance when the investee reports profit or
loss but monitor the investment for an other-than-temporary decline in value. On a quarterly basis, we monitor
our investment’s financial position and performance to assess whether there are any triggering events or
indicators present that would be indicative of an other-than-temporary impairment of our investment. When
assessing whether an other-than-temporary decline in value has occurred, we consider such factors as the
valuation placed on the investee in subsequent rounds of financing, the performance of the investee relative to its
own performance targets and business plan, and the investee’s revenue and cost trends, liquidity and cash
position, including its cash burn rate, and updated forecasts. Under the equity method of accounting, we initially
record our investment in the stock of an investee at cost, and adjust the carrying amount of the investment to
recognize our share of the earnings or losses of the investee after the date of acquisition. The amount of the
adjustment is included in the determination of net income, and such amount reflects adjustments similar to those
made in preparing consolidated statements including adjustments to eliminate intercompany gains and losses, and
to amortize, if appropriate, any difference between our cost and underlying equity in net assets of the investee at
the date of investment. The investment is also adjusted to reflect our share of changes in the investee’s capital.
Dividends received from an investee reduce the carrying amount of the investment. When there are a series of
operating losses by the investee or when other factors indicate that a decrease in value of the investment has
occurred which is other than temporary, we recognize an impairment equal to the difference between the fair
value and the carrying amount of our investment. The carrying costs of our investments are included within
Other Non-Current Assets on our Consolidated Balance Sheets.
During 2015, we made investments in two separate entities for a total of $12.6 million. Due to the fact that
we do not have significant influence over either organization, we are accounting for these investments using the
cost method of accounting. The carrying value of these investments as of December 31, 2015 was $12.6 million.
We had zero long-term investments as of December 31, 2014.
Patents
We capitalize external costs, such as filing fees and associated attorney fees, incurred to obtain issued
patents and patent
license rights. We expense costs associated with maintaining and defending patents
subsequent to their issuance in the period incurred. We amortize capitalized patent costs for internally generated
patents on a straight-line basis over ten years, which represents the estimated useful lives of the patents. The ten-
year estimated useful life for internally generated patents is based on our assessment of such factors as: the
integrated nature of the portfolios being licensed, the overall makeup of the portfolio over time, and the length of
license agreements for such patents. The estimated useful lives of acquired patents and patent rights, however,
have been and will continue to be based on separate analysis related to each acquisition and may differ from the
estimated useful lives of internally generated patents. The average estimated useful life of acquired patents thus
far has been 9.7 years. We assess the potential impairment to all capitalized net patent costs when events or
changes in circumstances indicate that the carrying amount of our patent portfolio may not be recoverable.
Patents consisted of the following (in thousands, except for useful life data):
Weighted average estimated useful life (years) . . . . . . . . . . . . . . . . . . . . . . .
Gross patents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
9.9
$ 511,503
(233,924)
10.0
$ 455,447
(189,907)
Patents, net
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 277,579
$ 265,540
December 31,
2015
2014
83
2015 Annual Report
Amortization expense related to capitalized patent costs was $44.0 million, $38.4 million and $29.8 million
in 2015, 2014 and 2013, respectively. These amounts are recorded within the Patent administration and licensing
line of our Consolidated Statements of Income.
The estimated aggregate amortization expense for the next five years related to our patents balance as of
December 31, 2015 is as follows (in thousands):
2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$46,700
43,876
38,594
35,718
30,946
Intangible Assets
We capitalize the cost of technology solutions and platforms we acquire or license from third parties when
they have a future benefit and the development of these solutions and platforms is substantially complete at the
time they are acquired or licensed.
Revenue Recognition
We derive the vast majority of our revenue from patent licensing. The timing and amount of revenue
recognized from each licensee depends upon a variety of factors, including the specific terms of each agreement
and the nature of the deliverables and obligations. Such agreements are often complex and include multiple
elements. These agreements can include, without limitation, elements related to the settlement of past patent
infringement liabilities, up-front and non-refundable license fees for the use of patents and/or know-how, patent
and/or know-how licensing royalties on covered products sold by licensees, cross-licensing terms between us and
other parties, the compensation structure and ownership of intellectual property rights associated with contractual
technology development arrangements, advanced payments and fees for service arrangements and settlement of
intellectual property enforcement. For agreements entered into or materially modified prior to 2011, due to the
inherent difficulty in establishing reliable, verifiable, and objectively determinable evidence of the fair value of
the separate elements of these agreements, the total revenue resulting from such agreements has often been
recognized over the performance period. Beginning in January 2011, all new or materially modified agreements
are being accounted for under the Financial Accounting Standards Board (“FASB”) revenue recognition
guidance, “Revenue Arrangements with Multiple Deliverables.” This guidance requires consideration to be
allocated to each element of an agreement that has stand alone value using the relative fair value method. In other
circumstances, such as those agreements involving consideration for past and expected future patent royalty
obligations, after consideration of the particular facts and circumstances, the appropriate recording of revenue
between periods may require the use of judgment. In all cases, revenue is only recognized after all of the
following criteria are met: (1) written agreements have been executed; (2) delivery of technology or intellectual
property rights has occurred or services have been rendered; (3) fees are fixed or determinable; and
(4) collectibility of fees is reasonably assured.
We establish a receivable for payments expected to be received within twelve months from the balance
sheet date based on the terms in the license. Our reporting of such payments often results in an increase to both
accounts receivable and deferred revenue. Deferred revenue associated with fixed-fee royalty payments is
classified on the balance sheet as short-term when it is scheduled to be amortized within twelve months from the
balance sheet date. All other deferred revenue is classified as long-term, as amounts to be recognized over the
next twelve months are not known.
Patent License Agreements
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
2015 Annual Report
84
arrangements with multiple deliverables. 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 Past Patent Royalties: 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 past patent
royalties 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 collectibility 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: These are 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: These are 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 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. As a result, it is impractical for us to recognize revenue in the period in which the
underlying sales occur, and, in most cases, 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. When a licensee is required to gross-up their
royalty payment to cover applicable foreign withholding tax requirements, the additional consideration is
recorded in revenue.
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.
Patent Sales
Our business strategy of monetizing our intellectual property includes the sale of select patent assets. As
patent sales executed under this strategy represent a component of our ongoing major or central operations and
activities, we will record the related proceeds as revenue. We will recognize the revenue when there is persuasive
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2015 Annual Report
evidence of a sales arrangement, fees are fixed or determinable, delivery has occurred and collectibility is
reasonably assured. These requirements are generally fulfilled upon closing of the patent sale transaction.
Technology Solutions and Engineering Services
Technology solutions revenue consists primarily of revenue from royalty payments. We recognize revenue
from royalty payments using the same methods described above under our policy for recognizing revenue from
patent license agreements. Technology solutions revenues also consist of revenues from software licenses and
engineering services. Software license revenues are recognized in accordance with the original and revised
guidance for software revenue recognition. When the arrangement with a customer includes significant
production, modification, or customization of the software, we recognize the related revenue using the
percentage-of-completion method in accordance with the accounting guidance for construction-type and certain
production-type contracts. Under this method, revenue and profit are recognized throughout the term of the
contract, based on actual labor costs incurred to date as a percentage of the total estimated labor costs related to
the contract. Changes in estimates for revenues, costs and profits are recognized in the period in which they are
determinable. When such estimates indicate that costs will exceed future revenues and a loss on the contract
exists, a provision for the entire loss is recognized at that time.
We recognize revenues associated with engineering service arrangements that are outside the scope of the
accounting guidance for construction-type and certain production-type contracts on a straight-line basis, unless
evidence suggests that the revenue is earned in a different pattern, over the contractual term of the arrangement
or the expected period during which those specified services will be performed, whichever is longer. In such
cases we often recognize revenue using proportional performance and measure the progress of our performance
based on the relationship between incurred labor hours and total estimated labor hours or other measures of
progress, if available. Our most significant cost has been labor and we believe both labor hours and labor cost
provide a measure of the progress of our services. The effect of changes to total estimated contract costs is
recognized in the period such changes are determined.
Deferred Charges
From time to time, we use sales agents to assist us in our licensing and/or patent sale activities. In such
cases, we may pay a commission. The commission rate varies from agreement to agreement. Commissions are
normally paid shortly after our receipt of cash payments associated with the patent license or patent sale
agreements. We defer recognition of commission expense related to both prepayments and fixed-fee royalty
payments and amortize these expenses in proportion to our recognition of the related revenue. In 2015, 2014 and
2013, we paid cash commissions of less than $0.1 million, approximately $0.3 million and less than $0.1 million,
respectively.
Incremental direct costs incurred related to acquisition or origination of a customer contract in a transaction
that results in the deferral of revenue may be either expensed as incurred or capitalized. The only eligible costs
for deferral are those costs directly related to a particular revenue arrangement. We capitalize those direct costs
incurred for the acquisition of a contract through the date of signing, and amortize them on a straight-line basis
license agreement. There were no direct contract origination costs incurred
over the life of the patent
during 2015, 2014, or 2013.
Incremental direct costs incurred related to a debt financing transaction may be capitalized. In connection
with our offerings of the Notes, discussed in detail within Note 6, Obligations, we incurred directly related costs.
The initial purchasers’ transaction fees and related offering expenses were allocated to the liability and equity
components of the debt in proportion to the allocation of proceeds and accounted for as debt issuance costs. The
debt issuance costs allocated to the liability component of the debt were capitalized as deferred financing costs
and recorded as a direct reduction of the debt. These costs are being amortized to interest expense over the term
of the debt using the effective interest method. The costs allocated to the equity component of the debt were
recorded as a reduction of the equity component of the debt.
2015 Annual Report
86
There were no debt issuance costs incurred in 2014 or 2013.
Deferred charges are recorded in our Consolidated Balance Sheets within the following captions (in
thousands):
December 31,
2015
2014
Prepaid and other current assets
Deferred commission expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred contract origination costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 245
—
$ 342
79
Other non-current assets
Deferred commission expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred contract origination costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
196
—
495
79
Long-term debt (including current portion of long-term debt)
Deferred financing costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
6,117
1,629
Commission expense was approximately $0.6 million, $0.4 million and $0.3 million in 2015, 2014 and
2013, respectively. Commission expense is included within the Patent administration and licensing line of our
Consolidated Statements of Income. Deferred contract origination expense recognized in 2015, 2014 and 2013
was less than $0.1 million in each period and is included within the Patent administration and licensing line of
our Consolidated Statements of Income. Deferred financing expense was $2.5 million in 2015 and $1.3 million in
both 2014 and 2013. Deferred financing expense is included within the Other Expense (Net) line of our
Consolidated Statements of Income.
Research and Development
Research and development expenditures are expensed in the period incurred, except certain software
development costs that are capitalized between the point in time that technological feasibility of the software is
established and when the product is available for general release to customers. We did not have any capitalized
software costs related to research and development in any period presented. Research, development and other
related costs were approximately $72.7 million, $75.3 million and $64.7 million in 2015, 2014 and 2013,
respectively.
Compensation Programs
Our compensation programs include, but are not limited to, short-term incentive awards tied to performance
goals and cash awards to inventors for filed patent applications and patent issuances, as well as stock option
awards, time-based restricted stock unit (“RSU”) awards and performance-based awards under our long-term
compensation program (“LTCP”). Our LTCP typically includes annual grants with a three-year vesting period; as
a result, in any one year, we are typically accounting for three active LTCP cycles.
The aggregate amount of performance compensation expense we record in a period, under both short-term
and long-term performance compensation programs, requires the input of subjective assumptions and is a
function of our estimated progress toward performance compensation goals at the beginning of the period, and
our estimated progress or final assessment of progress toward performance compensation goals at the end of the
period. Our estimated progress toward goals under performance equity grants is based on a meeting a minimum
confidence level in accordance with ASC 718. Achievement rates can vary by performance cycle and from
period to period, resulting in variability in our compensation expense.
We account for compensation costs associated with share-based transactions based on the fair value of the
instruments issued, net of any estimated award forfeitures. This requires us to make subjective assumptions
around the value of the equity at the time of issuance and the expected forfeiture rates, which in both cases are
87
2015 Annual Report
generally based on historical experience. At December 31, 2015, 2014 and 2013, we have estimated the forfeiture
rates for outstanding RSUs to be between 0% and 25% over their lives of one to three years, depending upon the
type of grant and the specific terms of the award issued. The estimated value of stock options includes
assumptions around expected life, stock volatility, and dividends. The expected life of our stock option awards
are based on the simplified method as prescribed by Staff Accounting Bulletin Topic 14. In all periods, our
policy has been to set the value of RSUs and restricted stock awards equal to the value of our underlying
common stock on the date of measurement. For grants with graded vesting, we amortize the associated
unrecognized compensation cost using an accelerated method. For grants that cliff vest, we amortize the
associated unrecognized compensation cost on a straight-line basis over their vesting term. In 2006, we adopted
the short-cut method to establish the historical additional paid-in-capital pool (“APIC Pool”) related to the tax
effects of employee share-based compensation. Any positive balance would be available to absorb tax shortfalls
(which occur when the tax deductions resulting from share-based compensation are less than the related book
expense) recognized subsequent to the adoption of the stock-based compensation guidance.
Impairment of Long-Lived Assets
We evaluate long-lived assets for impairment when factors indicate that the carrying value of an asset may
not be recoverable. When factors indicate that such assets should be evaluated for possible impairment, we
review whether we will be able to realize our long-lived assets by analyzing the projected undiscounted cash
flows in measuring whether the asset is recoverable. We recorded approximately $0.2 million of long-lived asset
impairments in 2015. We did not have any long-lived asset impairments in 2014 or 2013.
Income Taxes
Income taxes are accounted for under the asset and liability method. Under this method, deferred tax assets
and liabilities are recognized for the estimated future tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and liabilities and their respective tax bases, and operating
loss and tax credit carry forwards. Deferred tax assets and liabilities are measured using enacted tax rates in
effect for the year in which those temporary differences are expected to be recovered or settled. The effect on
deferred tax assets and liabilities of a change in tax rates is recognized in the Consolidated Statement of Income
in the period that includes the enactment date. A valuation allowance is recorded to reduce the carrying amounts
of deferred tax assets if management has determined that it is more likely than not that such assets will not be
realized.
In addition, the calculation of tax liabilities involves significant judgment in estimating the impact of
uncertainties in the application of complex tax laws. We are subject to examinations by the Internal Revenue
Service (“IRS”) and other taxing jurisdictions on various tax matters, including challenges to various positions
we assert in our filings. In the event that the IRS or another taxing jurisdiction levies an assessment in the future,
it is possible the assessment could have a material adverse effect on our consolidated financial condition or
results of operations.
The financial statement recognition of the benefit for a tax position is dependent upon the benefit being
more likely than not to be sustainable upon audit by the applicable tax authority. If this threshold is met, the tax
benefit is then measured and recognized at the largest amount that is greater than 50 percent likely of being
realized upon ultimate settlement. In the event that the IRS or another taxing jurisdiction levies an assessment in
the future, it is possible the assessment could have a material adverse effect on our consolidated financial
condition or results of operations.
Between 2006 and 2015, we paid approximately $295.1 million in foreign taxes for which we have claimed
foreign tax credits against our U.S. tax obligations. It is possible that as a result of tax treaty procedures, the
U.S. government may reach an agreement with the related foreign governments that will result in a partial refund
of foreign taxes paid with a related and offsetting reduction in our foreign tax credits. Due to both foreign
2015 Annual Report
88
currency fluctuations and differences in the interest rate charged by the U.S. government compared to the interest
rates, if any, used by the foreign governments, any such agreement could result in net interest expense and/or
foreign currency gain or loss.
During 2015, we estimated a research and development credit for the 2015 period that resulted in an
approximately $2.1 million tax benefit net of any unrecognized tax benefits. During 2014, we completed the
research and development credit studies for the periods from 2010 to 2013 and amended our United States
federal income tax returns for the periods from 2010 through 2012 to claim the research and development credit
for those periods. After all periods were amended and the 2013 federal income tax return was filed, we
recognized a net benefit after consideration of any unrecognized tax benefits from the tax credits in the amount of
$5.7 million. Additionally, in 2014, we recognized a benefit after consideration of any unrecognized tax benefits
of $0.9 million for the estimated research and development credit for 2014. In addition, in 2014, we recorded
$0.7 million of unrecognized tax benefits related to other matters.
Net Income Per Common Share
Basic Earnings Per Share (“EPS”) is calculated by dividing net income available to common shareholders
by the weighted-average number of common shares outstanding for the period. Diluted EPS reflects the potential
dilution that could occur if options or other securities with features that could result in the issuance of common
stock were exercised or converted to common stock. The following table reconciles the numerator and the
denominator of the basic and diluted net income per share computation (in thousands, except for per share data):
For the Year Ended December 31,
2015
2014
2013
Basic
Diluted
Basic
Diluted
Basic
Diluted
Numerator:
Net income applicable to common
shareholders . . . . . . . . . . . . . . . . . . . . . . . .
$119,225
$119,225
$104,342
$104,342
$38,165
$38,165
Denominator:
Weighted-average shares outstanding:
Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
36,048
36,048
39,420
39,420
41,115
41,115
Dilutive effect of stock options, RSUs and
convertible securities . . . . . . . . . . . . . . . . .
Weighted-average shares outstanding:
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Earnings Per Share:
415
36,463
459
309
39,879
41,424
Net income: Basic . . . . . . . . . . . . . . . . . . . . .
$
3.31
3.31
$
2.65
2.65
$
0.93
0.93
Dilutive effect of stock options, RSUs and
convertible securities . . . . . . . . . . . . . . . . .
Net income: Diluted . . . . . . . . . . . . . . . . . . .
(0.04)
$
3.27
(0.03)
$
2.62
(0.01)
$
0.92
Certain shares of common stock issuable upon the exercise or conversion of certain securities have been
excluded from our computation of earnings per share because the strike price or conversion rate, as applicable, of
such securities was less than the average market price of our common stock for the years ended December 31,
2015, 2014 and 2013, as applicable, and, as a result, the effect of such exercise or conversion would have been
anti-dilutive. Set forth below are the securities and the weighted average number of shares of common stock
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2015 Annual Report
underlying such securities that were excluded from our computation of earnings per share for the periods
presented (in thousands):
Restricted stock units and stock options . . . . . . . . . . . . . . . . . . . . . . .
Convertible securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Warrants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2015
211
7,656
7,656
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
15,523
2014
75
4,130
4,130
8,335
2013
79
4,130
4,130
8,339
For the Year Ended December 31,
New Accounting Guidance
Accounting Standards Update: Balance Sheet Classification of Deferred Taxes
In November 2015, as part of their simplification initiative, the FASB issued amendments to guidance for
reporting deferred taxes. According to the revised standard, an entity will be required to present deferred tax
assets and deferred tax liabilities as noncurrent in a classified balance sheet. Under current guidance, entities
separate deferred tax assets and deferred tax liabilities as current or noncurrent based on the classification of the
related asset or liability for financial reporting. The guidance is effective for interim and annual periods
beginning on or after December 15, 2016 but early adoption is permitted. We elected to early adopt this guidance
effective fourth quarter 2015, and we retrospectively applied the change within our Consolidated Balance Sheets
included in this Annual Report on Form 10-K. The impact of this change to our December 31, 2014 Consolidated
Balance Sheet was a reduction of $54.0 million to current deferred tax assets and a corresponding increase of
$54.0 million to noncurrent deferred tax assets.
Accounting Standards Update: Debt Issuance Costs
In March 2015, as part of their simplification initiative, the FASB issued amendments to guidance for
reporting debt issuance costs. According to the revised standard, an entity will recognize debt issuance costs as a
direct deduction from the debt liability as opposed to an asset. The costs will continue to be amortized and
included within interest expense in the entity’s financial statements. The guidance is effective for interim and
annual periods beginning on or after December 15, 2015 but early adoption is permitted. We elected to early
adopt
this guidance effective first quarter 2015, and we retrospectively applied the change within our
Consolidated Balance Sheets included in this Annual Report on Form 10-K. The impact of this change to our
December 31, 2014 Consolidated Balance Sheet was a reduction of $1.3 million and a reduction of $0.3 million
to Prepaid and other current assets and Other non-current assets, respectively, and a corresponding $1.6 million
reduction to Long-term debt.
Accounting Standards Update: Consolidation
In February 2015, the FASB issued ASU No. 2015-2, “Consolidation (Topic 820): Amendments to the
Consolidation Analysis.” ASU 2015-2 provides a revised consolidation model for all reporting entities to use in
evaluating whether they should consolidate certain legal entities. All legal entities will be subject to reevaluation
under this revised consolidation model. The revised consolidation model, among other things, (i) modifies the
evaluation of whether limited partnerships and similar legal entities are voting interest entities, or VIEs,
(ii) eliminates the presumption that a general partner should consolidate a limited partnership and (iii) modifies
the consolidation analysis of reporting entities that are involved with VIEs through fee arrangements and related
party relationships. ASU 2015-2 is effective for fiscal years, and interim reporting periods within those fiscal
years, beginning after December 15, 2015. We are still evaluating what impact, if any, this ASU will have on our
consolidated financial position, results of operations or cash flows.
2015 Annual Report
90
Accounting Standards Update: Revenue Recognition
In May 2014, the FASB issued guidance on revenue from contracts with customers that will supersede most
current revenue recognition guidance, including industry-specific guidance. The underlying principle is that an
entity will recognize revenue to depict the transfer of goods or services to customers at an amount that the entity
expects to be entitled to in exchange for those goods or services. The guidance provides a five-step analysis of
transactions to determine when and how revenue is recognized. Other major provisions include capitalization of
certain contract costs, consideration of time value of money in the transaction price, and allowing estimates of
variable consideration to be recognized before contingencies are resolved in certain circumstances. The guidance
also requires enhanced disclosures regarding the nature, amount, timing and uncertainty of revenue and cash
flows arising from an entity’s contracts with customers. The guidance is effective for the interim and annual
periods beginning on or after December 15, 2017 (early adoption is permitted as of annual reporting periods
beginning after December 15, 2016, including interim reporting periods within those annual periods). The
guidance permits the use of either a retrospective or cumulative effect transition method. We have not yet
selected a transition method. We are currently evaluating the effect that adopting this guidance will have on our
financial position, results of operations and cash flows.
Reclassifications
Certain reclassifications have been made to prior year amounts to conform to the current year presentation.
3.
SIGNIFICANT EVENTS
Patent License Agreements and Settlement Agreements
During second quarter 2015, we entered into a settlement agreement with Arima Communications
Corporation (“Arima”). The agreement maintains the existing patent license agreement and resolves all pending
payment disputes between the companies. In addition, the agreement resulted in the dismissal of all current
litigations and arbitrations between the companies in all jurisdictions. We recognized $27.2 million of past patent
royalties related to this settlement.
During third quarter 2015, we entered into a new patent license agreement with Sony (the “new Sony
PLA”). In addition, we renewed our joint venture with Sony, Convida Wireless, to continue investments in the
development of IoT technologies and expanded it to include development efforts in 5G technologies. As
discussed more fully in Note 14, “Variable Interest Entities,” Convida Wireless is a variable interest entity and is
consolidated within our financial statements.
Our agreement with Sony is a multiple-element arrangement for accounting purposes, which includes,
among other elements, the new Sony PLA. The new Sony PLA covers the sale by Sony of covered products for
the three-year period that commenced on December 1, 2015. In addition, the new Sony PLA covers Sony’s
covered product sales that occurred during certain prior periods and that were not covered under our prior
agreement with Sony. We recognized past sales of $21.8 million from this agreement in third quarter 2015, and
are recognizing future revenue from the new Sony PLA on a straight-line basis over its term. A portion of
consideration received was in the form of patents. Refer to Note 2, “Summary of Significant Accounting
Policies,” for additional information related to the estimates and methods used to determine the fair value of the
patents acquired.
During fourth quarter 2015, we entered into a new worldwide, non-exclusive, royalty bearing patent license
agreement with Kyocera. Our agreement with Kyocera is a multiple-element arrangement for accounting
purposes. The agreement covers Kyocera’s sale of certain cellular terminal unit products. We recognized $16.4
million of past patent royalties related to this settlement during fourth quarter 2015. A portion of the
consideration received was in the form of patents. Refer to Note 2, “Summary of Significant Accounting
Policies,” for additional information related to the estimates and methods used to determine the fair value of the
patents acquired.
91
2015 Annual Report
Additionally, during fourth quarter 2015, we entered into a settlement agreement with a technology
solutions customer. The agreement resolves all pending payment disputes between the parties. We recognized
$2.8 million of past technology solutions revenue, $1.8 million of interest income, a $0.5 million reversal of a
bad debt reserve and $0.4 million of contra-expenses related to this settlement.
Both of the patent license agreements signed during 2015, as discussed above, are multiple-element
arrangements for accounting purposes. Consistent with the revenue recognition policy disclosed in Note 2,
“Summary of Significant Accounting Policies,” for each agreement, we identified each element of the
arrangement, estimated its relative value for purposes of allocating the arrangement consideration and determined
when each of those elements should be recognized. Using the accounting guidance applicable to multiple-
element revenue arrangements, we allocated the consideration to each element for accounting purposes using our
best estimate of the term and value of each element. The development of a number of these inputs and
assumptions in the model requires a significant amount of management judgment and is based upon a number of
factors, including the assumed royalty rates, sales volumes, discount rate and other relevant factors. Changes in
any of a number of these assumptions could have had a substantial impact on the relative fair value assigned to
each element for accounting purposes. These inputs and assumptions represent management’s best estimates at
the time of the transactions.
Huawei Arbitration
In December 2013, InterDigital and Huawei reached a settlement agreement to enter into binding arbitration
to resolve their global patent licensing dispute. Pursuant to their agreement, InterDigital and Huawei initiated an
arbitration in April 2014 jointly seeking a determination by an arbitral tribunal of FRAND royalty terms and
conditions to be included in a binding worldwide patent license agreement to take effect upon issuance of the
arbitration award. An arbitration hearing was held in January 2015, and the arbitration panel delivered a
confidential partial award in May 2015 and a confidential final award in July 2015. In July 2015, InterDigital
filed a petition in the District Court for the Southern District of New York for an order confirming the arbitration
award (the “New York Proceeding”), and Huawei filed an action in the Paris Court of Appeal requesting
annulment of the arbitration award (the “Paris Proceeding”). Huawei also filed a motion to stay the New York
Proceeding pending the Paris Proceeding. A hearing in the New York Proceeding was held on February 16, 2016.
On February 17, 2016, the judge notified the parties that he had rendered a decision on Huawei’s motion to stay
the New York Proceeding, finding that the New York Proceeding should be stayed pending the Paris Proceeding,
subject to a requirement that Huawei post suitable security, pursuant to Article VI of the New York Convention,
in the amount of the final award, together with interest. The stay is subject to revision should circumstances
change, and InterDigital can renew its petition for an order confirming the award after the outcome of the Paris
Proceeding is determined. A hearing is scheduled in the Paris Proceeding for March 2016.
To date, Huawei has not made any payments under the arbitration award. We will recognize any related
revenue in the period in which the amount of revenue is fixed or determinable and collectability is reasonably
assured.
4. GEOGRAPHIC / CUSTOMER CONCENTRATION
We have one reportable segment. During 2015 and 2014, the majority of our revenue was derived from a
limited number of licensees based outside of the United States, primarily in Asia. Substantially all of these
revenues were paid in U.S. dollars and were not subject to any substantial foreign exchange transaction risk. The
2015 Annual Report
92
table below lists the countries of the headquarters of our licensees and customers and the total revenue derived
from each country or region for the periods indicated (in thousands):
For the Year Ended December 31,
2015
2014
2013
Taiwan (a)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
South Korea . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
United States . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Japan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Canada . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Sweden . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Germany . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other Europe . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
China . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other Asia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$218,584
69,000
65,703
53,775
13,151
6,934
6,712
4,807
2,768
1
$115,955
144,398
53,163
52,194
15,422
24,530
5,293
4,064
800
2
$128,551
15,334
108,728
27,494
36,148
—
4,539
3,004
1,563
—
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$441,435
$415,821
$325,361
(a) We are engaged in a legal dispute with Pegatron Corporation (“Pegatron”), our largest Taiwan-based
customer, regarding, among other things, the terms of our patent license agreement, and we are the subject
of an investigation by the Taiwan Fair Trade Commission. See Note 8, “Litigation and Legal Proceedings,”
in these Notes to Condensed Consolidated Financial Statements.
During 2015, 2014 and 2013, the following licensees or customers accounted for 10% or more of total
revenues:
Pegatron (a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Samsung (b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Sony (c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Intel Mobile Communications GmbH (d) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2015
2014
2013
31% 18% 30%
16% 33% —%
14% < 10% 12%
< 10% < 10% 18%
(a) 2013 revenues include $71.4 million of past patent royalties. As noted above, we are engaged in a legal
dispute with Pegatron. See Note 8, “Litigation and Legal Proceedings,” in these Notes to Condensed
Consolidated Financial Statements.
(b) 2014 revenues include $86.2 million of past patent royalties.
(c) 2015 revenues include $21.8 million of past patent royalties
(d) 2013 revenues include $53.3 million of past technology solutions revenue.
At December 31, 2015, 2014 and 2013, we held $289.7 million, $278.1 million and $215.9 million,
respectively, or nearly 100% in each year, of our property and equipment and patents in the United States net of
accumulated depreciation and amortization. At each of December 31, 2015, 2014 and 2013, we held less than
$0.1 million of property and equipment, net of accumulated depreciation, collectively, in Canada, the United
Kingdom and South Korea.
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2015 Annual Report
5.
PROPERTY AND EQUIPMENT
December 31,
2015
2014
Computer equipment and software . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Engineering and test equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Building and improvements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Leasehold improvements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Furniture and fixtures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 30,066
12,321
11,356
7,544
1,513
695
$ 27,678
11,970
11,076
7,406
1,292
695
Property and equipment, gross . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less: accumulated depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
63,495
(51,347)
60,117
(47,571)
Property and equipment, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 12,148
$ 12,546
Depreciation expense was $3.8 million, $3.9 million and $3.6 million in 2015, 2014 and 2013, respectively.
Depreciation expense included depreciation of computer software costs of $1.4 million, $1.4 million and $1.0
million in 2015, 2014 and 2013, respectively. Accumulated depreciation related to computer software costs was
$15.6 million and $14.3 million at December 31, 2015 and 2014, respectively. The net book value of our
computer software was $1.2 million and $2.2 million at December 31, 2015 and 2014, respectively.
During second quarter 2015, we sold our facility in King of Prussia, Pennsylvania, to a third party and
entered into a limited leaseback arrangement for a period not to exceed one year, for net consideration of $4.5
million. The carrying amount of the assets to be sold was $1.1 million as of December 31, 2015, and is still
included within Property and Equipment. The gain related to the sale will be recorded within Other Income in our
Consolidated Statements of Operations, and the assets sold will be removed from Property and Equipment, at the
completion of the lease term.
6. OBLIGATIONS
2.50% Senior Convertible Notes due 2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1.50% Senior Convertible Notes due 2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less:
Unamortized interest discount . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred financing costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total debt obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less: Current portion of long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . .
December 31,
2015
2014
$230,000
316,000
$230,000
—
(53,114)
(6,117)
486,769
227,174
(12,165)
(1,629)
216,206
—
Long-term debt obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$259,595
$216,206
There were no capital leases remaining at December 31, 2015 or December 31, 2014.
2015 Annual Report
94
Maturities of principal of the long-term debt obligations of the Company as of December 31, 2015 are as
follows (in thousands):
2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$230,000
—
—
—
316,000
—
$546,000
2016 Senior Convertible Notes and related Note Hedge and Warrant Transactions
In April, 2011, we issued $230.0 million in aggregate principal amount of 2.50% Senior Convertible Notes
due 2016 (the “2016 Notes”). The 2016 Notes bear interest at a rate of 2.50% per year, payable in cash on
March 15 and September 15 of each year, and mature on March 15, 2016, unless earlier converted or
repurchased.
The 2016 Notes are convertible into cash and, if applicable, shares of our common stock at a current
conversion rate of 18.2166 shares of common stock per $1,000 principal amount of 2016 Notes (which is
equivalent to a conversion price of approximately $54.90 per share), as adjusted as of January 11, 2016 pursuant
to the terms of the Indenture for the 2016 Notes. Commencing on December 15, 2015, the 2016 Notes are
convertible in multiples of $1,000 principal amount, at any time prior to 5:00 p.m., New York City time, on the
business day immediately preceding March 15, 2016, the maturity date of the 2016 Notes. Upon any conversion,
the conversion obligation will be settled in cash up to, and including, the principal amount and, to the extent of
any excess over the principal amount, in shares of common stock.
The Company may not redeem the 2016 Notes prior to their maturity date.
On March 29 and March 30, 2011, in connection with the offering of the 2016 Notes, InterDigital entered
into convertible note hedge transactions that cover, subject to customary anti-dilution adjustments, approximately
3.5 million and approximately 0.5 million shares of our common stock, respectively, at an initial strike price that
corresponded to the initial conversion price of the 2016 Notes and are exercisable upon conversion of the 2016
Notes.
On April 4, 2011, we paid $37.1 million and $5.6 million for the convertible note hedge transactions entered
into on March 29 and March 30, 2011, respectively. The aggregate cost of the convertible note hedge
transactions was $42.7 million. As described in more detail below, this cost was partially offset by the proceeds
from the sale of the warrants described below.
On March 29 and March 30, 2011, we sold warrants to acquire, subject to customary anti-dilution
adjustments, approximately 3.5 million shares and approximately 0.5 million shares, respectively, of common
stock. The warrants have a current strike price of approximately $63.18 per share, as adjusted as of January 11,
2016 in connection with the above-referenced adjustment to the conversion rate of the 2016 Notes. The warrants
become exercisable in tranches starting in June 2016. As consideration for the warrants issued on March 29 and
March 30, 2011, we received, on April 4, 2011, $27.6 million and $4.1 million, respectively.
Accounting Treatment of the 2016 Notes and the related Convertible Note Hedge and Warrant Transactions
The offering of the 2016 Notes on March 29, 2011 was for $200.0 million and included an overallotment
option that allowed the initial purchaser to purchase up to an additional $30.0 million aggregate principal amount
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of 2016 Notes. The initial purchaser exercised its overallotment option on March 30, 2011, bringing the total
amount of 2016 Notes issued on April 4, 2011 to $230.0 million.
In connection with the offering of the 2016 Notes, as discussed above, we entered into convertible note
hedge transactions with respect to our common stock. The $42.7 million cost of the convertible note hedge
transactions was partially offset by the proceeds from the sale of the warrants described above, resulting in a net
cost of $10.9 million.
Existing accounting guidance provided that the March 29, 2011 convertible note hedge and warrant
contracts be treated as derivative instruments for the period during which the initial purchaser’s overallotment
option was outstanding. Once the overallotment provision was exercised on March 30, 2011, the March 29
convertible note hedge and warrant contracts were reclassified to equity, as the settlement
terms of the
Company’s note hedge and warrant contracts both provide for net share settlement. There was no material net
change in the value of these convertible note hedges and warrants during the one day they were classified as
derivatives and the equity components of these instruments will not be adjusted for subsequent changes in fair
value.
Under current accounting guidance, we bifurcated the proceeds from the offering of the 2016 Notes between
the liability and equity components of the debt. On the date of issuance, the liability and equity components were
calculated to be approximately $187.0 million and $43.0 million, respectively. The initial $187.0 million liability
component was determined based on the fair value of similar debt instruments excluding the conversion feature.
The initial $43.0 million ($28.0 million net of tax) equity component represents the difference between the fair
value of the initial $187.0 million in debt and the $230.0 million of gross proceeds. The related initial debt
discount of $43.0 million is being amortized using the effective interest method over the life of the 2016 Notes.
An effective interest rate of 7% was used to calculate the debt discount on the 2016 Notes.
In connection with the above-noted transactions, we incurred $8.0 million of directly related costs. The
initial purchaser’s transaction fees and related offering expenses were allocated to the liability and equity
components of the debt in proportion to the allocation of proceeds and accounted for as debt issuance costs. We
allocated $6.5 million of debt issuance costs to the liability component of the debt, which were capitalized as
deferred financing costs. These costs are being amortized to interest expense over the term of the debt using the
effective interest method. The remaining $1.5 million of costs allocated to the equity component of the debt were
recorded as a reduction of the equity component of the debt.
2020 Senior Convertible Notes and related Note Hedge and Warrant Transactions
On March 11, 2015, we issued $316.0 million in aggregate principal amount of 1.50% Senior Convertible
Notes due 2020 (the “2020 Notes”). The 2020 Notes bear interest at a rate of 1.50% per year, payable in cash on
March 1 and September 1 of each year, commencing September 1, 2015, and mature on March 1, 2020, unless
earlier converted or repurchased.
The 2020 Notes will be convertible into cash, shares of our common stock or a combination thereof, at our
election, at an initial conversion rate of 13.8172 shares of common stock per $1,000 principal amount of 2020
Notes (which is equivalent to an initial conversion price of approximately $72.37 per share). It is our current
intent and policy to settle all conversions through combination settlement of cash and shares of common stock,
with a specified dollar amount of $1,000 per $1,000 principal amount of the 2020 Notes and any remaining
amounts in shares.
Prior to 5:00 p.m., New York City time, on the business day immediately preceding December 1, 2019, the
2020 Notes will be convertible only under certain circumstances as set forth in the indenture to the 2020 Notes.
Commencing on December 1, 2019, the 2020 Notes will be convertible in multiples of $1,000 principal amount,
at any time prior to 5:00 p.m., New York City time, on the second scheduled trading day immediately preceding
the maturity date of the 2020 Notes.
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96
The Company may not redeem the 2020 Notes prior to their maturity date.
On March 5 and March 9, 2015, in connection with the offering of the 2020 Notes, we entered into
convertible note hedge transactions that cover approximately 3.8 million and approximately 0.6 million shares of
our common stock, respectively, at a strike price that corresponds initially to the initial conversion price of the
2020 Notes and are exercisable upon conversion of the 2020 Notes.
The cost of the March 5 and March 9, 2015 convertible note hedge transactions was approximately $51.7
million and approximately $7.7 million, respectively.
On March 5 and March 9, 2015, we sold warrants to acquire, subject to customary anti-dilution adjustments,
approximately 3.8 million and approximately 0.6 million, respectively, of common stock at an initial strike price
of approximately $88.46 per share. The warrants become exercisable in tranches starting in June 2020. As
consideration for the warrants issued on March 5 and March 9, 2015, we received approximately $37.3 million
and approximately $5.6 million, respectively.
We also repurchased 0.8 million shares of our common stock at $53.61 per share, the closing price of the
stock on March 5, 2015, from institutional investors through one of the initial purchasers and its affiliate, as our
agent, concurrently with the pricing of the offering of the 2020 Notes.
Accounting Treatment of the 2020 Notes and related Convertible Note Hedge and Warrant Transactions
The offering of the 2020 Notes on March 5, 2015 was for $275.0 million and included an overallotment
option that allowed the initial purchasers to purchase up to an additional $41.0 million aggregate principal
amount of 2020 Notes. The initial purchasers exercised their overallotment option on March 9, 2015, bringing the
total amount of 2020 Notes issued on March 11, 2015 to $316.0 million.
In connection with the offering of the 2020 Notes, as discussed above, we entered into convertible note
hedge transactions with respect to our common stock. The $59.4 million cost of the convertible note hedge
transactions was partially offset by the proceeds from the sale of the warrants described above, resulting in a net
cost of $16.5 million. Both the convertible note hedge and warrants were classified as equity.
We bifurcated the proceeds from the offering of the 2020 Notes between liability and equity components.
On the date of issuance, the liability and equity components were calculated to be approximately $256.7 million
and $59.3 million, respectively. The initial $256.7 million liability component was determined based on the fair
value of similar debt instruments excluding the conversion feature. The initial $59.3 million ($38.6 million net of
tax) equity component represents the difference between the fair value of the initial $256.7 million in debt and
the $316.0 million of gross proceeds. The related initial debt discount of $59.3 million is being amortized using
the effective interest method over the life of the 2020 Notes. An effective interest rate of 5.89% was used to
calculate the debt discount on the 2020 Notes.
In connection with the above-noted transactions, we incurred $9.3 million of directly related costs. The
initial purchasers’ transaction fees and related offering expenses were allocated to the liability and equity
components in proportion to the allocation of proceeds and accounted for as debt and equity issuance costs,
respectively. We allocated $7.0 million of debt issuance costs to the liability component, which were capitalized
as deferred financing costs. These costs are being amortized to interest expense over the term of the debt using
the effective interest method. The remaining $2.4 million of costs allocated to the equity component were
recorded as a reduction of the equity component.
As described in Note 2, “Summary of Significant Accounting Policies,” in March 2015, as part of their
simplification initiative, the FASB issued amendments to guidance for reporting debt issuance costs. According
to the revised standard, an entity will recognize debt issuance costs as a direct deduction from the debt liability as
opposed to an asset.
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2015 Annual Report
The following table presents the amount of interest cost recognized for the years ended December 31, 2015,
2014 and 2013 related to the contractual interest coupon, accretion of the debt discount and the amortization of
financing costs (in thousands).
Contractual coupon interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accretion of debt discount . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortization of financing costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 9,568
18,384
2,485
$ 5,750
9,022
1,303
$ 5,750
8,423
1,303
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$30,437
$16,075
$15,476
For the Year Ended December 31,
2015
2014
2013
7. COMMITMENTS
Leases
We have entered into various operating lease agreements. Total rent expense, primarily for office space, was
$3.3 million, $3.2 million and $3.3 million in 2015, 2014 and 2013, respectively. Minimum future rental
payments for operating leases as of December 31, 2015 are as follows (in thousands):
2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$4,186
3,173
2,918
2,872
1,995
7,781
8. LITIGATION AND LEGAL PROCEEDINGS
ARBITRATIONS AND COURT PROCEEDINGS (OTHER THAN DE DISTRICT COURT ACTIONS
RELATED TO USITC PROCEEDINGS)
Huawei Arbitration
On December 23, 2013, InterDigital and Huawei agreed to engage in an expedited binding arbitration to
resolve their licensing disputes. Pursuant to their agreement, on April 9, 2014, InterDigital and Huawei initiated
an arbitration with the International Court of Arbitration of the International Chamber of Commerce (ICC)
jointly seeking a determination by an arbitral tribunal of FRAND royalty terms and conditions to be included in a
binding worldwide patent license agreement to take effect upon issuance of the arbitration award. An arbitration
hearing was held on January 12-16, 2015. On May 26, 2015, the panel convened by the ICC delivered a
confidential partial award. The panel convened by the ICC delivered a confidential final award dated July 14,
2015.
On July 9, 2015, InterDigital filed a petition in the District Court for the Southern District of New York for
an order confirming the arbitration award (the “New York Proceeding”). On the same day, Huawei filed an
action in the Paris Court of Appeal requesting annulment of the arbitration award (the “Paris Proceeding”).
On July 24, 2015, Huawei opposed InterDigital’s petition in the New York Proceeding and filed a motion to
stay the New York Proceeding pending the Paris Proceeding. On August 14, 2015, InterDigital amended its
petition in the New York Proceeding to take into account the issuance of the arbitration panel’s final award. A
hearing in the New York Proceeding was held on February 16, 2016. On February 17, 2016, the judge notified
the parties that he had rendered a decision on Huawei’s motion to stay the New York Proceeding, finding that the
New York Proceeding should be stayed pending the Paris Proceeding, subject to a requirement that Huawei post
suitable security, pursuant to Article VI of the New York Convention, in the amount of the final award, together
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98
with interest. The stay is subject to revision should circumstances change, and InterDigital can renew its petition
for an order confirming the award after the outcome of the Paris Proceeding is determined.
Huawei filed its brief seeking annulment in the Paris Proceeding on July 24, 2015. A hearing in the Paris
Proceeding is scheduled for March 8, 2016.
To date, Huawei has not made any payments under the arbitration award. We will recognize any related
revenue in the period in which the amount of revenue is fixed or determinable and collectability is reasonably
assured.
Huawei China Proceedings
On February 21, 2012, InterDigital was served with two complaints filed by Huawei Technologies Co., Ltd.
in the Shenzhen Intermediate People’s Court in China on December 5, 2011. The first complaint named as
defendants InterDigital, Inc. and its wholly owned subsidiaries InterDigital Technology Corporation and
InterDigital Communications, LLC (now InterDigital Communications, Inc.), and alleged that InterDigital had
abused its dominant market position in the market for the licensing of essential patents owned by InterDigital by
engaging in allegedly unlawful practices, including differentiated pricing, tying and refusal to deal. The second
complaint named as defendants the Company’s wholly owned subsidiaries InterDigital Technology Corporation,
InterDigital Communications, LLC (now InterDigital Communications, Inc.), InterDigital Patent Holdings, Inc.
and IPR Licensing, Inc. and alleged that InterDigital had failed to negotiate on FRAND terms with
Huawei. Huawei asked the court to determine the FRAND rate for licensing essential Chinese patents to Huawei
and also sought compensation for its costs associated with this matter.
On February 4, 2013, the Shenzhen Intermediate People’s Court issued rulings in the two proceedings. With
respect to the first complaint, the court decided that InterDigital had violated the Chinese Anti-Monopoly Law by
(i) making proposals for royalties from Huawei that the court believed were excessive, (ii) tying the licensing of
essential patents to the licensing of non-essential patents, (iii) requesting as part of its licensing proposals that
Huawei provide a grant-back of certain patent rights to InterDigital and (iv) commencing a USITC action against
Huawei while still in discussions with Huawei for a license. Based on these findings, the court ordered
InterDigital to cease the alleged excessive pricing and alleged improper bundling of InterDigital’s Chinese
essential and non-essential patents, and to pay Huawei 20.0 million RMB (approximately $3.2 million) in
damages related to attorneys’ fees and other charges, without disclosing a factual basis for its determination of
damages. The court dismissed Huawei’s remaining allegations, including Huawei’s claim that InterDigital
improperly sought a worldwide license and improperly sought to bundle the licensing of essential patents on
multiple generations of technologies. With respect to the second complaint, the court determined that, despite the
fact that the FRAND requirement originates from ETSI’s Intellectual Property Rights policy, which refers to
French law, InterDigital’s license offers to Huawei should be evaluated under Chinese law. Under Chinese law,
the court concluded that the offers did not comply with FRAND. The court further ruled that the royalties to be
paid by Huawei for InterDigital’s 2G, 3G and 4G essential Chinese patents under Chinese law should not exceed
0.019% of the actual sales price of each Huawei product.
On March 11, 2013, InterDigital filed notices of appeal with respect to the judgments in both proceedings,
seeking reversal of the court’s February 4, 2013 rulings. On October 16, 2013, the Guangdong Province High
Court issued a ruling affirming the ruling of the Shenzhen Intermediate People’s Court in the second proceeding,
and on October 21, 2013, issued a ruling affirming the ruling of the Shenzhen Intermediate People’s Court in the
first proceeding.
InterDigital believes that the decisions are seriously flawed both legally and factually. For instance, in
determining a purported FRAND rate, the Chinese courts applied an incorrect economic analysis by evaluating
InterDigital’s lump-sum patent license agreement with Apple in hindsight to posit a running royalty rate. Indeed,
the ALJ in USITC Inv. No. 337-TA-800 rejected that type of improper analysis. Moreover, the Chinese courts
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2015 Annual Report
had an incomplete record and applied incorrect facts, including with respect to InterDigital’s now-expired license
agreement with Apple, which had been found in an arbitration between InterDigital and Apple to be limited in
scope.
On April 14, 2014, InterDigital filed a petition for retrial of the second proceeding with the Chinese
Supreme People’s Court (“SPC”), seeking dismissal of the judgment or at least a higher, market-based royalty
rate for a license to InterDigital’s Chinese standards-essential patents (“SEPs”). The petition for retrial argues,
for example, that (1) the lower court improperly determined a Chinese FRAND running royalty rate by using as a
benchmark the Apple lump sum fixed payment license agreement, and looking in hindsight at the unexpectedly
successful sales of Apple iPhones to construct an artificial running royalty rate that neither InterDigital nor Apple
could have intended and that would have varied significantly depending on the relative success or failure in
hindsight of Apple iPhone sales; (2) the Apple license agreement was also an inappropriate benchmark because
its scope of product coverage was significantly limited as compared to the license that the court was considering
for Huawei, particularly when there are other more comparable license agreements; and (3) if the appropriate
benchmarks had been used, and the court had considered the range of royalties offered by other similarly situated
SEP holders in the wireless telecommunications industry, the court would have determined a FRAND royalty
that was substantially higher than 0.019%, and would have found, consistent with findings of the ALJ’s initial
determination in the USITC 337-TA-800 proceeding, that there was no proof that InterDigital’s offers to Huawei
violated its FRAND commitments.
The SPC held a hearing on October 31, 2014, regarding whether to grant a retrial and requested that both
parties provide additional information regarding the facts and legal theories underlying the case. The SPC
convened a second hearing on April 1, 2015 regarding whether to grant a retrial. InterDigital continues to provide
additional information to the SPC in support of its petition for retrial. If the retrial is granted, the SPC will likely
schedule one or more additional hearings before it issues a decision on the merits of the case.
ZTE China Proceedings
On July 10 and 11, 2014, InterDigital was served with two complaints filed by ZTE Corporation in the
Shenzhen Intermediate People’s Court in China on April 3, 2014. The first complaint names as defendants the
Company’s wholly owned subsidiaries InterDigital Technology Corporation, InterDigital Communications, Inc.,
InterDigital Patent Holdings, Inc. and IPR Licensing, Inc. This complaint alleges that InterDigital has failed to
comply with its FRAND obligations for the licensing of its Chinese standards-essential patents. ZTE is asking the
court to determine the FRAND rate for licensing InterDigital’s standards-essential Chinese patents to ZTE and
also seeks compensation for its litigation costs associated with this matter. The second complaint names as
defendants InterDigital, Inc. and its wholly owned subsidiaries InterDigital Technology Corporation and
InterDigital Communications, Inc. This complaint alleges that InterDigital has a dominant market position in
China and the United States in the market for the licensing of essential patents owned by InterDigital, and abused
its dominant market position in violation of the Chinese Anti-Monopoly Law by engaging in allegedly unlawful
practices, including excessively high pricing, tying, discriminatory treatment, and imposing unreasonable trading
conditions. ZTE seeks relief in the amount of 20.0 million RMB (approximately $3.1 million based on the
exchange rate as of December 31, 2015), an order requiring InterDigital to cease the allegedly unlawful conduct
and compensation for its litigation costs associated with this matter.
On August 7, 2014, InterDigital filed petitions challenging the jurisdiction of the Shenzhen Intermediate
People’s Court to hear the actions. On August 28, 2014, the court denied InterDigital’s jurisdictional challenge
with respect to the anti-monopoly law case. InterDigital filed an appeal of this decision on September 26, 2014.
On September 28, 2014, the court denied InterDigital’s jurisdictional challenge with respect to the FRAND case,
and InterDigital filed an appeal of that decision on October 27, 2014. On December 18, 2014, the Guangdong
High Court issued decisions on both appeals upholding the Shenzhen Intermediate Court’s decisions that it had
jurisdiction to hear these cases. On February 10, 2015, InterDigital filed a petition for retrial with the Supreme
People’s Court regarding its jurisdictional challenges to both cases.
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100
The Shenzhen Court held hearings on the anti-monopoly law case on May 11, 13, 15 and 18, 2015. At the
May hearings, ZTE withdrew its claims alleging discriminatory treatment and the imposition of unfair trading
conditions and increased its damages claim to 99.8 million RMB (approximately $15.4 million based on the
exchange rate as of December 31, 2015). The Shenzhen Court held hearings in the FRAND case on July 29-31,
2015 and held a second hearing on the anti-monopoly law case on October 12, 2015. It is possible that the court
may schedule further hearings in these cases before issuing its decisions.
The Company has not recorded any accrual at December 31, 2015 for contingent losses associated with
these matters based on its belief that losses, while possible, are not probable in accordance with accounting
guidance. Further, any possible range of loss cannot be reasonably estimated at this time.
LG Arbitration
On March 19, 2012, LG Electronics, Inc. filed a demand for arbitration against the Company’s wholly
owned subsidiaries InterDigital Technology Corporation, IPR Licensing, Inc. and InterDigital Communications,
LLC (now InterDigital Communications, Inc.) with the American Arbitration Association’s International Centre
for Dispute Resolution (“ICDR”), initiating an arbitration in Washington, D.C. LG sought a declaration that it
held a continuing license to certain technology owned by InterDigital under the parties’ patent license agreement
dated January 1, 2006 (the “2006 LG PLA”). On April 18, 2012, InterDigital filed an Answering Statement
objecting to the jurisdiction of the ICDR on the ground that LG’s claims are not arbitrable, and denying all
claims made by LG in its demand for arbitration. The issue of whether LG’s claim to arbitrability is wholly
groundless was appealed to the Federal Circuit. On June 7, 2013, the Federal Circuit issued an opinion holding
that the USITC erred in terminating USITC Proceeding (337-TA-800) as to LG because “there is no plausible
argument that the parties’ dispute in this case arose under their patent license agreement” and finding that “LG’s
assertion of arbitrability was ‘wholly groundless.’” The Federal Circuit reversed the USITC’s order terminating
the USITC proceeding as to LG and remanded to the USITC for further proceedings.
On June 25, 2013, the arbitration tribunal granted the parties’ joint request to stay the arbitration pending the
exhaustion of all appellate rights from the Federal Circuit’s decision. As noted above, LG filed a petition for a
writ of certiorari with the U.S. Supreme Court challenging the Federal Circuit’s ruling on December 31, 2013,
and on April 21, 2014, the Supreme Court granted LG’s petition, vacating the underlying Federal Circuit decision
and remanding the case to the Federal Circuit with instructions to dismiss the case as moot (in light of
InterDigital’s decision to terminate the 337-TA-800 investigation as to LG).
On June 9, 2014, the arbitration tribunal lifted the temporary stay at the request of the parties. The
arbitration tribunal held an evidentiary hearing on July 20-22, 2015 and a supplemental oral argument on
October 19, 2015. On December 29, 2015, the arbitration tribunal issued its final award. Rejecting LG’s
arguments, the arbitration tribunal found that LG’s license with respect to 3G products under the 2006 LG PLA
had terminated as of December 31, 2010, at the expiration of the 2006 LG PLA’s five-year term, and that only
LG’s paid-up license with respect to 2G-only products survived the expiration of the term. On February 5, 2016,
InterDigital filed a petition in the District Court for the Southern District of New York for an order confirming
the arbitration award.
Pegatron Actions
In first quarter 2015, we learned that on or about February 3, 2015, Pegatron Corporation (“Pegatron”), one
of our licensees, filed a civil suit in Taiwan Intellectual Property Court against InterDigital, Inc. and certain of its
subsidiaries alleging breach of the Taiwan Fair Trade Act (the “Pegatron Taiwan Action”). On May 26, 2015,
InterDigital, Inc. received a copy of the civil complaint filed by Pegatron in the Taiwan Intellectual Property
Court. The complaint named as defendants InterDigital, Inc. as well as InterDigital’s wholly owned subsidiaries
InterDigital Technology Corporation and IPR Licensing, Inc. (together, for purposes of this discussion,
“InterDigital”). The complaint alleged that InterDigital abused its market power by improperly setting,
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maintaining or changing the royalties Pegatron is required to pay under their 2008 patent license agreement (the
“Pegatron PLA”), and engaging in unreasonable discriminatory treatment and other unfair competition activities
in violation of the Taiwan Fair Trade Act. The complaint sought minimum damages in the amount of
approximately $52 million, which amount could be expanded during the litigation, and that the court order
multiple damages based on its claim that the alleged conduct was intentional. The complaint also sought an order
requiring InterDigital to cease enforcing the royalty provisions of the Pegatron PLA, as well as all other conduct
that allegedly violates the Fair Trade Act.
On June 5, 2015 InterDigital filed an Arbitration Demand with the American Arbitration Association’s
International Centre for Dispute Resolution (“ICDR”) seeking declaratory relief denying all of the claims in
Pegatron’s Taiwan Action and for breach of contract. On or about June 10, 2015, InterDigital filed a complaint in
the United States District Court for the Northern District of California, San Jose Division (the “CA Northern
District Court”) seeking a Temporary Restraining Order, Preliminary Injunction, and Permanent Anti-suit
Injunction against Pegatron prohibiting Pegatron from prosecuting the Pegatron Taiwan Action. The complaint
also seeks specific performance by Pegatron of the dispute resolution procedures set forth in the Pegatron PLA
and compelling arbitration of the disputes in the Pegatron Taiwan Action. On June 29, 2015, the court granted
InterDigital’s motion for a temporary restraining order and preliminary injunction requiring Pegatron to take
immediate steps to dismiss the Taiwan Action without prejudice. On July 1, 2015, InterDigital was informed that
Pegatron had withdrawn its complaint in the Taiwan Intellectual Property Court and that the case had been
dismissed without prejudice.
On August 3, 2015, Pegatron filed an answer and counterclaims to InterDigital’s CA Northern District Court
complaint. Pegatron accused InterDigital of violating multiple sections of the Taiwan Fair Trade Act, violating
Section Two of the Sherman Act, breaching ETSI, IEEE, and ITU contracts, promissory estoppel (pled in the
alternative), violating Section 17200 of the California Business & Professions Code, and violating the Delaware
Consumer Fraud Act. These counterclaims stem from Pegatron’s accusation that InterDigital violated FRAND
obligations. As relief, Pegatron seeks a declaration regarding the appropriate FRAND terms and conditions for
InterDigital’s “declared essential patents,” a declaration that InterDigital’s standard essential patents are
unenforceable due to patent misuse, an order requiring InterDigital to grant Pegatron a license on FRAND terms,
an order enjoining InterDigital’s alleged ongoing breaches of its FRAND commitments, and damages in the
amount of allegedly excess non-FRAND royalties Pegatron has paid to InterDigital, plus interest and treble
damages. On August 7, 2015, Pegatron responded to InterDigital’s arbitration demand, disputing the arbitrability
of Pegatron’s claims. On September 24, 2015, InterDigital moved to compel arbitration and dismiss Pegatron’s
counterclaims or, in the alternative, stay the counterclaims pending the parties’ arbitration. Pegatron’s opposition
to this motion was filed on October 22, 2015, and InterDigital’s reply was filed on November 12, 2015. On
January 20, 2016, the court granted InterDigital’s motion to compel arbitration of Pegatron’s counterclaims and
to stay the counterclaims pending the arbitrators’ determination of their arbitrability. On January 27, 2016, the
parties stipulated to stay all remaining aspects of the CA Northern District case pending such an arbitrability
determination. On the same day, the court granted the stay and administratively closed the case.
Microsoft Sherman Act Delaware Proceedings
On August 20, 2015, Microsoft Mobile, Inc. and MMO (collectively “Microsoft”) filed a complaint in the
United States District Court for the District of Delaware against InterDigital, Inc., InterDigital Communications,
Inc., InterDigital Technology Corporation, InterDigital Patent Holdings, Inc., InterDigital Holdings, Inc., and IPR
Licensing, Inc. The complaint alleges that InterDigital has monopolized relevant markets for 3G and 4G cellular
technology in violation of Section 2 of the Sherman Act. As relief, Microsoft seeks declaratory judgments that
InterDigital has violated Section 2 of the Sherman Act, that “each of InterDigital’s U.S. patents declared by it to
be Essential” to the 3G and 4G standards is unenforceable, and that all agreements InterDigital has entered into
in furtherance of its alleged unlawful conduct are void. Microsoft also seeks an award of treble damages and the
following injunctive relief: requiring InterDigital to grant Microsoft a non-confidential license to its U.S.
standards essential patents (“SEPs”) on FRAND terms as determined by a court, requiring InterDigital to disclose
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to Microsoft the terms of its other SEP licenses, preventing InterDigital from enforcing any exclusion orders it
might receive with respect to its SEPs, and requiring InterDigital to re-assign any declared SEPs that it has
assigned to controlled entities.
On November 4, 2015, InterDigital filed a motion to dismiss and to strike Microsoft’s complaint.
InterDigital asserts that Microsoft failed to (i) state a Sherman Act claim, (ii) adequately allege the essential
elements of monopoly power and exclusionary conduct, (iii) plead its fraud claims with specificity, and (iv) plead
any cognizable antitrust injury. InterDigital also claimed that Microsoft’s complaint is barred by the Noerr-
Pennington doctrine and that the court should strike Microsoft’s improper prayers for relief and damages arising
prior to the applicable statute of limitations. A hearing on this motion is scheduled for March 1, 2016.
REGULATORY PROCEEDINGS
Investigation by Taiwan Fair Trade Commission
On December 6, 2013, InterDigital received notice from the Taiwan Fair Trade Commission (“TFTC”) that
the TFTC had initiated an investigation to examine alleged anti-competitive behavior under Taiwan’s Fair Trade
Act (FTA). Companies found to violate the FTA may be ordered to cease and rectify the unlawful conduct, take
other necessary corrective action, and/or pay an administrative fine. InterDigital is fully cooperating with the
TFTC’s investigation.
Investigation by National Development and Reform Commission of China
On September 23, 2013, counsel for InterDigital was informed by China’s National Development and
Reform Commission (“NDRC”) that the NDRC had initiated a formal investigation into whether InterDigital has
violated China’s Anti-Monopoly Law (“AML”) with respect to practices related to the licensing of InterDigital’s
standards-essential patents to Chinese companies. Companies found to violate the AML may be subject to a
cease and desist order, fines and disgorgement of any illegal gains. On March 3, 2014, the Company submitted to
NDRC, pursuant to a procedure set out in the AML, a formal application for suspension of the investigation that
included proposed commitments by the Company. On May 22, 2014, NDRC formally suspended its investigation
of the Company based on the commitments proposed by the Company. The Company’s commitments with
respect to the licensing of its patent portfolio for wireless mobile standards to Chinese manufacturers of cellular
terminal units (“Chinese Manufacturers”) are as follows:
1. Whenever InterDigital engages with a Chinese Manufacturer to license InterDigital’s patent portfolio
for 2G, 3G and 4G wireless mobile standards, InterDigital will offer such Chinese Manufacturer the
option of taking a worldwide portfolio license of only its standards-essential wireless patents, and
comply with F/RAND principles when negotiating and entering into such licensing agreements with
Chinese Manufacturers.
2. As part of its licensing offer, InterDigital will not require that a Chinese Manufacturer agree to a
royalty-free, reciprocal cross-license of such Chinese Manufacturer’s similarly categorized standards-
essential wireless patents.
3.
Prior to commencing any action against a Chinese Manufacturer in which InterDigital may seek
exclusionary or injunctive relief for the infringement of any of its wireless standards-essential patents,
InterDigital will offer such Chinese Manufacturer the option to enter into expedited binding arbitration
under fair and reasonable procedures to resolve the royalty rate and other terms of a worldwide license
under
the Chinese Manufacturer accepts
InterDigital’s binding arbitration offer or otherwise enters into an agreement with InterDigital on a
binding arbitration mechanism, InterDigital will, in accordance with the terms of the arbitration
agreement and patent license agreement, refrain from seeking exclusionary or injunctive relief against
such company.
InterDigital’s wireless standards-essential patents.
If
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2015 Annual Report
The commitments contained in item 3 above will expire five years from the effective date of the suspension
of the investigation, or May 22, 2019.
USITC PROCEEDINGS AND RELATED DELAWARE DISTRICT COURT PROCEEDINGS
Nokia and ZTE 2013 USITC Proceeding (337-TA-868) and Related Delaware District Court Proceedings
USITC Proceeding (337-TA-868)
On January 2, 2013,
the Company’s wholly owned subsidiaries InterDigital Communications, Inc.,
InterDigital Technology Corporation, IPR Licensing, Inc. and InterDigital Holdings, Inc. filed a complaint with
the United States International Trade Commission (the “USITC” or “Commission”) against Samsung Electronics
Co., Ltd., Samsung Electronics America, Inc. and Samsung Telecommunications America, LLC, Nokia
Corporation and Nokia Inc., Huawei Technologies Co., Ltd., Huawei Device USA, Inc. and FutureWei
Technologies, Inc. d/b/a Huawei Technologies (USA) and ZTE Corporation and ZTE (USA) Inc. (collectively,
the “337-TA-868 Respondents”), alleging violations of Section 337 of the Tariff Act of 1930 in that they
engaged in unfair trade practices by selling for importation into the United States,
importing into the
United States and/or selling after importation into the United States certain 3G and 4G wireless devices
(including WCDMA-, cdma2000- and LTE-capable mobile phones, USB sticks, mobile hotspots,
laptop
computers and tablets and components of such devices) that infringe one or more of up to seven of InterDigital’s
U.S. patents. The complaint also extended to certain WCDMA and cdma2000 devices incorporating Wi-Fi
functionality. InterDigital’s complaint with the USITC sought an exclusion order that would bar from entry into
the United States infringing 3G or 4G wireless devices (and components), including LTE devices, that are
imported by or on behalf of the 337-TA-868 Respondents, and also sought a cease-and-desist order to bar further
sales of infringing products that have already been imported into the United States. Certain of the asserted patents
were also asserted against Nokia, Huawei and ZTE in earlier pending USITC proceedings (including the Nokia,
Huawei and ZTE 2011 USITC Proceeding (337-TA-800) and the Nokia 2007 USITC Proceeding (337-TA-613),
as set forth below) and therefore were not asserted against those 337-TA-868 Respondents in this investigation.
On December 23, 2013, InterDigital and Huawei reached a settlement agreement to enter into binding
arbitration to resolve their global patent licensing disputes (see “Huawei Arbitration” below). Pursuant to the
settlement agreement, InterDigital and Huawei moved to dismiss all litigation matters pending between the
parties except the action filed by Huawei in China to set a fair, reasonable and non-discriminatory (“FRAND”)
rate for the licensing of InterDigital’s Chinese standards-essential patents (discussed below under “Huawei China
is permitted to further appeal. As a result, effective
Proceedings”),
February 12, 2014, the Huawei Respondents were terminated from the 337-TA-868 investigation.
the decision in which InterDigital
From February 10 to February 20, 2014, ALJ Essex presided over the evidentiary hearing in this
investigation. The patents in issue in this investigation as of the hearing were U.S. Patent Nos. 7,190,966 (the
“’966 patent”) and 7,286,847 (the “’847 patent”) asserted against ZTE and Samsung, and U.S. Patent
No. 7,941,151 (the “’151 patent”) asserted against ZTE, Samsung and Nokia.
On June 3, 2014, InterDigital and Samsung filed a joint motion to terminate the investigation as to Samsung
on the basis of settlement. The ALJ granted the joint motion by initial determination issued on June 9, 2014, and
the USITC determined not to review the initial determination on June 30, 2014.
On June 13, 2014, the ALJ issued an Initial Determination (“ID”) in the 337-TA-868 investigation. In the
ID, the ALJ found that no violation of Section 337 had occurred in connection with the importation of 3G/4G
devices by ZTE or Nokia, on the basis that the accused devices do not infringe asserted claims 1-6, 8-9, 16-21 or
23-24 of the ’151 patent, claims 1, 3, 6, 8, 9, or 11 of the ’966 patent, or claims 3 or 5 of the ’847 patent. The
ALJ also found that claim 16 of the ’151 patent was invalid as indefinite. Among other determinations, the ALJ
further determined that InterDigital did not violate any FRAND obligations, a conclusion also reached by the
ALJ in the 337-TA-800 investigation, and that Respondents have engaged in patent “hold out.”
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104
On June 30, 2014, InterDigital filed a Petition for Review with the USITC seeking review and reversal of
certain of the ALJ’s conclusions in the ID. On the same day, Respondents filed a Conditional Petition for Review
urging alternative grounds for affirmance of the ID’s finding that Section 337 was not violated and a Conditional
Petition for Review with respect to FRAND issues.
In June 2014, Microsoft Mobile Oy (“MMO”) was added as a respondent in the investigation.
On August 14, 2014, the Commission determined to review in part the June 13, 2014 ID but terminated the
investigation with a finding of no violation.
On October 10, 2014, InterDigital filed a petition for review with the Federal Circuit, appealing certain of
the adverse determinations in the Commission’s August 8, 2014 final determination including those related to the
’966 and ’847 patents. On June 2, 2015, InterDigital moved to voluntarily dismiss the Federal Circuit appeal,
because, even if it were to prevail, it did not believe there would be sufficient time following the court’s decision
and mandate for the USITC to complete its proceedings on remand such that the accused products would be
excluded before the ’966 and ’847 patents expire in June 2016. The court granted the motion and dismissed the
appeal on June 18, 2015.
Related Delaware District Court Proceedings
On January 2, 2013,
the Company’s wholly owned subsidiaries InterDigital Communications, Inc.,
InterDigital Technology Corporation, IPR Licensing, Inc. and InterDigital Holdings, Inc. filed four related
district court actions in the United States District Court for the District of Delaware (the “Delaware District
Court”) against the 337-TA-868 Respondents. These complaints allege that each of the defendants infringes the
same patents with respect to the same products alleged in the complaint filed by InterDigital in USITC
Proceeding (337-TA-868). The complaints seek permanent injunctions and compensatory damages in an amount
to be determined, as well as enhanced damages based on willful infringement, and recovery of reasonable
attorneys’ fees and costs.
On January 24, 2013, Huawei filed its answer and counterclaims to InterDigital’s Delaware District Court
complaint. Huawei asserted counterclaims for breach of contract, equitable estoppel, waiver of right to enjoin and
declarations that InterDigital has not offered or granted Huawei licenses on FRAND terms, declarations seeking
the determination of FRAND terms and declarations of noninfringement, invalidity and unenforceability of the
asserted patents. In addition to the declaratory relief specified in its counterclaims, Huawei seeks specific
performance of InterDigital’s purported contracts with Huawei and standards-setting organizations, appropriate
damages in an amount to be determined at trial, reasonable attorneys’ fees and such other relief as the court may
deem appropriate.
On January 31, 2013, ZTE filed its answer and counterclaims to InterDigital’s Delaware District Court
complaint; ZTE asserted counterclaims for breach of contract, equitable estoppel, waiver of right to enjoin and
declarations that InterDigital has not offered ZTE licenses on FRAND terms, declarations seeking the
determination of FRAND terms and declarations of noninfringement, invalidity and unenforceability. In addition
to the declaratory relief specified in its counterclaims, ZTE seeks specific performance of InterDigital’s
purported contracts with ZTE and standards-setting organizations, appropriate damages in an amount to be
determined at trial, reasonable attorneys’ fees and such other relief as the court may deem appropriate.
On February 28, 2013, Nokia filed its answer and counterclaims to InterDigital’s Delaware District Court
complaint, and then amended its answer and counterclaims on March 5, 2013. Nokia asserted counterclaims for
breach of contract, breach of implied contract, unfair competition under Cal. Bus. & Prof. Code § 17200,
equitable estoppel, a declaration setting FRAND terms and conditions, a declaration that InterDigital is estopped
from seeking an exclusion order based on its U.S. declared-essential patents, a declaration of patent misuse, a
declaration that InterDigital has failed to offer FRAND terms, a declaration that Nokia has an implied license to
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2015 Annual Report
the asserted patents, and declarations of non-infringement, invalidity and unenforceability. In addition to the
declaratory relief specified in its counterclaims, Nokia seeks an order that InterDigital specifically perform its
purported contracts by not seeking a USITC exclusion order for its essential patents and by granting Nokia a
license on FRAND terms and conditions, an injunction preventing InterDigital from participating in a USITC
investigation based on essential patents, appropriate damages in an amount to be determined, including all
attorney’s fees and costs spent in participating in all three USITC Investigations (337-TA-868, 337-TA-800 and
337-TA-613), and any other relief as the court may deem just and proper.
On March 13, 2013, InterDigital filed an amended Delaware District Court complaint against Nokia and
Samsung, respectively, to assert allegations of infringement of the recently issued ‘244 patent. On April 1, 2013,
Nokia filed its answer and counterclaims to InterDigital’s amended Delaware District Court complaint. On
April 24, 2013, Samsung filed its answer and a counterclaim to InterDigital’s amended Delaware District Court
complaint.
On March 21, 2013, pursuant to stipulation, the Delaware District Court granted InterDigital leave to file an
amended complaint against Huawei and ZTE, respectively, to assert allegations of infringement of the ‘244
patent. On March 22, 2013, Huawei and ZTE filed their respective answers and counterclaims to InterDigital’s
amended Delaware District Court complaint. On April 9, 2013, InterDigital filed a motion to dismiss Huawei’s
and ZTE’s counterclaims relating to their FRAND allegations. On April 22, 2013, InterDigital filed a motion to
dismiss Nokia’s counterclaims relating to its FRAND allegations. On July 12, 2013, the Delaware District Court
held a hearing on InterDigital’s motions to dismiss. By order issued the same day, the Delaware District Court
granted InterDigital’s motions, dismissing counterclaims for equitable estoppel, implied license, waiver of the
right to injunction or exclusionary relief, and violation of California Bus. & Prof. Code § 17200 with prejudice. It
further dismissed the counterclaims for breach of contract and declaratory relief related to InterDigital’s FRAND
commitments with leave to amend.
On August 6, 2013, Huawei, Nokia, and ZTE filed answers and amended counterclaims for breach of
contract and for declaratory judgments seeking determination of FRAND terms. The counterclaims also continue
to seek declarations of noninfringement, invalidity, and unenforceability. Nokia also continued to assert a
counterclaim for a declaration of patent misuse. On August 30, 2013, InterDigital filed a motion to dismiss the
declaratory judgment counterclaims relating to the request for determination of FRAND terms. On May 28,
2014, the court granted InterDigital’s motion and dismissed defendants’ FRAND-related declaratory judgment
counterclaims, ruling that such declaratory judgments would serve no useful purpose.
On December 30, 2013, InterDigital and Huawei filed a stipulation of dismissal on account of the
confidential settlement agreement and agreement to arbitrate their disputes in this action. On the same day, the
Delaware District Court granted the stipulation of dismissal.
On February 11, 2014, the Delaware District Court judge entered an InterDigital, Nokia, and ZTE stipulated
Amended Scheduling Order that bifurcated issues relating to damages, FRAND-related affirmative defenses, and
any FRAND-related counterclaims.
On August 28, 2014, the court granted in part a motion by InterDigital for summary judgment that the
asserted ’151 patent is not unenforceable by reason of inequitable conduct, holding that only one of the
references forming the basis of defendants’ allegations would remain in issue, and granted a motion by
InterDigital for summary judgment that the asserted claims of the ’966 and ’847 patents are not invalid for lack
of enablement.
On August 5, 2014, InterDigital and Samsung filed a stipulation of dismissal in light of the parties’
settlement agreement. On the same day, the court granted the stipulation of dismissal and dismissed the action
with prejudice.
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By order dated August 28, 2014, MMO was joined in the case as a defendant.
The ZTE trial addressing infringement and validity of the ‘966, ‘847, ‘244 and ‘151 patents was held from
October 20 to October 27, 2014. During the trial, the judge determined that further construction of certain claim
language of the ‘151 patent was required, and the judge decided to hold another trial as to ZTE’s infringement of
the ‘151 patent at a later date. On October 28, 2014, the jury returned a unanimous verdict in favor of
InterDigital, finding that the ‘966, ‘847 and ‘244 patents are all valid and infringed by ZTE 3G and 4G cellular
devices. The court issued formal judgment to this effect on October 29, 2014.
On November 26, 2014, ZTE filed a motion for judgment as a matter of law that the asserted claims of the
‘966, ‘847 and ’244 patents are not infringed and, in the alternative, for a new trial. InterDigital filed an
opposition on December 15, 2014, and ZTE filed a reply on January 7, 2015. The motion is fully briefed and
remains pending.
The ZTE trial addressing infringement of the ’151 patent was held from April 20 to April 22, 2015. On
April 22, 2015, the jury returned a verdict in favor of ZTE, finding that the ‘151 patent is not infringed by ZTE
3G and 4G cellular devices.
On April 23, 2015, InterDigital filed a motion to partially dismiss its complaint pertaining to the ‘151 patent
against Nokia and MMO, as well as Nokia and MMO’s counterclaims that relate to the ‘151 patent (including
inequitable conduct), and on April 27, 2015, the judge granted the motion.
On April 27, 2015, the court ruled that Nokia Corporation should be severed for a separate trial addressing
infringement of the ’244 patent.
On May 5, 2015, the court scheduled the Nokia Inc./MMO jury trial addressing infringement of the ’244 patent
for November 16, 2015. On May 29, 2015, the court entered a new scheduling order for damages and FRAND-
related issues due to changes in the schedule of the liability portion of the MMO proceedings, scheduling trials
related to damages and FRAND-related issues for October 2016 with ZTE and November 2016 with MMO.
On September 14, 2015, a panel of Administrative Law Judges of the United States Patent and Trademark
Office Patent Trial and Appeal Board (the “PTAB”) issued a final written decision in two Inter Partes Review
(“IPR”) cases concerning the’244 patent. These IPR proceedings were commenced on petitions filed by ZTE
Corporation and ZTE (USA) Inc. and by Microsoft Corporation, respectively. Specifically, the panel determined
that a number of claims of the ’244 patent are unpatentable as obvious. IPR Licensing, Inc. appealed to the U.S.
Court of Appeals for the Federal Circuit seeking review of the PTAB’s decision. The appeals are pending. On
October 13, 2015, by stipulation of the parties, the Delaware District Court stayed the action involving MMO and
Nokia Inc., including the November 2015 and November 2016 trials concerning infringement of the ‘244 patent
and damages and FRAND-related issues, respectively, pending completion of the IPR, including all appeals and
subsequent proceedings before the PTAB. This stay is with respect to MMO and Nokia Inc. only, and does not
apply to the Delaware action pending against ZTE.
On May 12, 2015, Nokia/MMO moved for summary judgment of non-infringement of the ’244 patent,
alleging that the accused devices do not practice a particular claim element of the ’244 patent. On June 2, 2015,
InterDigital opposed Nokia/MMO’s motion, and filed a cross-motion for partial summary judgment that the
accused devices infringe the claim element at issue in Nokia/MMO’s motion for summary judgment. On
October 13, 2015, the Delaware District Court denied the pending summary judgment cross-motions without
prejudice in light of the stay discussed above, indicating that the motions could be considered refiled if and when
the stay is lifted if either party requests it.
On December 21, 2015, the court entered another scheduling order that vacated the October 2016 date for
the ZTE trial related to damages and FRAND-related issues as set forth in the May 2015 scheduling order. The
parties will discuss a new schedule for the ZTE FRAND-related issues in a joint status report in March 2016.
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2015 Annual Report
Nokia and ZTE 2011 USITC Proceeding (337-TA-800) and Related Delaware District Court Proceeding
USITC Proceeding (337-TA-800)
On July 26, 2011, InterDigital’s wholly owned subsidiaries InterDigital Communications, LLC (now
InterDigital Communications, Inc.), InterDigital Technology Corporation and IPR Licensing, Inc. filed a
complaint with the USITC against Nokia Corporation and Nokia Inc., Huawei Technologies Co., Ltd. and
FutureWei Technologies, Inc. d/b/a Huawei Technologies (USA) and ZTE Corporation and ZTE (USA) Inc.
(collectively, the “337-TA-800 Respondents”), alleging violations of Section 337 of the Tariff Act of 1930 in that
they engaged in unfair trade practices by selling for importation into the United States, importing into the United
States and/or selling after importation into the United States certain 3G wireless devices (including WCDMA-
and cdma2000-capable mobile phones, USB sticks, mobile hotspots and tablets and components of such devices)
that infringe several of InterDigital’s U.S. patents. The action also extended to certain WCDMA and cdma2000
devices incorporating WiFi functionality. InterDigital’s complaint with the USITC sought an exclusion order that
would bar from entry into the United States any infringing 3G wireless devices (and components) that are
imported by or on behalf of the 337-TA-800 Respondents, and also sought a cease-and-desist order to bar further
sales of infringing products that have already been imported into the United States. In May 2012, Huawei Device
USA, Inc. was added as a 337-TA-800 Respondent.
The ALJ held an evidentiary hearing from February 12-21, 2013. The patents in issue as of the hearing were
U.S. Patent Nos. 8,009,636 (the “’636 patent”), 7,706, 830 (the “’830 patent”), 7,502,406 (the “’406 patent”),
7,616,970 (the “’970 patent”), 7,706,332 (the “‘332 patent”), 7,536,013 (the “‘013 patent”) and 7,970,127 (the
“‘127 patent”). The ALJ’s Initial Determination (“ID”) issued on June 28, 2013, finding no violation because the
asserted patents were not infringed and/or invalid. Among other determinations, with respect to the 337-TA-800
Respondents’ FRAND and other equitable defenses, the ALJ found that Respondents had failed to prove either
that InterDigital violated any FRAND obligations, that InterDigital failed to negotiate in good faith, or that
InterDigital’s licensing offers were discriminatory. The ALJ also found that InterDigital is not precluded from
seeking injunctive relief based on any alleged FRAND commitments.
Petitions for review of the ID to the Commission were filed by InterDigital and the 337-TA-800
Respondents on July 15, 2013. On September 4, 2013, the Commission determined to review the ID in its
entirety.
On December 19, 2013, the Commission issued its final determination. The Commission adopted, with
some modification, the ALJ’s finding of no violation of Section 337 as to Nokia, Huawei, and ZTE. The
Commission did not rule on any other issue, including FRAND and domestic industry, and stated that all other
issues remain under review.
On December 20, 2013, InterDigital filed in the Federal Circuit a petition for review seeking reversal of the
Commission’s final determination. On February 18, 2015, the Federal Circuit issued a decision affirming the
USITC’s determinations that the claims of the ’830, ’636, ’406 and ’332 patents were not infringed, that the
claims of the ’970 patent are invalid, and that the Respondents did not violate Section 337. On April 6, 2015,
InterDigital filed a combined petition for panel rehearing and rehearing en banc as to the ’830 and ’636 patents.
The petition was denied on May 12, 2015, and the court’s mandate issued on May 19, 2015.
Related Delaware District Court Proceeding
On July 26, 2011, the same date that InterDigital filed USITC Proceeding (337-TA-800), it filed a parallel
action in the United States District Court for the District of Delaware against the 337-TA-800 Respondents
alleging infringement of the same asserted patents identified in USITC Proceeding (337-TA-800). The Delaware
to be
District Court complaint seeks a permanent
determined, as well as enhanced damages based on willful infringement, and recovery of reasonable attorneys’
fees and costs. On September 23, 2011, the defendants in the Delaware District Court complaint filed a motion to
injunction and compensatory damages in an amount
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108
stay the Delaware District Court action pending the parallel proceedings in the USITC. Because the USITC has
instituted USITC Proceeding (337-TA-800), the defendants have a statutory right to a mandatory stay of the
Delaware District Court proceeding pending a final determination in the USITC. On October 3, 2011,
InterDigital amended the Delaware District Court complaint, adding LG as a defendant and adding the same
additional patent that InterDigital requested be added to USITC Proceeding (337-TA-800). On October 11, 2011,
the Delaware District Court granted the defendants’ motion to stay. The case is currently stayed through
March 16, 2016.
On January 14, 2014, InterDigital and Huawei filed a stipulation of dismissal of their disputes in this action
on account of the confidential settlement agreement mentioned above. On the same day, the Delaware District
Court granted the stipulation of dismissal.
Nokia 2007 USITC Proceeding (337-TA-613), Related Delaware District Court Proceeding and Federal
Circuit Appeal
USITC Proceeding (337-TA-613)
In August 2007, InterDigital filed a USITC complaint against Nokia Corporation and Nokia, Inc., alleging a
violation of Section 337 of the Tariff Act of 1930 in that Nokia engaged in an unfair trade practice by selling for
importation into the United States, importing into the United States and/or selling after importation into the
United States certain 3G mobile handsets and components that infringe two of InterDigital’s patents. In
November and December 2007, a third patent and a fourth patent were added to the Company’s complaint
against Nokia. The complaint sought an exclusion order barring from entry into the United States infringing 3G
mobile handsets and components that are imported by or on behalf of Nokia. InterDigital’s complaint also sought
a cease-and-desist order to bar further sales of infringing Nokia products that have already been imported into the
United States.
On August 14, 2009, the ALJ overseeing USITC Proceeding (337-TA-613) issued an Initial Determination
finding no violation of Section 337 of the Tariff Act of 1930. The Initial Determination found that InterDigital’s
patents were valid and enforceable, but that Nokia did not infringe these patents. In the event that a Section 337
violation were to be found by the Commission, the ALJ recommended the issuance of a limited exclusion order
barring entry into the United States of infringing Nokia 3G WCDMA handsets and components, as well as the
issuance of appropriate cease-and-desist orders.
On October 16, 2009, the Commission issued a notice that it had determined to review in part the Initial
Determination, and that it affirmed the ALJ’s determination of no violation and terminated the investigation. The
Commission determined to review the claim construction of the patent claim terms “synchronize” and “access
signal” and also determined to review the ALJ’s validity determinations. On review, the Commission modified
the ALJ’s claim construction of “access signal” and took no position with regard to the claim term “synchronize”
or the validity determinations. The Commission determined not to review the remaining issues decided in the
Initial Determination.
On November 30, 2009, InterDigital filed with the Federal Circuit a petition for review of certain rulings by
the USITC. In its appeal, InterDigital sought reversal of the Commission’s claim constructions and non-
infringement findings with respect
to certain claim terms in the ’966 and ’847 patents, vacatur of the
Commission’s determination of no Section 337 violation and a remand for further proceedings before the
Commission. On August 1, 2012, the Federal Circuit issued its decision in the appeal, holding that the
Commission had erred in interpreting the claim terms at issue and reversing the Commission’s finding of non-
infringement. The Federal Circuit adopted InterDigital’s interpretation of such claim terms and remanded the
case back to the Commission for further proceedings. In addition, the Federal Circuit rejected Nokia’s argument
that InterDigital did not satisfy the domestic industry requirement. On September 17, 2012, Nokia filed a
combined petition for rehearing by the panel or en banc with the Federal Circuit. On January 10, 2013, the
Federal Circuit denied Nokia’s petition.
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2015 Annual Report
On January 17, 2013, the Federal Circuit issued its mandate remanding USITC Proceeding (337-TA-613) to
the Commission for further proceedings. On February 12, 2014, the Commission issued a notice, order and
opinion remanding the investigation to an ALJ. In doing so, the Commission determined certain issues and
identified others that would be subject to further proceedings by the ALJ. The Commission assigned the
investigation to an ALJ for limited remand proceedings consistent with its February 12, 2014 opinion.
In June 2014, MMO was added as a respondent in the investigation.
The evidentiary hearing in the remand proceeding was held January 26 — 28, 2015. On April 27, 2015, the
ALJ issued his Remand Initial Determination (“RID”). The ALJ found that the imported accused handsets
(1) contain chips that were not previously adjudicated and (2) infringe the asserted claims of the ‘966 and ‘847
patents, that there was no evidence of patent hold-up by InterDigital, that there is evidence of reverse hold-up by
the respondents, and that the public interest does not preclude issuance of an exclusion order.
On May 11, 2015, Nokia Corporation and MMO each filed petitions to the Commission to review the RID.
On June 25, 2015, the Commission issued a notice of its decision to review the RID in part. The Commission
determined to review the RID’s findings concerning the application of the Commission’s prior construction of
one claim limitation in Investigation Nos. 337-TA-800 and 337-TA-868, the RID’s findings as to whether the
accused products satisfy that claim limitation, and the RID’s public interest findings. The Commission issued its
final determination on August 28, 2015, finding that issue preclusion applied with respect to the construction of
the claim limitations at issue, and issue preclusion also required a finding of non-infringement. The Commission
determined there was no violation of Section 337 and terminated the 337-TA-613 investigation. The Commission
found that consideration of the public interest issues was moot and did not address them.
Related Delaware District Court Proceeding
In addition, in August 2007, on the same date as the filing of USITC Proceeding (337-TA-613), InterDigital
also filed a complaint in the Delaware District Court alleging that Nokia’s 3G mobile handsets and components
infringe the same two InterDigital patents identified in the original USITC complaint. The complaint seeks a
permanent injunction and damages in an amount to be determined. This Delaware action was stayed on
January 10, 2008, pursuant to the mandatory, statutory stay of parallel district court proceedings at the request of
a respondent in a USITC investigation. The Delaware District Court permitted InterDigital to add to the stayed
Delaware action the third and fourth patents InterDigital asserted against Nokia in the USITC action.
Nokia Delaware Proceeding
in the Delaware District Court against
In January 2005, Nokia filed a complaint
InterDigital
Communications Corporation (now InterDigital, Inc.) and its wholly owned subsidiary InterDigital Technology
Corporation, alleging that InterDigital has used false or misleading descriptions or representations regarding the
Company’s patents’ scope, validity and applicability to products built to comply with 3G standards (the “Nokia
Delaware Proceeding”). Nokia’s amended complaint seeks declaratory relief, injunctive relief and damages,
including punitive damages, in an amount to be determined. InterDigital subsequently filed counterclaims based
on Nokia’s licensing activities as well as Nokia’s false or misleading descriptions or representations regarding
Nokia’s 3G patents and Nokia’s undisclosed funding and direction of an allegedly independent study of the
essentiality of 3G patents. InterDigital’s counterclaims seek injunctive relief as well as damages, including
punitive damages, in an amount to be determined.
On December 10, 2007, pursuant to a joint request by the parties, the Delaware District Court entered an
order staying the proceedings pending the full and final resolution of USITC Proceeding (337-TA-613).
Specifically, the full and final resolution of USITC Proceeding (337-TA-613) includes any initial or final
determinations of the ALJ overseeing the proceeding, the USITC and any appeals therefrom and any remand
proceedings thereafter. Pursuant to the order, the parties and their affiliates are generally prohibited from
initiating against the other parties, in any forum, any claims or counterclaims that are the same as the claims and
2015 Annual Report
110
counterclaims pending in the Nokia Delaware Proceeding, and should any of the same or similar claims or
counterclaims be initiated by a party, the other parties may seek dissolution of the stay.
On November 24, 2015, InterDigital and Nokia voluntarily dismissed this case without prejudice to either
party.
Nokia Arbitration Concerning Presentations
In November 2006, InterDigital Communications Corporation (now InterDigital, Inc.) and its wholly owned
subsidiary InterDigital Technology Corporation filed a request for arbitration with the International Chamber of
Commerce against Nokia (the “Nokia Arbitration Concerning Presentations”), claiming that certain presentations
Nokia has attempted to use in support of its claims in the Nokia Delaware Proceeding (described above) are
confidential and, as a result, may not be used in the Nokia Delaware Proceeding pursuant to the parties’
agreement.
The December 10, 2007 order entered by the Delaware District Court
to stay the Nokia Delaware
Proceeding also stayed the Nokia Arbitration Concerning Presentations pending the full and final resolution of
USITC Proceeding (337-TA-613).
On November 24, 2015, InterDigital and Nokia jointly withdrew from this arbitration without prejudice to
either party.
OTHER
We are party to certain other disputes and legal actions in the ordinary course of business, including
arbitrations and legal proceedings with licensees regarding the terms of their agreements and the negotiation
thereof. We do not currently believe that these matters, even if adversely adjudicated or settled, would have a
material adverse effect on our financial condition, results of operations or cash flows. None of the above matters
have met the requirements for accrual as of December 31, 2015.
9. RELATED PARTY TRANSACTIONS
In February 2013, we entered into an R&D collaboration agreement with BIO-key International, Inc.
(“BIO-key”), and made a direct investment in the company. The R&D collaboration targeted security technology.
As part of the agreement, we acquired approximately 4.0 million shares of BIO-key which were initially valued
at $0.5 million. During 2014, we sold approximately 1.4 million of such shares, which had been initially valued
at approximately $0.2 million. During 2015, we sold our remaining ownership interest, which had been initially
valued at approximately $0.3 million. In 2015 and 2014, we paid zero to BIO-key in relation to the collaboration
agreement previously discussed.
On September 17, 2013, InterDigital announced that it had entered into a development agreement with a
wholly owned subsidiary of DDD Group plc (“DDD”) regarding its next generation HD and UHD video
processing technologies. Under the terms of the development agreement, DDD and InterDigital collaborated on a
video technology project. As part of the agreement, we acquired approximately 7.0 million shares of DDD that
were initially valued at $0.9 million. In 2015 and 2014, we paid zero to DDD in relation to the development
agreement previously discussed.
10. COMPENSATION PLANS AND PROGRAMS
Compensation Programs
We use a variety of compensation programs to both attract and retain employees, and to more closely align
employee compensation with company performance. These programs include, but are not limited to, short-term
111
2015 Annual Report
incentive awards tied to performance goals and cash awards to inventors for filed patent applications and patent
issuances, as well as stock option awards, time-based RSU awards and performance-based awards under the
LTCP. Our LTCP typically includes annual grants with a three-year vesting period; as a result, in any one year,
we are typically accounting for three active LTCP cycles. We issue new shares of our common stock to satisfy
our obligations under the share-based components of these programs from the 2009 Plan discussed below.
However, our Board of Directors has the right to authorize the issuance of treasury shares to satisfy such
obligations in the future.
Stock Plans
On June 4, 2009, our shareholders adopted and approved the 2009 Stock Incentive Plan (the “2009 Plan”),
under which current or prospective officers and employees and non-employee directors, consultants and advisors
can receive share-based awards such as RSUs, restricted stock, stock options and other stock awards. Our
shareholders re-approved the material terms of the 2009 Plan on June 12, 2014. We issue the share-based awards
authorized under the 2009 Plan through a variety of compensation programs.
The following table summarizes changes in the number of equity instruments available for grant (in
thousands) under the 2009 Plan for the current year:
Balance at December 31, 2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
RSUs granted (a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Options granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Options expired and RSUs canceled . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance at December 31, 2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Available for
Grant
1,445
(379)
(94)
431
1,403
(a) RSUs granted include time-based RSUs, performance-based RSUs and dividend equivalents.
RSUs and Restricted Stock
Under the 2009 Plan, we may issue RSUs and/or shares of restricted stock to current or prospective officers
and employees and non-employee directors, consultants and advisors. Any cancellations of outstanding RSUs
granted under the 2009 Plan will increase the number of RSUs and/or shares of restricted stock remaining
available for grant under the 2009 Plan. The RSUs vest over periods generally ranging from 0 to 3 years from the
date of the grant. During 2015 and 2014, we granted approximately 0.3 million and 0.6 million RSUs,
respectively, under the 2009 Plan. We have issued less than 0.1 million shares of restricted stock under the 2009
Plan.
At December 31, 2015 and 2014, we had unrecognized compensation cost related to share-based awards of
$18.1 million and $17.9 million, respectively. For grants made in 2015, 2014 and 2013 that cliff vest, we expect
to amortize the associated unrecognized compensation cost at December 31, 2015 on a straight-line basis over a
three-year period.
Vesting of performance-based RSU awards is subject to attainment of specific goals established by the
Compensation Committee of the Board of Directors. Depending upon performance against these goals, the
payout range for performance-based RSU awards can be anywhere from 0 to 2 times the value of the award.
2015 Annual Report
112
Information with respect to current RSU activity is summarized as follows (in thousands, except per share
amounts):
Number of
Unvested
RSUs
Weighted
Average Per Share
Grant Date
Fair Value
Balance at December 31, 2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Granted* . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Forfeited* . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Vested* . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance at December 31, 2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,902
379
(62)
(490)
1,729
$35.73
52.06
38.12
41.29
$37.65
*
These numbers include less than 0.1 million RSUs credited on unvested RSU awards as dividend
equivalents. Dividend equivalents accrue with respect to unvested RSU awards when and as cash dividends
are paid on the Company’s common stock, and vest if and when the underlying RSUs vest. Granted amounts
include performance-based RSU awards at their maximum potential payout level of 200%.
The total vest date fair value of the RSUs that vested in 2015, 2014 and 2013 was $26.3 million, $7.7
million and $6.5 million, respectively. The weighted average per share grant date fair value of the awards that
vested in 2015, 2014 and 2013 was $41.29, $31.29 and $42.34, respectively.
Other RSU Grants
We also grant RSUs to all non-management Board members and, in special circumstances, management
personnel outside of the LTCP. Grants of this type are supplemental to any awards granted to management
personnel through the LTCP.
Stock Options
The 2009 Plan allows for the granting of incentive and non-qualified stock options, as well as other
securities. The 2009 Plan authorizes the issuance of up to 3.0 million shares of common stock pursuant to
incentive stock options. The administrator of the 2009 Plan, initially the Compensation Committee of the Board
of Directors, determines the number of options to be granted. Annually, since 2013, both incentive and non-
qualified stock options have been granted pursuant to the LTCP under the 2009 Plan. Under the terms of the
2009 Plan, the exercise price per share of each option, other than in the event of options granted in connection
with a merger or other acquisition, cannot be less than 100% of the fair market value of a share of common stock
on the date of grant. Under the 2009 Plan, options are generally exercisable for a period of between 7 to 10 years
from the date of grant and may vest on the grant date, another specified date or over a period of time. We also
have approximately 0.1 million options outstanding under a prior stock plan that have an indefinite contractual
life.
Information with respect to current year stock option activity under the above plans is summarized as
follows (in thousands, except per share amounts):
Balance at December 31, 2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Canceled . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance at December 31, 2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
336
94
(4)
(5)
421
$24.90
52.85
44.19
9.28
$31.16
Outstanding
Options
Weighted
Average Exercise
Price
113
2015 Annual Report
The weighted average remaining contractual
life of our outstanding options was 12.3 years as of
December 31, 2015. We currently have approximately 0.1 million options outstanding that have an indefinite
contractual life. These options were granted between 1983 and 1986 under a prior stock plan. For purposes of
calculating the weighted average remaining contractual life, these options were assigned an original life in excess
of 50 years. The majority of these options have an exercise price between $8.00 and $11.63. The total intrinsic
value of stock options exercised during the years ended December 31, 2015, 2014 and 2013 was $0.2 million,
$0.3 million and $1.0 million, respectively. The total intrinsic value of our options outstanding at December 31,
2015 was $7.9 million. In 2015, we recorded cash received from the exercise of options of less than $0.1 million.
Upon option exercise, we issued new shares of stock.
At both December 31, 2015 and 2014, we had approximately 0.3 million options outstanding that had
exercise prices less than the fair market value of our stock at each balance sheet date. These options would have
generated cash proceeds to the Company of $8.2 million and $8.4 million, respectively, if they had been fully
exercised on those dates.
401(k)
We have a 401(k) plan (“Savings Plan”) wherein employees can elect to defer compensation within federal
limits. We match a portion of employee contributions. Our contribution expense was approximately $1.0 million
for each of 2015, 2014 and 2013. At our discretion, we may also make a profit-sharing contribution to our
employees’ 401(k) accounts.
11. TAXES
Our income tax provision consists of the following components for 2015, 2014 and 2013 (in thousands):
Current
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Federal
State . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign source withholding tax . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred
Federal
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
State . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign source withholding tax . . . . . . . . . . . . . . . . . . . . . . . . . .
2015
2014
2013
$ 42,181
415
55,276
$ 49,049
2,499
70,703
$ (6,093)
225
23,269
97,872
122,251
17,401
(89,026)
554
55,221
(33,251)
(121,937)
(437)
52,231
(18,727)
2,614
24,548
(70,143)
8,435
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 64,621
$ 52,108
$ 25,836
2015 Annual Report
114
The deferred tax assets and liabilities were comprised of the following components at December 31, 2015
and 2014 (in thousands):
Net operating losses . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred revenue, net . . . . . . . . . . . . . . . . . . . . . . . . .
Stock compensation . . . . . . . . . . . . . . . . . . . . . . . . . .
Patent amortization . . . . . . . . . . . . . . . . . . . . . . . . . .
Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other-than-temporary impairment . . . . . . . . . . . . . . .
Other accrued liabilities . . . . . . . . . . . . . . . . . . . . . . .
Other employee benefits . . . . . . . . . . . . . . . . . . . . . .
Less: valuation allowance . . . . . . . . . . . . . . . . . . . . .
2015
Federal
State
Foreign
Total
$
— $ 81,965
8
1,452
—
(64)
46
509
141
94,203
8,147
21,217
929
494
7,416
1,888
134,294
—
84,057
(81,893)
$
140
22,473
—
—
—
—
—
—
22,613
—
$ 82,105
116,684
9,599
21,217
865
540
7,925
2,029
240,964
(81,893)
Net deferred tax asset . . . . . . . . . . . . . . . . . . . . . . . . .
$134,294
$ 2,164
$22,613
$159,071
Net operating losses . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred revenue, net . . . . . . . . . . . . . . . . . . . . . . . . .
Stock compensation . . . . . . . . . . . . . . . . . . . . . . . . . .
Patent amortization . . . . . . . . . . . . . . . . . . . . . . . . . .
Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other accrued liabilities . . . . . . . . . . . . . . . . . . . . . . .
Other-than-temporary impairment . . . . . . . . . . . . . . .
Other employee benefits . . . . . . . . . . . . . . . . . . . . . .
Less: valuation allowance . . . . . . . . . . . . . . . . . . . . .
2014
Federal
State
Foreign
Total
$
— $ 71,837
41
1,751
—
29
(28)
154
668
50,575
10,567
18,337
1,110
1,097
10,010
8,784
100,480
—
74,452
(71,731)
$
4
22,657
—
—
—
—
—
—
22,661
—
$ 71,841
73,273
12,318
18,337
1,139
1,069
10,164
9,452
197,593
(71,731)
Net deferred tax asset . . . . . . . . . . . . . . . . . . . . . . . . .
$100,480
$ 2,721
$22,661
$125,862
The following is a reconciliation of income taxes at the federal statutory rate with income taxes recorded by
the Company for the years ended December 31, 2015, 2014 and 2013 (in thousands):
Tax at U.S. statutory rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
State tax provision . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Change in federal and state valuation allowance . . . . . . . . . . . . . . . .
Research and development tax credits . . . . . . . . . . . . . . . . . . . . . . . .
Uncertain tax positions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Permanent differences . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Settlement with taxing authorities . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total tax provision . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2015
2014
2013
35.0%
0.5%
—%
(1.2)%
—%
1.2%
0.1%
0.1%
35.7%
35.0%
0.1%
—%
(4.7)%
0.9%
1.5%
1.1%
0.1%
34.0%
35.0%
4.1%
0.4%
—%
—%
3.5%
—%
(1.1)%
41.9%
115
2015 Annual Report
Valuation Allowances and Net Operating Losses
We establish a valuation allowance for any portion of our deferred tax assets for which management
believes it is more likely than not that we will be unable to utilize the assets to offset future taxes. We believe it is
more likely than not that the majority of our state deferred tax assets will not be utilized; therefore we have
maintained a near full valuation allowance against our state deferred tax assets as of December 31, 2015. All
other deferred tax assets are fully benefited.
We recognize excess tax benefits associated with share-based compensation to shareholders’ equity only
when realized. When assessing whether excess tax benefits relating to share-based compensation have been
realized, we follow the with and without approach excluding any indirect effects of the excess tax deductions.
Under the approach, excess tax benefits related to share-based compensation are not deemed to be realized until
after the utilization of all other tax benefits available to the Company. During 2015, we realized $2.5 million of
tax windfalls and accordingly recorded a corresponding credit to additional paid-in capital. During 2014, we
recorded a shortfall of $1.2 million and recorded a corresponding debit to additional paid-in capital. We had
sufficient windfall benefits previously recorded in additional paid-in capital to offset the shortfall in 2014. During
2013, we realized $0.8 million of such excess tax benefits for federal purposes, and accordingly recorded a
corresponding credit to additional paid-in capital. As of December 31, 2015 and 2014, we had $12.3 million and
$12.2 million, respectively, of state unrealized tax benefits associated with share-based compensation. These
state tax benefits will be accounted for as a credit to additional paid-in capital, if and when realized, rather than a
reduction of the provision for income taxes.
Uncertain Income Tax Positions
As of December 31, 2015, 2014 and 2013, we had $1.5 million, $1.4 million and zero, respectively, of
unrecognized tax benefits. The total amount of unrecognized tax benefits could change within the next twelve
months for a number of reasons including audit settlements, tax examination activities and the recognition and
measurement considerations under this guidance.
During 2015, the reserve was increased for interest and penalty on previously recognized reserves, and we
also established a reserve of $0.1 million related to the recognition of the 2015 research and development credit.
During 2014, we established a reserve of $0.7 million related to the recognition of a gross benefit for research
and development credits. We also recorded $0.7 million of unrecognized tax benefits related to certain
deductions that may not be allowed by the Internal Revenue Code.
The following is a roll forward of our total gross unrecognized tax benefits, which if reversed would impact
the effective tax rate, for the fiscal years 2013 through 2015 (in thousands):
Balance as of January 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tax positions related to current year:
Additions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Reductions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tax positions related to prior years:
Additions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Reductions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Settlements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Lapses in statues of limitations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2015
2014
2013
$1,361
$ — $—
141
—
—
(33)
—
—
95
—
1,266
—
—
—
—
—
—
—
—
—
Balance as of December 31 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$1,469
$1,361
$—
2015 Annual Report
116
Our policy is to recognize interest and/or penalties related to income tax matters in income tax expense.
Because we had zero unrecognized tax benefits as of December 31, 2013, we also had zero accrued interest as of
the same date. For certain positions that related to years prior to 2015, we have recorded less than $0.1 million of
accrued interest during 2015 and 2014.
The Company and its subsidiaries are subject to United States federal income tax, foreign income and
withholding taxes and income taxes from multiple state jurisdictions. Our federal income tax returns for 2010 to
the present are currently open and will not close until the respective statutes of limitations have expired. The
statutes of limitations generally expire three years following the filing of the return or in some cases three years
following the utilization or expiration of net operating loss carry forwards. The statute of limitations applicable to
our open federal returns will expire at the end of 2019. The 2015 return is expected to be filed by September 15,
2016 and the statute of limitations will expire three years from the date it is filed. Specific tax treaty procedures
remain open for certain jurisdictions for 2006, 2007 and 2008. Many of our subsidiaries have filed state income
tax returns on a separate company basis. To the extent these subsidiaries have unexpired net operating losses,
their related state income tax returns remain open. These returns have been open for varying periods, some
exceeding ten years. The total amount of state net operating losses is $1.5 billion.
The U.S. Internal Revenue Service (“IRS”) has concluded their audit of tax years 2010 through 2012 and the
refund, related to research and development tax credits, was being reviewed by the Joint Committee on Taxation,
as all refund claims in excess of $5.0 million are reviewed. Subsequent to December 31, 2015, we received
notice from the Joint Committee on Taxation that its review was concluded with no changes. We expect to
receive the refund amount as filed. Additionally, we will reverse our reserve for unrecognized tax benefits of
$0.6 million in first quarter 2016. We are under audit by one state for tax years 2012 through 2013. Currently we
do not expect any material adjustments to our previous tax filings as a result of this audit. No other federal, state
or foreign audits are in process.
The IRS examination for 2011 was closed in 2014 resulting in no changes. A state audit for the years 2002
to 2008 was concluded in 2014 resulting in a $2.5 million settlement. Additional periods, 2010 to 2012, were
resolved in 2015 resulting in a $0.4 million settlement.
Foreign Taxes
We pay foreign source withholding taxes on patent license royalties and state taxes when applicable. We
apply foreign source withholding tax payments against our United States federal income tax obligations to the
extent we have foreign source income to support these credits. In 2015, 2014 and 2013, we paid $55.3 million,
$70.7 million and $23.3 million in foreign source withholding taxes, respectively, and applied these payments as
credits against our United States federal tax obligation.
Between 2006 and 2015, we paid approximately $295.1 million in foreign taxes for which we have claimed
foreign tax credits against our U.S. tax obligations. It is possible that as a result of tax treaty procedures, the
U.S. government may reach an agreement with the related foreign governments that will result in a partial refund
of foreign taxes paid with a related reduction in our foreign tax credits. Due to both foreign currency fluctuations
and differences in the interest rate charged by the U.S. government compared to the interest rates, if any, used by
the foreign governments, any such agreement could result in interest expense and/or foreign currency gain or
loss.
12. EQUITY TRANSACTIONS
Repurchase of Common Stock
In May 2012, our Board of Directors authorized a share repurchase program, which was then expanded in
June 2012 to increase the amount of the program from $100 million to $200 million (the “2012 Repurchase
117
2015 Annual Report
Program”). Of the $200 million authorized under the 2012 Repurchase Program, $106.8 million was utilized
prior to the termination of the program in June 2014. In June 2014, our Board of Directors authorized a new
share repurchase program, which was expanded in June 2015 to increase the amount of the program from $300
million to $400 million (the “2014 Repurchase Program”). We may repurchase shares under the 2014
Repurchase Program through open market purchases, pre-arranged trading plans or privately negotiated
purchases.
The table below sets forth for the periods presented the number of shares repurchased and the dollar value of
shares repurchased under the 2012 Repurchase Program and the 2014 Repurchase Program, in thousands.
2012 Repurchase
Program
2014 Repurchase
Program
Total Both Programs
# of
Shares
Value
# of
Shares
Value
# of
Shares
2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prior to 2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
— $
—
917
2,552
— 1,836
— 3,554
—
—
29,135
77,694
$ 96,410
152,625
1,836
3,554
— 917
— 2,552
Value
$ 96,410
152,625
29,135
77,694
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3,469
$106,829
5,390
$249,035
8,859
$355,864
Dividends
Cash dividends on outstanding common stock declared in 2015 and 2014 were as follows (in thousands,
except per share data):
2015
First quarter
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Second quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Third quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fourth quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2014
First quarter
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Second quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Third quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fourth quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Per Share
Total
Cumulative by
Fiscal Year
$0.20
0.20
0.20
0.20
$0.80
$0.10
0.20
0.20
0.20
$0.70
$ 7,232
7,243
7,183
7,068
$28,726
$ 3,954
8,033
7,666
7,500
$27,153
$ 7,232
14,475
21,658
28,726
$ 3,954
11,987
19,653
27,153
In June 2014, we announced that our Board of Directors had approved a 100% increase in the Company’s
quarterly cash dividend, to $0.20 per share. We currently expect to continue to pay dividends comparable to our
quarterly $0.20 per share cash dividend in the future; however, continued payment of cash dividends and changes
in the Company’s dividend policy will depend on the Company’s earnings, financial condition, capital resources
and capital requirements, alternative uses of capital, restrictions imposed by any existing debt, economic
conditions and other factors considered relevant by our Board of Directors.
Common Stock Warrants
On March 29, 2011 and March 30, 2011, we entered into privately negotiated warrant transactions with
Barclays Bank PLC through its agent, Barclays Capital Inc., whereby we sold to Barclays Bank PLC warrants to
2015 Annual Report
118
acquire, subject to customary anti-dilution adjustments, approximately 3.5 million and approximately 0.5 million
shares of our common stock, respectively, at a strike price of approximately $63.18 per share, subject to
adjustment, as updated. The warrants become exercisable in tranches starting in June 2016. In consideration for
the warrants issued on March 29, 2011 and March 30, 2011, we received $27.6 million and $4.1 million,
respectively, on April 4, 2011.
On March 5 and March 9, 2015, we sold warrants to acquire, subject to customary anti-dilution adjustments,
approximately 3.8 million and approximately 0.6 million, respectively, of common stock at an initial strike price
of approximately $88.46 per share. The warrants become exercisable in tranches starting in June 2020. As
consideration for the warrants issued on March 5 and March 9, 2015, we received approximately $37.3 million
and approximately $5.6 million, respectively.
13. SELECTED QUARTERLY RESULTS (UNAUDITED)
The table below presents quarterly data for the years ended December 31, 2015 and 2014:
2015
Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income applicable to InterDigital, Inc.’s common
shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income per common share — basic . . . . . . . . . . . . . . . . . . . . .
Net income per common share — diluted . . . . . . . . . . . . . . . . . . . .
2014
Revenues (a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income applicable to InterDigital, Inc.’s common
First
Second
Third
Fourth
(In thousands, except per share amounts, unaudited)
$110,378
$118,551
$100,408
$112,098
$ 29,065
0.79
$
0.78
$
$ 32,602
0.91
$
0.89
$
$ 24,520
0.68
$
0.68
$
$ 33,038
0.93
$
0.92
$
$ 57,844
$194,234
$ 77,622
$ 86,121
shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income per common share — basic . . . . . . . . . . . . . . . . . . . . .
Net income per common share — diluted . . . . . . . . . . . . . . . . . . . .
$ (1,861) $ 78,901
1.95
$
1.93
$
(0.05) $
(0.05) $
$ 13,512
0.34
$
0.34
$
$ 13,790
0.37
$
0.36
$
(a)
In second quarter 2014, we recognized $119.9 million of past patent royalties primarily due to new patent
license agreements.
14. VARIABLE INTEREST ENTITIES
As further discussed below, we are the primary beneficiary of two variable interest entities. As of
December 31, 2015, the combined book values of the assets and liabilities associated with these variable interest
entities included in our Consolidated Balance Sheet were $24.2 million and $0.8 million, respectively. Assets
included $19.0 million of cash and cash equivalents and $5.2 million of patents, net. As of December 31, 2014,
the combined book values of the assets and liabilities associated with these variable interest entities included in
our Consolidated Balance Sheet were $15.3 million and $0.4 million, respectively. Assets included $11.4 million
of cash and cash equivalents and $3.9 million of patents, net. The impact of consolidating these variable interest
entities on our Consolidated Statements of Income was not significant.
Convida Wireless
On September 26, 2015, we renewed and expanded our joint venture with Sony, Convida Wireless, to
include 5G technologies. Convida Wireless was launched in 2013 to combine Sony’s consumer electronics
expertise with our pioneering IoT expertise to drive IoT communications and connectivity. Based on the terms of
research and platform
the agreement,
development, which we will perform. SCP IP Investment LLC, an affiliate of Stephens Inc., is a minority
investor in Convida Wireless.
the parties will contribute funding and resources for additional
119
2015 Annual Report
Convida Wireless is a variable interest entity. Based on our provision of research and platform development
services to Convida Wireless, we have determined that we remain the primary beneficiary for accounting
purposes and will continue to consolidate Convida Wireless. For the years ended December 31, 2015, 2014 and
2013, we have allocated approximately $2.8 million, $2.9 million and $2.5 million, respectively, of Convida
Wireless’ net loss to noncontrolling interests held by other parties.
Signal Trust for Wireless Innovation
On October 17, 2013, we announced the establishment of the Signal Trust for Wireless Innovation (“Signal
Trust”), the goal of which is to monetize a large patent portfolio related to cellular infrastructure.
The more than 500 patents and patent applications transferred from InterDigital to the Signal Trust focus
primarily on 3G and LTE technologies, and were developed by InterDigital’s engineers and researchers over
more than a decade, with a number of the innovations contributed to the worldwide standards process.
InterDigital is the primary beneficiary of the Signal Trust. The distributions from the Signal Trust will
support continued research related to cellular wireless technologies. A small portion of the proceeds from the
Signal Trust will be used to fund, through the newly formed Signal Foundation for Wireless Innovation,
scholarly analysis of intellectual property rights and the technological, commercial and creative innovations they
facilitate.
The Signal Trust is a variable interest entity. Based on the terms of the Trust Agreement, we have
determined that we are the primary beneficiary for accounting purposes and must consolidate the Signal Trust.
15. SUBSEQUENT EVENTS
We anticipate a severance charge in the range of $1.5 million to $2.0 million during first quarter 2016
related to ongoing efforts to optimize our cost structure.
2015 Annual Report
120
Item 9.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
Item 9A. CONTROLS AND PROCEDURES.
Evaluation of Disclosure Controls and Procedures
The Company’s Chief Executive Officer and its Chief Financial Officer, with the assistance of other
members of management, have evaluated the effectiveness of our disclosure controls and procedures (as defined
in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934) as of December 31, 2015. Based on
that evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that our disclosure
controls and procedures were effective to ensure that the information required to be disclosed by us in the reports
that we file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized and
reported within the time periods specified in the SEC’s rules and forms and to ensure that the information
required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act of 1934 is
accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial
Officer, as appropriate to allow timely decisions regarding required disclosure.
Management’s Annual Report on Internal Control Over Financial Reporting
Management
is responsible for establishing and maintaining adequate internal control over financial
reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934. The
Company’s internal control over financial reporting is a process designed to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for external purposes in
accordance with accounting principles generally accepted in the United States of America. Internal control over
financial reporting includes those policies and procedures that:
•
•
•
Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the
transactions and dispositions of the assets of the company;
Provide reasonable assurance that transactions are recorded as necessary to permit preparation of
financial statements in accordance with accounting principles generally accepted in the United States
of America, and that receipts and expenditures of the company are being made only in accordance with
authorization of management and directors of the company; and
Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use
or disposition of the company’s assets that could have a material effect on the consolidated financial
statements.
Management, including the Chief Executive Officer and Chief Financial Officer, assessed the effectiveness
of internal control over financial reporting as of December 31, 2015. Management based this assessment on
criteria for effective internal control over financial reporting described in “Internal Control — Integrated
Framework” issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013). Based
on this assessment, management determined that, as of December 31, 2015, the Company maintained effective
internal control over financial reporting at a reasonable assurance level.
The effectiveness of the Company’s internal control over financial reporting as of December 31, 2015 has
been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in
their report that appears under Part II, Item 8, of this Form 10-K.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting during fourth quarter 2015 that have
materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
121
2015 Annual Report
Item 9B. OTHER INFORMATION.
None.
PART III
Item 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.
The information required by this item is incorporated by reference to the information following the captions
“Election of Directors,” “EXECUTIVE OFFICERS,” “Section 16(a) Beneficial Ownership Reporting
Compliance,” “Code of Ethics,” “Nominating and Corporate Governance Committee” and “Audit Committee” in
the definitive proxy statement to be filed pursuant to Regulation 14A in connection with our 2016 annual meeting
of shareholders not later than 120 days after the end of the fiscal year covered by this Annual Report on Form 10-
K (the “Proxy Statement”).
Item 11. EXECUTIVE COMPENSATION.
The information required by this item is incorporated by reference to the information following the captions
“EXECUTIVE COMPENSATION” and “DIRECTOR COMPENSATION” in the Proxy Statement.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS.
The information required by this item is incorporated by reference to the information following the captions
“EQUITY COMPENSATION PLAN INFORMATION” and “SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT” in the Proxy Statement.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE.
The information required by this item is incorporated by reference to the information following the captions
“CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS” and “Director Independence” in the Proxy
Statement.
Item 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
The information required by this item is incorporated by reference to the information following the captions
“Fees Paid to Independent Registered Public Accounting Firm” and “Audit Committee Pre-Approval Policy for
Audit and Non-Audit Services of Independent Registered Public Accounting Firm” in the Proxy Statement.
2015 Annual Report
122
PART IV
Item 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) The following documents are filed as a part of this Form 10-K:
(1) Financial Statements.
The information required by this item begins on Page 73.
(2) Financial Statement Schedules.
The following financial statement schedule of InterDigital is included herewith and should be read in
conjunction with the Financial Statements included in this Item 15.
Valuation and Qualifying Accounts
Balance Beginning
of Period
Increase/
(Decrease)
Reversal of
Valuation
Allowance
Balance End
of Period
2015 valuation allowance for deferred tax
assets . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$71,679
$10,214(a)
$—
$81,893
2014 valuation allowance for deferred tax
assets . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$70,492
$ 1,187(a)
$—
$71,679
2013 valuation allowance for deferred tax
assets . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2015 reserve for uncollectible accounts . . .
2014 reserve for uncollectible accounts . . .
2013 reserve for uncollectible accounts . . .
$68,378
$ 1,654
$ 1,750
$ 1,750
$ 2,114(a)
$ (1,654)(b)
$
(96)
$ —
$—
$—
$—
$—
$70,492
$ —
$ 1,654
$ 1,750
(a) The increase was primarily necessary to maintain a full, or near full, valuation allowance against our state
deferred tax assets and did not result in additional tax expense.
(b) The decrease relates to the reversal of a bad debt reserve as a result of a settlement agreement with a
technology solutions customer.
(3) Exhibits.
See Item 15(b) below.
(b)
Exhibit
Number
*3.1
*3.2
*4.1
*4.2
*4.3
Exhibit Description
Amended and Restated Articles of Incorporation of InterDigital, Inc. (“InterDigital”)
(Exhibit 3.1 to InterDigital’s Current Report on Form 8-K dated June 7, 2011).
Amended and Restated Bylaws of InterDigital (Exhibit 3.1 to InterDigital’s Current Report
on Form 8-K dated January 30, 2015).
Indenture, dated April 4, 2011, between InterDigital and The Bank of New York Mellon
Trust Company, N.A., as trustee (Exhibit 4.1 to InterDigital’s Current Report on Form 8-K
dated April 4, 2011).
Form of 2.50% Senior Convertible Note due 2016 (Exhibit 4.2 to InterDigital’s Current
Report on Form 8-K dated April 4, 2011).
Specimen Stock Certificate of InterDigital (Exhibit 4.3 to InterDigital’s Quarterly Report on
Form 10-Q dated April 28, 2011).
123
2015 Annual Report
Exhibit
Number
*4.4
Exhibit Description
Indenture, dated March 11, 2015, between InterDigital and the Bank of New York Mellon
Trust Company, N.A., as trustee (Exhibit 4.1 to InterDigital’s Current Report on Form 8-K
dated March 11, 2015).
*4.5
Form of 1.50% Senior Convertible Note due 2020 (Exhibit 4.2 to InterDigital’s Current
Report on Form 8-K dated March 11, 2015).
Real Estate Leases
*10.1
Lease Agreement effective March 1, 2012 by and between InterDigital and Musref Bellevue
Parkway, LP (Exhibit 10.5 to InterDigital’s Annual Report on Form 10-K for the year ended
December 31, 2012).
†*10.2
†*10.3
†*10.4
†*10.5
†*10.6
†*10.7
†*10.8
†*10.9
†*10.10
†*10.11
†*10.12
†*10.13
Benefit Plans
Non-Qualified Stock Option Plan, as amended (Exhibit 10.4 to InterDigital’s Annual Report
on Form 10-K for the year ended December 31, 1991).
Amendment to Non-Qualified Stock Option Plan (Exhibit 10.31 to InterDigital’s Quarterly
Report on Form 10-Q dated August 14, 2000).
Amendment to Non-Qualified Stock Option Plan, effective October 24, 2001 (Exhibit 10.6
to InterDigital’s Annual Report on Form 10-K for the year ended December 31, 2001).
2009 Stock Incentive Plan (Exhibit 99.1 to InterDigital’s Registration Statement on
Form S-8 filed with the Securities and Exchange Commission (“SEC”) on June 4, 2009
(File No. 333-159743)).
Amendment to 2009 Stock Incentive Plan, effective as of June 12, 2013 (Exhibit 10.1 to
InterDigital’s Quarterly Report on Form 10-Q dated July 26, 2013).
2015 Amendment to 2009 Stock Incentive Plan, effective as of June 11, 2015 (Exhibit 10.1
to InterDigital’s Quarterly Report on Form 10-Q dated July 30, 2015).
2009 Stock Incentive Plan, Term Sheet and Standard Terms and Conditions for Restricted
Stock Units (Discretionary Award) (Exhibit 10.2 to InterDigital’s Current Report on
Form 8-K dated January 28, 2013).
2009 Stock Incentive Plan, Term Sheet and Standard Terms and Conditions for Restricted
Stock Units (LTCP Time-Based Award) (Exhibit 10.3 to InterDigital’s Current Report on
Form 8-K dated January 28, 2013).
2009 Stock Incentive Plan, Term Sheet and Standard Terms and Conditions for Restricted
Stock Units (LTCP Performance-Based Award) (Exhibit 10.4 to InterDigital’s Current
Report on Form 8-K dated January 28, 2013).
2009 Stock Incentive Plan, Term Sheet and Standard Terms and Conditions for Stock
Options (LTCP Award) (Exhibit 10.5 to InterDigital’s Current Report on Form 8-K dated
January 28, 2013).
2009 Stock Incentive Plan, Term Sheet and Standard Terms and Conditions for Time-Based
Restricted Stock Units (Exhibit 10.3 to InterDigital’s Quarterly Report on Form 10-Q dated
April 29, 2015).
2009 Stock Incentive Plan, Term Sheet and Standard Terms and Conditions for
Performance-Based Restricted Stock Units (Exhibit 10.4 to InterDigital’s Quarterly Report
on Form 10-Q dated April 29, 2015).
2015 Annual Report
124
Exhibit
Number
†*10.14
†*10.15
†*10.16
†*10.17
†*10.18
†*10.19
†*10.20
†*10.21
†*10.22
†*10.23
†*10.24
†*10.25
†*10.26
†*10.27
Exhibit Description
2009 Stock Incentive Plan, Term Sheet and Standard Terms and Conditions for Stock
Options (Exhibit 10.5 to InterDigital’s Quarterly Report on Form 10-Q dated April 29,
2015).
2009 Stock Incentive Plan, Term Sheet for Restricted Stock Units (Non-Employee
Directors) (Exhibit 10.3 to InterDigital’s Quarterly Report on Form 10-Q dated July 26,
2013).
2009 Stock Incentive Plan, Standard Terms and Conditions for Restricted Stock Units (Non-
Employee Directors) (Exhibit 10.4 to InterDigital’s Quarterly Report on Form 10-Q dated
July 26, 2013).
Compensation Program for Non-Management Directors (as amended September 2012)
(Exhibit 10.2 to InterDigital’s Quarterly Report on Form 10-Q dated October 25, 2012).
Compensation Program for Non-Management Directors
(Exhibit 10.2 to InterDigital’s Quarterly Report on Form 10-Q dated July 30, 2015).
(as amended June 2015)
Designated Employee Incentive Separation Pay Plan and Summary Plan Description
(Exhibit 10.3 to InterDigital’s Quarterly Report on Form 10-Q dated October 25, 2012).
Deferred Compensation Plan (Exhibit 10.1 to InterDigital’s Current Report on Form 8-K
dated June 18, 2013).
Employment-Related Agreements
Indemnity Agreement dated as of March 19, 2003 by and between InterDigital and Howard
E. Goldberg (pursuant to Instruction 2 to Item 601 of Regulation S-K, the Indemnity
Agreements, which are substantially identical in all material respects, except as to the
parties thereto and the dates, between the Company and the following individuals, were not
filed: Jeffrey K. Belk, Richard J. Brezski, S. Douglas Hutcheson, John A. Kritzmacher,
Scott A. McQuilkin, William J. Merritt, James J. Nolan, Kai O. Öistämö, Jean F. Rankin,
Robert S. Roath, Lawrence F. Shay and Philip P. Trahanas) (Exhibit 10.47 to InterDigital’s
Quarterly Report on Form 10-Q dated May 15, 2003).
Assignment and Assumption of Indemnity Agreement dated as of July 2, 2007, by and
between InterDigital Communications Corporation, InterDigital and Bruce G. Bernstein
(pursuant to Instruction 2 to Item 601 of Regulation S-K, the Indemnity Agreements, which
are substantially identical in all material respects, except as to the parties thereto, between
InterDigital Communications Corporation, InterDigital, Inc. and the following individuals,
were not filed: Richard J. Brezski, William J. Merritt, James J. Nolan, Robert S. Roath and
Lawrence F. Shay) (Exhibit 10.90 to InterDigital’s Quarterly Report on Form 10-Q dated
August 9, 2007).
Employment Agreement dated March 14, 2013 between InterDigital and William J. Merritt
(Exhibit 10.1 to InterDigital’s Current Report on Form 8-K dated March 19, 2013).
Employment Agreement dated March 14, 2013 between InterDigital and Richard Brezski
(Exhibit 10.2 to InterDigital’s Current Report on Form 8-K dated March 19, 2013).
Employment Agreement dated March 14, 2013 between InterDigital and Scott McQuilkin
(Exhibit 10.4 to InterDigital’s Current Report on Form 8-K dated March 19, 2013).
Employment Agreement dated March 14, 2013 between InterDigital and James Nolan
(Exhibit 10.5 to InterDigital’s Current Report on Form 8-K dated March 19, 2013).
Employment Agreement dated March 14, 2013 between InterDigital and Lawrence F. Shay
(Exhibit 10.6 to InterDigital’s Current Report on Form 8-K dated March 19, 2013).
125
2015 Annual Report
Exhibit
Number
Exhibit Description
†10.28
Employment Agreement dated May 1, 2014 between InterDigital and Byung K. Yi.
Other Material Contracts
*10.29
*10.30
Bond Hedge Transaction Confirmation, dated March 29, 2011, by and between InterDigital
and Barclays Bank PLC,
through its agent, Barclays Capital Inc. (Exhibit 10.1 to
InterDigital’s Current Report on Form 8-K dated April 4, 2011).
Bond Hedge Transaction Confirmation, dated March 30, 2011, by and between InterDigital
and Barclays Bank PLC,
through its agent, Barclays Capital Inc. (Exhibit 10.2 to
InterDigital’s Current Report on Form 8-K dated April 4, 2011).
*10.31 Warrant Transaction Confirmation, dated March 29, 2011, by and between InterDigital and
Barclays Bank PLC, through its agent, Barclays Capital Inc. (Exhibit 10.3 to InterDigital’s
Current Report on Form 8-K dated April 4, 2011).
*10.32 Warrant Transaction Confirmation, dated March 30, 2011, by and between InterDigital and
Barclays Bank PLC, through its agent, Barclays Capital Inc. (Exhibit 10.4 to InterDigital’s
Current Report on Form 8-K dated April 4, 2011).
*10.33
*10.34
21
23.1
31.1
31.2
32.1
32.2
101
Form of Convertible Note Hedge Transaction Confirmation (Exhibit 10.1 to InterDigital’s
Current Report on Form 8-K dated March 11, 2015).
Form of Warrant Transaction Confirmation (Exhibit 10.2 to InterDigital’s Current Report on
Form 8-K dated March 11, 2015).
Subsidiaries of InterDigital.
Consent of PricewaterhouseCoopers LLP.
Certification of Principal Executive Officer pursuant to Rule 13a-14(a) of the Securities
Exchange Act of 1934, as amended.
Certification of Principal Financial Officer pursuant to Rule 13a-14(a) of the Securities
Exchange Act of 1934, as amended.
Certification of Principal Executive Officer pursuant to 18 U.S.C. Section 1350. +
Certification of Principal Financial Officer pursuant to 18 U.S.C. Section 1350. +
The following financial information from InterDigital’s Annual Report on Form 10-K for
the year ended December 31, 2015, filed with the SEC on February 18, 2016, formatted in
eXtensible Business Reporting Language: (i) Consolidated Balance Sheets at December 31,
2015 and December 31, 2014, (ii) Consolidated Statements of Income for the years ended
(iii) Consolidated Shareholders’ Equity and
December 31, 2015, 2014 and 2013,
Comprehensive Income for
the years ended December 31, 2015, 2014 and 2013,
(iv) Consolidated Statements of Cash Flows for the years ended December 31, 2015, 2014
and 2013, and (v) Notes to Consolidated Financial Statements.
*
Incorporated by reference to the previous filing indicated.
† Management contract or compensatory plan or arrangement.
+
This exhibit will not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934,
as amended (15 U.S.C. 78r), or otherwise subject to the liability of that section. Such exhibit will not be
deemed to be incorporated by reference into any filing under the Securities Act or Securities Exchange Act,
except to the extent that InterDigital, Inc. specifically incorporates it by reference.
2015 Annual Report
126
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant
has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
SIGNATURES
Date: February 18, 2016
INTERDIGITAL, INC.
By: /s/ William J. Merritt
William J. Merritt
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by
the following persons on behalf of the registrant and in the capacities and on the dates indicated.
Date: February 18, 2016
Date: February 18, 2016
Date: February 18, 2016
Date: February 18, 2016
Date: February 18, 2016
Date: February 18, 2016
Date: February 18, 2016
Date: February 18, 2016
Date: February 18, 2016
/s/ S. Douglas Hutcheson
S. Douglas Hutcheson,
Chairman of the Board of Directors
/s/
Jeffrey K. Belk
Jeffrey K. Belk,
Director
/s/
John A. Kritzmacher
John A. Kritzmacher,
Director
/s/ Kai O. Öistämö
Kai O. Öistämö,
Director
/s/
Jean F. Rankin
Jean F. Rankin,
Director
/s/ Robert S. Roath
Robert S. Roath,
Director
/s/ Philip P. Trahanas
Philip P. Trahanas,
Director
/s/ William J. Merritt
William J. Merritt,
Director, President and Chief Executive Officer
(Principal Executive Officer)
/s/ Richard J. Brezski
Richard J. Brezski,
Chief Financial Officer
(Principal Financial Officer)
127
2015 Annual Report
InterDigital, Inc.
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
To Be Held June 8, 2016
TO THE SHAREHOLDERS OF INTERDIGITAL, INC.:
We are pleased to invite you to attend our 2016 annual meeting of shareholders, which will be held on Wednesday,
June 8, 2016, at 11:00 AM Eastern Time. This year’s annual meeting will be held as a virtual meeting. You will be able to
attend and participate in the annual meeting online via a live webcast by visiting IDCC.onlineshareholdermeeting.com. In
addition to voting by submitting your proxy prior to the annual meeting, you also will be able to vote your shares
electronically during the annual meeting. Further details regarding the virtual meeting are included in the accompanying
proxy statement. At the annual meeting, the holders of our outstanding common stock will act on the following matters:
1.
Election of the eight director nominees named in the proxy statement, each for a term of one year;
2. Advisory resolution to approve executive compensation;
3. Ratification of the appointment of PricewaterhouseCoopers LLP as our independent registered public
accounting firm for the year ending December 31, 2016; and
4.
Such other business as may properly come before the annual meeting.
We are pleased to be using the Securities and Exchange Commission rules that allow companies to furnish proxy
materials to their shareholders primarily over the Internet. We believe that this process expedites shareholders’ receipt of the
proxy materials, lowers the costs of the annual meeting and helps to conserve natural resources. We also believe that hosting a
virtual meeting will enable participation by more of our shareholders in our annual meeting while lowering the cost of
conducting the meeting. On or about April 25, 2016, we began mailing our shareholders a Notice of Internet Availability of
Proxy Materials (the “Notice”) containing instructions on how to access our 2016 proxy statement and 2015 annual report and
how to vote online. The Notice also includes instructions on how to request a paper copy of the proxy materials, including the
notice of annual meeting, 2016 proxy statement, 2015 annual report and proxy card.
All holders of record of shares of our common stock (NASDAQ: IDCC) at the close of business on April 12, 2016, are
entitled to vote at the annual meeting and at any postponements or adjournments of the annual meeting. Your vote is important.
Regardless of whether you plan to attend the annual meeting, please cast your vote as instructed in the Notice as promptly as
possible. Alternatively, if you wish to receive paper copies of your proxy materials, including the proxy card, please follow the
instructions in the Notice. Once you receive paper copies of your proxy materials, please complete, sign, date and promptly
return the proxy card in the postage-prepaid return envelope provided, or follow the instructions set forth on the proxy card to
vote your shares over the Internet or by telephone. Your prompt response is necessary to ensure that your shares are represented
at the annual meeting. Voting by Internet, telephone or mail will not affect your right to vote at the annual meeting if you decide
to attend the virtual meeting through IDCC.onlineshareholdermeeting.com. If you are a shareholder who holds stock in a
brokerage account (a “street name” holder), you will receive instructions from the holder of record, which you must follow in
order for your shares to be voted. Certain of these institutions offer Internet and telephone voting.
IF YOU PLAN TO ATTEND THE ANNUAL MEETING:
The annual meeting will be held as a virtual meeting and begin promptly at 11:00 AM Eastern Time. In order to
attend and participate in the annual meeting, you will need to visit IDCC.onlineshareholdermeeting.com and follow the
instructions that are included in the Notice, on your proxy card or in the voting instructions accompanying your proxy
materials. You will also need the 16-digit control number provided therein, and, if you have elected to receive electronic
delivery of your proxy materials, the four-digit PIN number established at the time of your enrollment. Online check-in
will begin at 10:30 AM Eastern Time. Please allow sufficient time to complete the online check-in process.
By Order of the Board of Directors,
April 25, 2016
Wilmington, Delaware
JANNIE K. LAU
Executive Vice President, General Counsel and Secretary
TABLE OF CONTENTS
Page
3
INTERNET AVAILABILITY OF PROXY MATERIALS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3
ABOUT THE ANNUAL MEETING AND VOTING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
7
GOVERNANCE OF THE COMPANY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
7
Code of Ethics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
7
Director Independence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
7
Board Leadership . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
8
Board Oversight of Risk . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
8
Board Structure and Committee Membership . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
13
Communications with the Board . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
13
Communications About Accounting Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
14
DIRECTOR COMPENSATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
15
2015 Director Compensation Table . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
17
PROPOSALS TO BE VOTED ON . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
17
Election of Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
21
Advisory Resolution to Approve Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
22
Ratification of Appointment of Independent Registered Public Accounting Firm . . . . . . . . . . . . . . . . .
24
REPORT OF THE AUDIT COMMITTEE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
25
EXECUTIVE OFFICERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
27
EXECUTIVE COMPENSATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
27
Compensation Committee Report
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
27
Compensation Discussion and Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
41
Summary Compensation Table . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
44
Grants of Plan-Based Awards in 2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
46
Outstanding Equity Awards at 2015 Fiscal Year End . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
48
Option Exercises and Stock Vested in 2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
48
Nonqualified Deferred Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
50
Potential Payments upon Termination or Change in Control . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
66
EQUITY COMPENSATION PLAN INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
67
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT . . . . . . . . . .
69
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
70
OTHER MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
70
Section 16(a) Beneficial Ownership Reporting Compliance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
70
Shareholder Proposals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
70
Proxy Solicitation Costs and Potential Savings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
71
Annual Report on Form 10-K . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
71
APPENDIX A – Calculations of Normalized Cash Flow for Performance Goals . . . . . . . . . . . . . . . . . . . . . . A-1
Proxy Statement
2
INTERDIGITAL, INC.
200 Bellevue Parkway, Suite 300
Wilmington, Delaware 19809-3727
PROXY STATEMENT
This proxy statement contains information relating to our annual meeting of shareholders to be held on
Wednesday, June 8, 2016, at 11:00 AM Eastern Time, and at any postponements or adjournments of the annual
meeting. This year’s annual meeting of shareholders will be held as a virtual meeting. You will be able to attend
and participate in the annual meeting online via a live webcast by visiting IDCC.onlineshareholdermeeting.com.
In addition to voting by submitting your proxy prior to the annual meeting, you also will be able to vote your
shares electronically during the annual meeting. Your proxy for the annual meeting is being solicited by our
Board of Directors (the “Board”).
INTERNET AVAILABILITY OF PROXY MATERIALS
As permitted by Securities and Exchange Commission (“SEC”) rules, we are making this proxy statement
and our annual report available to our shareholders primarily via the Internet, rather than mailing printed copies
of these materials to each shareholder. We believe that this process will expedite shareholders’ receipt of the
proxy materials, lower the costs of the annual meeting and help to conserve natural resources. On or about
April 25, 2016, we began mailing to each shareholder (other than those who previously requested electronic
delivery of all materials or previously elected to receive delivery of a paper copy of the proxy materials) a Notice
of Internet Availability of Proxy Materials (the “Notice”) containing instructions on how to access and review the
proxy materials, including our proxy statement and our annual report, on the Internet and how to access an
electronic proxy card to vote on the Internet or by telephone. The Notice also contains instructions on how to
receive a paper copy of the proxy materials. If you receive a Notice by mail, you will not receive a printed copy
of the proxy materials unless you request one. If you receive a Notice by mail and would like to receive a printed
copy of our proxy materials, please follow the instructions included in the Notice.
Important Notice Regarding the Availability of Proxy Materials for the Annual Meeting of Shareholders
to Be Held on June 8, 2016: The 2016 proxy statement and 2015 annual report to shareholders are available at
http://ir.interdigital.com/annuals-proxies.cfm
ABOUT THE ANNUAL MEETING AND VOTING
What is the purpose of the annual meeting?
At our annual meeting, shareholders will act upon the matters outlined in the notice of meeting provided
with this proxy statement, including: the election of directors, the advisory resolution to approve executive
compensation, the ratification of the appointment of our independent registered public accounting firm, and such
other business as may properly come before the annual meeting. In addition, management will report on the
performance of the company’s business and respond to questions from shareholders.
Who may attend the annual meeting?
You are entitled to participate in the annual meeting only if you were a shareholder of record as of the close
of business on April 12, 2016 or if you hold a valid proxy for the annual meeting. As noted above, this year’s
annual meeting will be held as a virtual meeting that you may attend online via a live webcast by visiting
IDCC.onlineshareholdermeeting.com.
3
Proxy Statement
In order to attend and participate in the annual meeting, you will need to visit
IDCC.onlineshareholdermeeting.com and follow the instructions that are included in the Notice, on your proxy
card or in the instructions accompanying your proxy materials. You are required to complete an online check-in
process once you have connected to IDCC.onlineshareholdermeeting.com. To complete this process, you will
need the 16-digit control number provided on your Notice, your proxy card or the instructions accompanying
your proxy materials. In addition, if you previously elected to receive electronic delivery of your proxy materials
(i.e., you receive your proxy communications via e-mail), you will need the four-digit PIN number established at
the time of your enrollment. Online check-in will begin at 10:30 AM Eastern Time, and the annual meeting will
begin promptly at 11:00 AM Eastern Time. Please allow sufficient time to complete the online check-in process.
Instructions on how to attend and participate via the Internet, including how to demonstrate proof of stock
ownership and how to obtain any codes you may need, are posted at IDCC.onlineshareholdermeeting.com. In
addition, questions regarding how to attend and participate will be answered by calling 855-449-0991
(international: 720-378-5962) beginning at 10:30 AM Eastern Time the day of the meeting.
Who is entitled to vote at the annual meeting?
Only shareholders of record at the close of business on April 12, 2016, the record date, are entitled to
receive notice of and to vote at the annual meeting. If you were a shareholder on that date, you will be entitled to
vote all of the shares that you held on that date at the annual meeting, or any postponements or adjournments of
the annual meeting. There were 34,624,062 shares of our common stock outstanding on the record date.
What are the voting rights of the holders of the company’s common stock?
Each share of our common stock outstanding on the record date will be entitled to one vote on each director
nominee and one vote on each other matter considered at the annual meeting.
What constitutes a quorum?
A quorum is the minimum number of our shares of common stock that must be represented at a duly called
meeting in person, which includes participation by electronic means such as a live webcast, or by proxy in order
to conduct business legally at the annual meeting. For the annual meeting, the presence, in person or by proxy, of
the holders of a majority of the shares entitled to vote will be considered a quorum. If you are a registered
shareholder, voting by Internet or telephone or, if you requested a paper copy of the proxy materials, by mail, or
attendance at the annual meeting in person, will cause you to be counted in the determination of a quorum. If you
are a street name shareholder, your broker or other nominee will vote your shares pursuant to your instructions,
and such shares will count in the determination of a quorum. If you do not provide any specific voting
instructions to your broker or other nominee, your shares will still count for purposes of attaining a quorum.
How do I vote?
If you are a registered shareholder, you may vote by Internet or telephone by following the instructions in
the Notice. If you requested a paper copy of the proxy materials, you also may submit your proxy by mail by
following the instructions included with your proxy card. The deadline for submitting your proxy by Internet or
telephone is 11:59 PM Eastern Time on June 7, 2016. The designated proxy will vote according to your
instructions. If you attend the live webcast of the annual meeting you also will be able to vote your shares
electronically at the meeting up until the time the polls are closed.
If you are a street name holder, your broker or nominee firm is the legal, registered owner of the shares, and
it may provide you with a Notice. Follow the instructions on the Notice to access our proxy materials and vote or
to request a paper or email copy of our proxy materials. If you receive these materials in paper form, the
materials include a voting instruction card so that you can instruct your broker or nominee how to vote your
Proxy Statement
4
shares. Please check your Notice or voting instruction card or contact your broker or other nominee to determine
whether you will be able to deliver your voting instructions by Internet or telephone in advance of the meeting
and whether, if you attend the live webcast of the annual meeting, you will be able to vote your shares
electronically at the meeting up until the time the polls are closed.
If you own shares through a retirement or savings plan or other similar plan, you may submit your voting
instructions by Internet, telephone or mail by following the instructions included with your voting instruction
card. The deadline for submitting your voting instructions by Internet or telephone is 11:59 PM Eastern Time on
June 5, 2016. The trustee or administrator of the plan will vote according to your instructions and the rules of the
plan.
If you sign and submit your proxy without specifying how you would like your shares voted, your shares
will be voted in accordance with the Board’s recommendations specified below under “What are the Board’s
recommendations?” and in accordance with the discretion of the proxy holders with respect to any other matters
that may be voted upon at the annual meeting.
Even if you plan to attend the annual meeting, we recommend that you also submit your proxy card or vote
by Internet or telephone by the applicable deadline so that your vote will be counted if you later decide not to
attend the meeting.
Can I change my vote after I return my proxy or voting instruction card?
If you are a registered shareholder, you may revoke or change your vote at any time before the proxy is
voted by filing with our Secretary either a written notice of revocation or a duly executed proxy bearing a later
date. If you attend the live webcast of the annual meeting you may revoke your proxy or change your proxy vote
by voting electronically at the meeting. Your attendance at the annual meeting will not by itself revoke a
previously granted proxy.
If your shares are held in street name or you hold shares through a retirement or savings plan or other
similar plan, please check your voting instruction card or contact your broker, nominee, trustee or administrator
to determine whether you will be able to revoke or change your vote.
Will my vote be confidential?
It is our policy to maintain the confidentiality of proxy cards, ballots and voting tabulations that identify
individual shareholders except as might be necessary to meet any applicable legal requirements and, in the case
of any contested proxy solicitation, as might be necessary to allow proper parties to verify proxies presented by
any person and the results of the voting.
What are the Board’s recommendations?
The Board recommends that you vote:
• For election of each of the director nominees named in this proxy statement (see Proposal 1);
• For the advisory resolution to approve executive compensation (see Proposal 2); and
• For ratification of the appointment of PricewaterhouseCoopers LLP as our independent registered
public accounting firm for the year ending December 31, 2016 (see Proposal 3).
What vote is required to approve each proposal?
Election of directors. We have adopted majority voting in uncontested director elections. Accordingly,
under our articles of incorporation and bylaws, director nominees must receive the affirmative vote of a majority
of the votes cast in order to be elected. A majority of the votes cast means that the number of votes cast “for” a
5
Proxy Statement
director nominee must exceed the number of votes cast “against” that nominee. Abstentions, while included for
purposes of attaining a quorum, will have no effect on the outcome of director elections. Under Pennsylvania law
and our articles of incorporation and bylaws, an incumbent director who does not receive the votes required to be
re-elected remains in office until his or her successor is elected and qualified, thereby continuing as a “holdover”
director. Under the director resignation policy in our corporate governance principles, a director who is not re-
elected must tender his or her resignation to the Nominating and Corporate Governance Committee of the Board,
which will make a recommendation to the Board as to whether or not the resignation offer should be accepted. In
deciding whether to accept the resignation offer, the Board will consider the recommendation of the Nominating
and Corporate Governance Committee as well as any additional information and factors that the Board believes
to be relevant. The Board will act on the Nominating and Corporate Governance Committee’s recommendation
within ninety (90) days following certification of the election results.
Advisory resolution to approve executive compensation. The affirmative vote of a majority of the votes cast
is required for approval. Because the vote is advisory, it will not be binding on the Board or the company.
Abstentions, while included for purposes of attaining a quorum, will have no effect on the outcome of the
proposal.
Ratification of the appointment of PricewaterhouseCoopers LLP. The affirmative vote of a majority of the
votes cast is required for ratification. Abstentions, while included for purposes of attaining a quorum, will have
no effect on the outcome of the proposal. Ratification of the appointment of our independent registered public
accounting firm is not legally required; the Board asks shareholders to ratify the appointment as a matter of good
corporate governance. If shareholders do not ratify the appointment, the Audit Committee will consider whether
it is appropriate to select another independent registered public accounting firm in future years.
What is a “broker non-vote”?
If you hold your shares in street name through a broker or other nominee, your broker or nominee may not
be permitted to exercise voting discretion with respect to some proposals if you do not provide voting
instructions. “Broker non-votes” are shares that a broker or nominee does not vote because it has not received
voting instructions and does not have discretionary authority to vote (or does not exercise that authority). For the
annual meeting, if you do not provide specific voting instructions, your broker or nominee may not exercise
voting discretion with respect to: Proposal 1, the election of directors, or Proposal 2, the approval of the advisory
resolution on executive compensation. If you do not provide specific voting instructions, your broker or nominee
may exercise voting discretion with respect to Proposal 3, the ratification of the appointment of the company’s
independent registered public accounting firm. Broker non-votes will be counted for the purposes of calculating
whether a quorum is present at the annual meeting. However, broker non-votes will have no effect on the
outcome of the vote on Proposal 1 or Proposal 2.
Proxy Statement
6
GOVERNANCE OF THE COMPANY
Where can I find information about the governance of the company?
The company has adopted corporate governance principles that, along with the charters of the Board
committees, provide the framework for the governance of the company. The Nominating and Corporate
Governance Committee is responsible for annually reviewing the principles and recommending any proposed
changes to the Board for approval. A copy of our corporate governance principles is posted on our website at
http://ir.interdigital.com under the heading “Corporate Governance – CG Documents,” along with the charters of
our Board committees and other information about our governance practices. We will provide to any person
without charge a copy of any of these documents upon written request to our Secretary at our principal executive
offices: InterDigital, Inc., 200 Bellevue Parkway, Suite 300, Wilmington, Delaware 19809-3727.
Code of Ethics
Does the company have a code of ethics?
We have adopted a Code of Ethics that applies to all directors, officers, employees and consultants,
including our principal executive, financial and accounting officers or persons performing similar functions. The
Code of Ethics is available on the company’s website at http://ir.interdigital.com under the heading “Corporate
Governance – CG Documents.” We intend to disclose future amendments to certain provisions of the Code of
Ethics, or any waiver of such provisions granted to executive officers and directors, on the website within four
business days following the date of such amendment or waiver. We will provide to any person without charge a
copy of our Code of Ethics upon written request to our Secretary at InterDigital, Inc., 200 Bellevue Parkway,
Suite 300, Wilmington, Delaware 19809-3727.
Director Independence
Which directors are considered independent, and how does the Board determine their independence?
Each year, prior to the annual meeting of shareholders, the Board reviews and assesses the independence of
its directors and makes a determination as to the independence of each director. During this review, the Board
considers transactions and relationships between each director or any member of his or her immediate family and
our company and its subsidiaries and affiliates. As a result of this review, the Board affirmatively determined that
each of Messrs. Jeffrey K. Belk, S. Douglas Hutcheson, John A. Kritzmacher, Kai O. Öistämö and Philip P.
Trahanas and Ms. Jean F. Rankin are “independent” under the rules of the SEC and the listing standards of the
NASDAQ Stock Market.
Board Leadership
Who is the Chairman of the Board, and are the positions of Chairman of the Board and Chief Executive
Officer separated?
Mr. Hutcheson, who is an independent director, has served as Chairman of the Board since June 2015. The
Board has a general policy that the positions of Chairman of the Board and Chief Executive Officer should be
held by separate persons as an aid in the Board’s oversight of management. This policy is affirmed in the Board’s
published corporate governance principles, which state that the Chairman of the Board is an independent director.
The Board believes that this leadership structure is appropriate for the company at this time because of the
advantages to having an independent chairman for matters such as: communications and relations between the
Board and the Chief Executive Officer and other senior management; reaching consensus on company strategies
and policies; and facilitating robust Board, committee and Chief Executive Officer evaluation processes. The
Board periodically reviews its leadership structure to determine whether it is appropriate given the specific
characteristics and circumstances of the company.
7
Proxy Statement
Board Oversight of Risk
What is the Board’s role in risk oversight?
The Board is responsible for overseeing the major risks facing the company and the company’s enterprise
risk management (“ERM”) efforts. The Board has delegated to the Audit Committee primary responsibility for
overseeing and monitoring these efforts. Under its charter, the Audit Committee is responsible for discussing
with management and the company’s independent registered public accounting firm significant risks and
exposures relating to the company’s quarterly and annual financial statements and assessing management’s steps
to mitigate them, and for reviewing corporate insurance coverage and other risk management programs. At least
quarterly, the Audit Committee receives presentations and reports directly from the company’s Executive Vice
President, General Counsel and Secretary, who leads the company’s day-to-day ERM efforts. The Audit
Committee briefs the Board on the company’s ERM activities as part of its regular reports to the Board on the
activities of the committee, and the Executive Vice President, General Counsel and Secretary also periodically
delivers presentations and reports to the full Board as appropriate.
Board Structure and Committee Membership
What is the size of the Board, and how often are directors elected?
The Board currently has eight directors. All directors are subject to election for one-year terms at each
annual meeting of shareholders.
How often did the Board meet during 2015?
The Board met seven times during 2015. Each director is expected to attend each meeting of the Board and
those committees on which he or she serves. Each director attended at least 75% of the aggregate of all Board
meetings and meetings of committees on which the director served during 2015. We typically schedule one of the
meetings of the Board on the day immediately preceding or following our annual meeting of shareholders, and it
is the policy of the Board that directors are expected to attend our annual meeting of shareholders absent unusual
circumstances. Eight directors attended the 2015 annual meeting of shareholders, including all of our current
directors (with the exception of Mr. Trahanas, who joined the Board in February 2016) and Mr. Steven T. Clontz,
our former Chairman of the Board who retired as of date of the 2015 annual meeting. Dr. Gilbert F. Amelio and
Mr. Edward B. Kamins, who also retired as of the end of their terms in June 2015, did not attend the 2015 annual
meeting.
What are the roles of the primary Board committees?
The Board has standing Audit, Compensation, Nominating and Corporate Governance, and Investment
Committees. Each of the Audit, Compensation, and Nominating and Corporate Governance Committees is
composed entirely of independent directors, as determined by the Board in accordance with the applicable rules
of the SEC and the listing standards of the NASDAQ Stock Market. Each of the Board committees operates
under a written charter that has been approved by the Board.
Proxy Statement
8
The table below provides information about the current membership of the committees and the number of
meetings of each committee held in 2015.
Name
Audit
Committee
Compensation
Committee
Jeffrey K. Belk . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
S. Douglas Hutcheson . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
John A. Kritzmacher . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Kai O. Öistämö . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Jean F. Rankin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Robert S. Roath . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Philip P. Trahanas* . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Number of Meetings in 2015 . . . . . . . . . . . . . . . . . . . . . . . . .
Chair
X
X
8
X
X
Chair
8
Nominating
and
Corporate
Governance
Committee
Investment
Committee
Chair
Chair
X
X
5
X
X
X
7
* Mr. Trahanas was appointed to the Audit and Investment Committees effective April 1, 2016, succeeding
Ms. Rankin and Mr. Kritzmacher, respectively, on such committees.
Audit Committee
The Audit Committee assists the Board in fulfilling its oversight responsibilities relating to the company’s
corporate accounting, its financial reporting practices, audits of its financial statements and compliance with
applicable requirements regarding the maintenance of accurate books and records. Among other things, the
committee:
• Reviews the company’s annual and quarterly financial statements and discusses them with
management and the company’s independent registered public accounting firm;
• Appoints, compensates, retains, evaluates, oversees the work of and, if deemed appropriate, replaces
the company’s independent registered public accounting firm;
• Receives from the independent registered public accounting firm reports required by applicable SEC
rules and professional standards, including reviewing and discussing with the independent registered
public accounting firm the matters required to be discussed under Auditing Standard No. 16, as adopted
by the Public Company Accounting Oversight Board and amended from time to time;
• Reviews the adequacy and effectiveness of the company’s system of internal control over financial
reporting and disclosure controls and procedures;
• Reviews and approves, at least annually, the management, scope, plans, budget, staffing and relevant
processes and programs of the company’s internal audit function;
• Establishes and oversees procedures for receiving and handling reports of potential misconduct,
including violations of law or the company’s Code of Ethics and complaints received by the company
regarding accounting, internal accounting controls, auditing or federal securities law matters and the
confidential, anonymous submission by our employees of concerns regarding questionable accounting,
auditing or federal securities law matters;
• Oversees the company’s other compliance policies and programs, including the implementation and
effectiveness of the company’s Code of Ethics;
• Oversees and monitors the company’s ERM efforts; and
• Reviews and provides guidance to the Board with respect to:
•
Shareholder distributions;
• The integrity of the company’s financial models, as appropriate;
• Tax planning;
9
Proxy Statement
•
Foreign currency management policies;
• Corporate insurance coverage; and
• Cash management investment policies.
All of the Audit Committee members are financially literate. The Board has determined that two of the
current members of the Audit Committee, Mr. Kritzmacher and Mr. Trahanas, qualify as “audit committee
financial experts” within the meaning of applicable SEC regulations. Mr. Kritzmacher acquired his expertise
primarily through his prior and current experience as a chief financial officer of a publicly traded company, and
Mr. Trahanas acquired his expertise primarily through his more than a decade of experience as an investment
leader at a private equity firm, including his extensive experience analyzing and evaluating financial statements
of a wide variety of companies with significant focus in technology and related industry investments.
Compensation Committee
The Compensation Committee assists the Board in discharging its responsibilities relating to the
compensation of the Chief Executive Officer and other executive officers; develops, reviews and approves the
principles guiding the company’s compensation policies; oversees the company’s compensation-related policies
and programs and the level of awards to employees; and assists the Board and the Chairman of the Board in
succession planning. Among other things, the committee:
• Reviews and approves the corporate goals and objectives relevant to the compensation of our Chief
Executive Officer and other executive officers, evaluates their performance in light of such goals and
objectives and, based on its evaluations and appropriate recommendations, reviews and approves the
compensation of our Chief Executive Officer and other executive officers, including approving the
grant of equity awards, each on an annual basis;
• Assists the Board in developing and evaluating potential candidates for executive positions and
oversees and annually reviews the development of executive succession plans;
• Reviews and discusses with management the Compensation Discussion and Analysis required by SEC
rules, recommends to the Board whether the Compensation Discussion and Analysis should be
included in the company’s annual report and proxy statement and oversees the preparation of the
Compensation Committee report required by SEC rules for inclusion in the company’s annual report
and proxy statement;
• Assesses the results of the company’s most recent advisory vote on executive compensation, and
considers and recommends to the Board the frequency of the company’s advisory vote on executive
compensation;
• Reviews periodically compensation for non-employee directors of the company and recommends
changes to the Board as appropriate;
• Reviews and approves compensation packages for new executive officers and severance packages for
executive officers whose employment terminates with the company;
• Reviews and makes recommendations to the Board with respect to the adoption or amendment of
incentive and other equity-based compensation plans;
• Administers the company’s equity incentive plans;
• Reviews periodically, revises as appropriate and monitors compliance by directors and executive
officers with the company’s stock ownership guidelines;
• Reviews and considers compensation policies and/or practices as they relate to risk management
practices and/or incentives that enhance risk-taking, as the committee determines to be appropriate; and
•
Is directly responsible for the appointment, compensation and oversight of the work of any consultants
and other advisors retained by the committee, and assesses the independence of any consultants and
Proxy Statement
10
other advisors (whether retained by the committee or management) that provide advice to the
committee in accordance with the listing standards of the NASDAQ Stock Market and applicable law.
The Compensation Committee may delegate authority to the committee chair or a sub-committee, as the
committee may deem appropriate, subject to such ratification by the committee as the committee may direct. The
Compensation Committee also may delegate to one or more officers of the company the authority to make grants
of stock options or other supplemental awards at specified levels, under specified circumstances, to eligible
employees who are not executive officers of the company, subject to reporting to and such ratification by the
committee as the committee may direct.
Compensation Committee Interlocks and Insider Participation
Messrs. Belk and Hutcheson and Ms. Rankin served on the Compensation Committee during all or part of
2015, and former directors Messrs. Clontz and Kamins and Dr. Amelio served on the Compensation Committee
for part of 2015. No director serving on the Compensation Committee during any part of 2015 was, at any time
either during or before such fiscal year, an officer or employee of the company or any of its subsidiaries. In
addition, none of our executive officers has served as a member of a board of directors or a compensation
committee, or other committee serving an equivalent function, of any other entity, one of whose executive
officers served as a member of the company’s Board or Compensation Committee.
Nominating and Corporate Governance Committee
The Nominating and Corporate Governance Committee assists the Board in identifying qualified individuals
to become Board and committee members, considers matters of corporate governance and assists the Board in
evaluating the Board’s effectiveness. Among other things, the committee:
• Develops and recommends to the Board criteria for Board membership (including issues of character,
integrity, judgement, diversity, independence, skills, education, business acumen, business experience,
understanding of the company’s business and the like);
•
Identifies, reviews the qualifications of and recruits candidates for election to the Board and to fill
vacancies or new positions on the Board;
• Assesses the contributions of incumbent directors in determining whether to recommend them for re-
election to the Board;
• Reviews candidates recommended by the company’s shareholders for election to the Board;
• Assesses the independence of directors, director nominees and director candidates under applicable
standards, including any heightened independence requirements applicable to Audit and Compensation
Committee members, and recommends independence determinations to the Board;
• Reviews annually our corporate governance principles and recommends changes to the Board as
appropriate;
• Recommends to the Board, after consultation with the Audit Committee, changes to our Code of
Ethics;
• Assists the Board in ensuring proper attention and effective response to shareholder concerns regarding
corporate governance;
• Reviews and makes recommendations to the Board with respect to the Board’s and each committee’s
size, structure, composition and functions;
• Oversees the process for evaluating the Board and its committees; and
•
Periodically reviews the Board’s leadership structure and recommends changes to the Board as
appropriate.
11
Proxy Statement
The committee will consider director candidates recommended by our shareholders. Shareholders
recommending candidates for consideration by the Nominating and Corporate Governance Committee should
send their recommendations to our Secretary at InterDigital, Inc., 200 Bellevue Parkway, Suite 300, Wilmington,
Delaware 19809-3727. The recommendation must include the candidate’s name, biographical data and
qualifications and a written statement from the candidate of his or her consent to be named as a candidate and, if
nominated and elected, to serve as a director. The committee may ask candidates for additional information as
part of the process of assessing a shareholder-recommended director candidate. The committee evaluates director
candidates recommended by shareholders based on the same criteria used to evaluate candidates from other
sources.
While the Board has not established a formal policy for considering diversity when evaluating director
candidates, among the criteria the Board may consider are experience and diversity. As described in our
corporate governance principles, with respect to diversity, the Nominating and Corporate Governance Committee
may consider such factors as gender, race, ethnicity, differences of perspective, professional background,
experience at policy-making levels in business, finance and technology and other areas, education, skill and other
individual qualities and attributes that are relevant to the company’s global activities and contribute to Board
heterogeneity. The selection criteria for director candidates also include the following:
• Each director should be an individual of the highest personal and professional ethics, integrity and
values.
• Each director should be committed to representing the long-term interests of the company’s
shareholders and demonstrate a commitment to long-term service on the Board.
• Each director should have an inquisitive and objective perspective, practical wisdom and mature
judgment.
The Nominating and Corporate Governance Committee periodically evaluates the composition of the Board
to assess the skills and experience that are currently represented on the Board, as well as the skills and experience
that the Board will find valuable in the future. This evaluation of the Board’s composition enables the Board to
update the skills and experience it seeks in the Board as a whole, and in individual directors, as the company’s
needs evolve and change over time and to assess the effectiveness of efforts at pursuing diversity. See “Proposals
to be Voted On – Election of Directors (Proposal 1)” for a summary of the qualifications, experience and other
relevant attributes of the directors nominated for re-election at this year’s annual meeting.
In recruiting the director who joined the Board in February 2016, the Nominating and Corporate
Governance Committee retained The Lapham Group, Inc. to help identify director prospects, perform candidate
outreach, assist in reference checks, and provide other related services. The recruiting process typically involves
either the search firm or a member of the Nominating and Corporate Governance Committee contacting a
prospect to gauge his or her interest and availability. A candidate will then meet with several members of the
Board, including Mr. Merritt. At the same time, the Nominating and Corporate Governance Committee or other
Board members, as appropriate, and the search firm will contact references for the prospect. A background check
is completed before the Board approves any final recommendation from the committee to appoint a candidate to
the Board.
Investment Committee
The primary role of the Investment Committee is to monitor, and provide guidance to the company’s
management team and recommend actions to the Board with respect to, certain investment and divestment
activities of the company and funding for certain affiliated entities of the company. Among its specific duties and
responsibilities, the committee:
• Approves minority investments in other companies by the company;
• Approves divestments of minority equity interests in other companies by the company; and
Proxy Statement
12
• Approves the establishment of non-core operating businesses as entities partially owned by the
company, including approval of contributions to such entities and the ownership structure of such
entities.
The committee may delegate authority to the committee chair or a sub-committee, as the committee may
deem appropriate, subject to such ratification by the committee as the committee may direct.
Communications with the Board
How can shareholders communicate with the Board?
Shareholders and other parties interested in communicating directly with any individual director, including
the Chairman, the Board as a whole or the non-employee directors as a group may do so by writing to Investor
Relations, InterDigital, Inc., 9710 Scranton Road, Suite 250, San Diego, California 92121, or by sending an
email to Directors@InterDigital.com. Our Investor Relations department reviews all such correspondence and, in
consultation with appropriate directors and/or the company’s Legal department as necessary, generally screens
communications from shareholders to identify communications that (i) are solicitations for products and services,
(ii) relate to matters of a personal nature not relevant for the company’s shareholders to act on or for the Board to
consider or (iii) matters that are of a type that render them improper or irrelevant to the functioning of the Board
or the company. The Investor Relations department regularly forwards to the Board or specified director(s) a
summary of all such correspondence and copies of all correspondence that deals with the functions of the Board
or its committees or that otherwise requires their attention. Directors may, at any time, review a log of all
correspondence we receive that is addressed to members of the Board and request copies of any such
correspondence.
Communications about Accounting Matters
How can individuals report concerns relating to accounting, internal control, auditing or federal securities
law matters?
Concerns relating to accounting, internal control, auditing or federal securities law matters may be
submitted by writing to our Secretary at InterDigital, Inc., 200 Bellevue Parkway, Suite 300, Wilmington,
Delaware 19809-3727. All correspondence will be brought to the attention of the chair of the Audit Committee
and handled in accordance with procedures established by the Audit Committee with respect to these matters.
13
Proxy Statement
How are directors compensated?
DIRECTOR COMPENSATION
For Board participation during 2015, our non-employee directors were compensated as follows:
Role
Board member . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Chairman of the Board* . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Chair of Audit Committee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other Audit Committee members . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Chair of Compensation Committee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other Compensation Committee members . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Chair of Nominating & Corporate Governance Committee . . . . . . . . . . . . . . . . . . . . . . . .
Other Nominating & Corporate Governance Committee members . . . . . . . . . . . . . . . . . .
Chair of Investment Committee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other Investment Committee members . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Annual Cash
Retainer ($)
40,000
50,000
30,000
12,000
15,000
7,500
10,000
5,000
25,000
10,000
* The annual cash retainer paid to the Chairman of the Board is in addition to the annual cash retainer paid to all
Board members.
All cash retainers are generally paid quarterly in arrears and based upon service for a full year, and prorated
payments are made for service of less than a full year.
The compensation program is designed to compensate each non-employee director for participating in up to
eight Board meetings per year and up to eight meetings per year for each committee on which the non-employee
director serves. During 2015, additional compensation was paid to each non-employee director for participating
in meetings during the Board term (which runs from annual meeting date to annual meeting date) in excess of
these thresholds, as follows:
Board/Committee
Additional Fee per Meeting
(after eight meetings) ($)
Board . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Audit
Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Nominating & Corporate Governance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Investment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4,000
1,200
750
500
1,000
In addition, non-employee directors are paid a per diem fee of $1,000 for attendance at or participation in
events, conferences or meetings, in their capacity as a director, at the request of InterDigital, Inc. senior
management, provided that such attendance or participation requires a significant time commitment and would
be considered outside of the director’s typical Board and/or committee duties. Any per diem fee payments are
subject to the approval of the Compensation Committee.
For his or her service during the 2015-2016 Board term, each non-employee director received a restricted
stock unit (“RSU”) award in an amount equal in value to $150,000 (with the number of RSUs granted calculated
using the 30-day historical average of the company’s stock price) that vests in full one year from the grant date.
Upon his or her initial appointment to the Board, new directors receive a pro-rated RSU award for his or her
partial service during the then current Board term, as well as an initial appointment award of RSUs in an amount
equal in value to $150,000 (with the number of RSUs granted calculated using the 30-day historical average of
the company’s stock price) that vests in full one year from the grant date. RSU awards may be deferred. Except
in certain limited circumstances, an election to defer must be made in the calendar year preceding the year during
which services are rendered and the compensation is earned. Unvested time-based RSUs and deferred RSUs
Proxy Statement
14
accrue dividend equivalents, which are paid in the form of additional shares of stock at the time, and only to the
extent, that the awards vest or at the end of the deferral period, as applicable.
To align the interests of non-employee directors and executives with those of our shareholders, the company
has adopted stock ownership guidelines. The stock ownership guidelines applicable to the non-employee
directors are set at a target of the lesser of (a) company stock valued at an amount equal to five times their annual
cash retainer of $40,000 or (b) 4,000 shares/units of the company’s stock. Qualifying stock includes: shares of
common stock, restricted stock and, on a pre-tax basis, unvested time-based RSUs. For purposes of calculating
the value of company stock holdings, each share or other qualifying stock unit is priced at a price per share/unit
equal to the average closing stock price of the company’s common stock for the 200 trading days leading up to
and including the calculation date. The 200-day average closing stock price is calculated annually on the date of
the company’s annual meeting of shareholders. Any director who has not reached or fails to maintain the target
ownership level must retain at least 50% of any after-tax shares derived from vested RSUs or exercised options
until the target ownership level is met. A director may not make any disposition of shares that results in his or her
holdings falling below the target ownership level without the express approval of the Compensation Committee.
As of March 31, 2016, all of the non-employee directors had reached their target ownership levels.
The company’s directors are also eligible to participate in the company’s nonqualified deferred
compensation plan by deferring receipt of their annual Board fees. None of the directors elected to defer any of
their 2015 Board fees. For more information about the deferred compensation plan, see “Executive
Compensation – Nonqualified Deferred Compensation.”
2015 Director Compensation Table
The following table sets forth the compensation paid to each person who served as a director of the
company in 2015 for their service in 2015. Directors who also serve as employees of the company do not receive
any additional compensation for their services as a director. For Mr. Merritt’s 2015 compensation, see
“Executive Compensation – Summary Compensation Table.”
Name
Fees Earned or
Paid in Cash
($)(2)
Gilbert F. Amelio(1) . . . . . . . . . . . . . . . . . . . . . . . . . .
Jeffrey K. Belk . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Steven T. Clontz(1)
. . . . . . . . . . . . . . . . . . . . . . . . . .
S. Douglas Hutcheson . . . . . . . . . . . . . . . . . . . . . . . .
Edward B. Kamins(1) . . . . . . . . . . . . . . . . . . . . . . . . .
John A. Kritzmacher . . . . . . . . . . . . . . . . . . . . . . . . . .
Kai O. Öistämö . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Jean F. Rankin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Robert S. Roath . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
23,751
74,000
42,500
91,362
22,778
90,700
62,000
72,700
50,000
Stock
Awards
($)(3)
—
149,690
—
149,690
—
149,690
149,690
149,690
149,690
Total ($)
23,751
223,690
42,500
241,052
22,778
240,390
211,690
222,390
199,690
(1) This director retired at the end of his term in June 2015.
(2) Amounts reported represent the aggregate annual Board, Chairman of the Board, committee chair and
committee membership retainers earned by each non-employee director in 2015, plus any fees earned for
attendance at additional meetings during the 2014-2015 Board term, as described above.
(3) Amounts shown reflect the aggregate grant date fair value computed in accordance with Financial
Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 718 for RSU
awards granted pursuant to our compensation program for non-management directors in 2015. The
assumptions used in valuing these RSU awards are incorporated by reference to Notes 2 and 10 to our
audited financial statements included in our annual report on Form 10-K for the year ended December 31,
2015.
15
Proxy Statement
The following table sets forth the grant date fair value of each RSU award granted to our non-employee directors
in 2015.
Name
Jeffrey K. Belk . . . . . . . . . . . . . . . . . . . . . . . . . . . .
S. Douglas Hutcheson . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . .
John A. Kritzmacher
Kai O. Öistämö . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Jean F. Rankin . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Robert S. Roath . . . . . . . . . . . . . . . . . . . . . . . . . . .
Number of
Restricted
Stock Units
(#)
Grant Date
Fair Value of
Stock Awards
($)
2,628
2,628
2,628
2,628
2,628
2,628
149,690
149,690
149,690
149,690
149,690
149,690
Grant Date
6/10/2015
6/10/2015
6/10/2015
6/10/2015
6/10/2015
6/10/2015
As of December 31, 2015, each person who served as a non-employee director of the company in 2015 had
the following aggregate amounts of unvested RSU awards (including accrued dividend equivalents) outstanding.
None of our directors had any options outstanding as of December 31, 2015. This table does not include RSUs
that, as of December 31, 2015, had vested according to their vesting schedule, but had been deferred.
Name
Outstanding
Restricted Stock
Units
(#)
Jeffrey K. Belk . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
S. Douglas Hutcheson . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
John A. Kritzmacher . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Kai O. Öistämö . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Jean F. Rankin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Robert S. Roath . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2,647
2,647
2,647
2,647
2,647
2,647
Proxy Statement
16
PROPOSALS TO BE VOTED ON
Election of Directors
(Proposal 1)
Description
Which directors are nominated for election?
Messrs. Jeffrey K. Belk, S. Douglas Hutcheson, John A. Kritzmacher, William J. Merritt, Kai O. Öistämö,
Robert S. Roath and Philip P. Trahanas and Ms. Jean F. Rankin are recommended by the Nominating and
Corporate Governance Committee and nominated by the Board for election at the 2016 annual meeting, each to
serve a one-year term until our annual meeting in 2017 and until his or her successor is elected and qualified.
Mr. Trahanas is standing for election to the Board for the first time. He was identified as a director candidate by
an executive search firm retained by the company in 2015 to identify potential director candidates.
Set forth below is biographical information about the eight nominees, each of whose current terms of office
expire at the 2016 annual meeting, and other information about the skills and qualifications of our directors that
contribute to the effectiveness of the Board.
What are their backgrounds?
Jeffrey K. Belk, 53, has been a director of the company since March 2010. Since 2008, he has served as
Managing Director of ICT Capital, LLC, focused on developing and investing in select global growth
opportunities in the information and communications technologies space. In 2014, he founded Velocity Growth,
a social customer relationship management and services company where he serves as Executive
Chairman. Formerly, Mr. Belk spent almost 14 years at Qualcomm Incorporated (“Qualcomm”), a developer and
provider of digital wireless communications products and services, where, from 2006 until his departure in early
2008, he was Qualcomm’s Senior Vice President of Strategy and Market Development, focused on examining
changes in the wireless ecosystem and formulating approaches to help accelerate mobile broadband adoption and
growth. From 2000 through 2006, Mr. Belk served as Qualcomm’s Senior Vice President, Global Marketing,
leading a team responsible for all facets of Qualcomm’s corporate messaging, communications and marketing
worldwide. He also served on the board of directors of Peregrine Semiconductor Corp. from 2008 until it was
acquired by Murata Corporation in 2014. The Board has concluded that Mr. Belk should serve as a director of the
company because his extensive industry-specific experience in strategy and marketing makes him a valuable
resource and provides him with unique insights on the challenges and opportunities facing the company in the
wireless markets.
S. Douglas Hutcheson, 60, has been a director of the company since July 2014. Mr. Hutcheson is CEO and a
director of Laser, Inc., a corporation created in connection with the acquisition of Leap Wireless International,
Inc. (“Leap Wireless”), a wireless communications carrier, by AT&T in March 2014. Since January 2015,
Mr. Hutcheson has also served as a senior advisor of Technology, Media and Telecom (TMT) for Searchlight
Capital, a global private investment firm. Prior to March 2014, Mr. Hutcheson served as CEO of Leap Wireless
and its operating subsidiary, Cricket Communications, for nine years, where he was responsible for developing
and implementing strategy, all operations, and the oversight of all relationships and partnerships. Before serving
as CEO, Mr. Hutcheson held other executive positions at Leap Wireless, including President and Chief Financial
Officer. Prior to joining Leap Wireless, he was Vice President of Marketing in the wireless infrastructure division
at Qualcomm for three years, where he led multiple teams. Since 2012, Mr. Hutcheson has also served on the
board of directors of Pitney Bowes Inc., and currently serves on the audit and finance committees of such board.
He previously served on the board of directors of Leap Wireless from 2005 to 2014. The Board has concluded
that Mr. Hutcheson should serve as a director of the company because, with his significant operational and
financial expertise as an experienced former chief executive officer of a wireless communications company and
his broad business background, which includes strategic planning and product and business development and
marketing, he brings valuable insight that is needed to evolve and execute the company’s strategy.
17
Proxy Statement
John A. Kritzmacher, 55, has been a director of the company since June 2009. Since 2013, Mr. Kritzmacher
has served as Executive Vice President and Chief Financial Officer of John Wiley & Sons, Inc., a global provider
of knowledge and knowledge-based services in the areas of research, professional development and education.
From October 2012 through February 2013, Mr. Kritzmacher served as Senior Vice President Business
Operations and Organizational Planning at WebMD Health Corp., a leading provider of health information
services, where Mr. Kritzmacher was responsible for leading a major restructuring initiative. Previously,
Mr. Kritzmacher served as Executive Vice President and Chief Financial Officer of Global Crossing Limited
(“Global Crossing”), a global provider of IP-based telecommunications solutions, from October 2008 to October
2011, when Global Crossing was acquired by Level 3 Communications, Inc. Prior to that, Mr. Kritzmacher rose
through a variety of positions with increasing responsibility, including Senior Vice President and Corporate
Controller, during his 10 years at Lucent Technologies Inc. (“Lucent”), a provider of telecommunications
systems and services, to become Chief Financial Officer in 2006. After playing a leading role in the planning and
execution of Lucent’s merger with Alcatel in 2006, Mr. Kritzmacher became Chief Operating Officer of the
Services Business Group at Alcatel-Lucent until joining Global Crossing in 2008. Mr. Kritzmacher also served
on the board of directors of Duff & Phelps Corporation from 2011 until it was acquired by a private equity
consortium in 2013. The Board has concluded that Mr. Kritzmacher should serve as a director of the company
because he is a veteran of the telecommunications and high technology industries with extensive operational and
leadership experience and financial expertise. As such, Mr. Kritzmacher contributes valuable advice and
guidance, especially with respect to complex financial and accounting issues, and qualifies as an audit committee
financial expert.
William J. Merritt, 57, has been a director of the company since May 2005. He has also served as President
and Chief Executive Officer of the company since May 2005, and prior to that served as the company’s General
Patent Counsel for four years. Since 2014, Mr. Merritt has been a member of the board of directors of privately
owned Shared Spectrum Company, a leading innovator of dynamic spectrum access and wireless spectrum
intelligence technology. The Board has concluded that Mr. Merritt should serve as a director of the company
because, in his current and former roles, Mr. Merritt has played a vital role in managing the company’s
intellectual property assets and overseeing the growth of its patent licensing business. He also possesses
tremendous knowledge about the company from short- and long-term strategic perspectives and from a day-to-
day operational perspective and serves as a conduit between the Board and management while overseeing
management’s efforts to realize the Board’s strategic goals.
Kai O. Öistämö, 51, has been a director of the company since November 2014. Since October 2015,
Mr. Öistämö has served as an advisor to Siris Capital, a private equity firm. Mr. Öistämö led corporate strategy
and business development at Nokia Corporation (“Nokia”), a leader in the fields of network infrastructure,
location-based technologies and advanced technologies and a former wireless handset manufacturer, as Executive
Vice President, Chief Development Officer from 2010 until his departure in 2014, with responsibility for
strategic partnerships and alliances. Previous roles during his 23-year tenure at Nokia included the position of
Executive Vice President, Devices, from 2008 to 2010. Mr. Öistämö was also a member of the Nokia leadership
team from 2005 to 2014. Mr. Öistämö serves on the board of directors of two Finnish public companies: Sanoma
Corporation since 2011 and Digia Plc since March 2015. The Board has concluded that Mr. Öistämö should
serve as a director of the company because his extensive global experience in the wireless communications
industry and executive leadership and corporate strategy background serve as a great asset to the company and
the Board and enable him to contribute guidance and advice relating to the development and execution of the
company’s strategy and the assessment of the challenges and opportunities facing the company.
Jean F. Rankin, 57, has been a director of the company since June 2010. Ms. Rankin served as Executive
Vice President, General Counsel and Secretary at LSI Corporation (“LSI”), a leading provider of innovative
silicon, systems and software technologies for the global storage and networking markets, from 2007 to May
2014, when LSI was acquired by Avago Technologies Limited (“Avago”). In this role, she served LSI and its
board of directors as Corporate Secretary, in addition to managing the company’s legal, intellectual property
licensing and stock administration organizations. Ms. Rankin joined LSI in 2007 as part of the merger with Agere
Proxy Statement
18
Systems Inc. (“Agere”), where she served as Executive Vice President, General Counsel and Secretary from
2000 to 2007. Prior to joining Agere in 2000, Ms. Rankin was responsible for corporate governance and
corporate center legal support at Lucent, including mergers and acquisitions, securities laws, labor and
employment, public relations, ERISA, investor relations and treasury. She also supervised legal support for
Lucent’s microelectronics business. The Board has concluded that Ms. Rankin should serve as a director of the
company because she has extensive experience and expertise in matters involving intellectual property licensing,
the company’s core business, and her current and former roles as chief legal officer and corporate secretary at
other publicly traded companies enable her to contribute legal expertise and advice as to best practices in
corporate governance.
Robert S. Roath, 73, has been a director of the company since May 1997. He served as Chief Financial
Officer of RJR Nabisco, Inc., before his retirement in 1997. Mr. Roath is a long-time senior strategic and
financial executive with diversified corporate and operating experience with various global companies, including
Colgate-Palmolive Company, General Foods Corporation, GAF Corporation and Price Waterhouse. He has been
a director of SP Plus Corporation (formerly Standard Parking Corporation) since its initial public offering in May
2004 and currently serves as chairman of SP Plus’ compensation and audit committees and as a member of its
nominating and corporate governance committee. The Board has concluded that Mr. Roath should serve as a
director of the company because his achievements as an executive in operations, finance, strategy formulation,
business development and mergers and acquisitions allow him to provide valuable guidance, especially with
respect to the major financial policies and decisions of the company and the analysis of the business challenges
and opportunities facing the company.
Philip P. Trahanas, 45, has been a director of the company since February 2016. Until the end of 2014,
Mr. Trahanas was a Managing Director at General Atlantic LLC, a leading global private equity firm with
significant focus in technology and related industry investments. At General Atlantic, he served as a senior
investment leader, and sat on the boards of directors of a range of public and private portfolio companies. Prior to
joining General Atlantic in 2000, Mr. Trahanas worked in the mergers and acquisitions team at Morgan Stanley
for four years. He began his career as an electrical engineer with General Electric, where he specialized in
communications equipment and semiconductor design. Mr. Trahanas has been a member of the board of directors
of QTS Realty Trust, Inc. since 2009, and currently serves as its lead director. The Board has concluded that
Mr. Trahanas should serve as a director of the company because his extensive operating, investment banking and
private equity experience allow him to contribute guidance and advice relating to the development and execution
of the company’s strategy and analysis of potential business opportunities. He also qualifies as an audit
committee financial expert.
19
Proxy Statement
Summary of Director Qualifications, Experience and Other Relevant Attributes
The table below summarizes key qualifications, skills, and attributes most relevant to the decision to
nominate the above-listed candidates to serve on the Board. A mark indicates a specific area of focus or expertise
on which the Board relies most. The lack of a mark does not mean the director does not possess that qualification
or skill. Each director biography above describes each director’s qualifications and relevant experience in more
detail.
Experience, expertise or attribute
Belk Hutcheson Kritzmacher Merritt Öistämö Rankin Roath Trahanas
High tech roadmap . . . . . . . . . . . . . . . . . .
IPR/IP licensing /patent acquisitions . . . .
Wireless equipment . . . . . . . . . . . . . . . . . .
Wireless services and OTT . . . . . . . . . . . .
CEO (current/former) . . . . . . . . . . . . . . . .
Finance / audit . . . . . . . . . . . . . . . . . . . . . .
Corporate strategy . . . . . . . . . . . . . . . . . . .
High tech investment
. . . . . . . . . . . . . . . .
Marketing . . . . . . . . . . . . . . . . . . . . . . . . .
Operations . . . . . . . . . . . . . . . . . . . . . . . . .
Public company board service and
governance . . . . . . . . . . . . . . . . . . . . . .
Ethnic, gender, national or other
diversity . . . . . . . . . . . . . . . . . . . . . . . . .
•
•
•
•
•
•
Vote Required and Board Recommendation
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
Director nominees receiving the affirmative vote of the majority of votes cast for him or her will be elected
to serve as directors for the next year and until his or her successor is elected and qualified. A majority of the
votes cast means that the number of votes cast “for” a director nominee must exceed the number of votes cast
“against” that nominee.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR
EACH OF THE NOMINEES.
Proxy Statement
20
Advisory Resolution to Approve Executive Compensation
(Proposal 2)
Description
We are asking shareholders to vote on an advisory resolution to approve the company’s executive
compensation as reported in this proxy statement. As described below in the “Compensation Discussion and
Analysis” section of this proxy statement, the Compensation Committee has structured our executive
compensation program to align management’s interests with those of its shareholders and to attract, retain and
motivate talented individuals who will drive the successful execution of the company’s strategic plan. We
motivate our executives primarily by “paying for performance,” or rewarding the accomplishment of individual
performance and corporate goals through the use of performance-based compensation. As discussed in
“Compensation Discussion and Analysis,” the achievement of financial and strategic corporate goals, as well as
departmental and individual performance, determine the short-term and long-term incentive compensation paid
to our executives. Our executive compensation programs have a number of features designed to promote these
objectives.
We urge shareholders to read the “Compensation Discussion and Analysis” below, which describes how our
executive compensation policies and procedures operate and are designed to achieve our compensation
objectives, as well as the Summary Compensation Table and other related compensation tables and narrative
below, which provide detailed information on the compensation of our named executive officers. The
Compensation Committee and the Board believe that the policies and procedures articulated in the
“Compensation Discussion and Analysis” are effective in achieving our goals and that the compensation of our
named executive officers reported in this proxy statement reflects and supports these compensation policies and
procedures.
The Board has adopted a policy providing for an annual advisory resolution to approve executive
compensation. In accordance with Section 14A of the Securities Exchange Act of 1934, as amended (the
“Exchange Act”), and as a matter of good corporate governance, we are asking shareholders to approve the
following advisory resolution at the 2016 annual meeting of shareholders:
RESOLVED, that the shareholders of InterDigital, Inc. (the “company”) approve, on an advisory basis, the
compensation of the company’s named executive officers disclosed in the Compensation Discussion and
Analysis, the Summary Compensation Table and the related compensation tables, notes and narrative in the
proxy statement for the company’s 2016 annual meeting of shareholders.
This advisory resolution, commonly referred to as a “say on pay” resolution, is non-binding on the Board.
Although non-binding, the Board and the Compensation Committee will review and consider the voting results
when making future decisions regarding our executive compensation program. Unless the Board modifies its
policy on the frequency of future “say on pay” votes, the next “say on pay” vote will be held at the 2017 annual
meeting of shareholders.
Vote Required and Board Recommendation
The affirmative vote of the majority of votes cast is required to approve this advisory resolution.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR
THE ADVISORY RESOLUTION TO APPROVE EXECUTIVE COMPENSATION.
21
Proxy Statement
Ratification of Appointment of
Independent Registered Public Accounting Firm
(Proposal 3)
Description
The Audit Committee has appointed PricewaterhouseCoopers LLP (“PwC”) as the company’s independent
registered public accounting firm for the year ending December 31, 2016. PwC has served as the independent
registered public accounting firm of the company since 2002.
Although ratification of the appointment of PwC is not legally required, the Board is asking the shareholders
to ratify the appointment as a matter of good corporate governance. If the shareholders do not ratify the
appointment, the Audit Committee will consider whether it is appropriate to select another independent
registered public accounting firm in future years. Even if the shareholders ratify the appointment, the Audit
Committee in its discretion may select a different independent registered public accounting firm at any time
during the year if it determines that such a change would be in the best interests of the company and its
shareholders.
Representatives from PwC are expected to be present at the annual meeting, will have the opportunity to
make a statement if they so desire and are expected to be available to respond to appropriate questions.
Fees of Independent Registered Public Accounting Firm
Aggregate fees for professional services delivered by PwC, the company’s independent registered public
accounting firm, for the fiscal years ended December 31, 2015 and 2014 were as follows:
Type of Fees
Audit Fees(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Audit-Related Fees(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tax Fees(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
All Other Fees(4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total
2015
2014
$ 896,000
$ 287,200
$ 219,646
$
1,800
$1,404,646
$ 850,000
$ 381,425
85,940
$
$
1,800
$1,319,165
(1) Audit Fees consist of the aggregate fees billed by PwC for the above fiscal years for professional services
rendered by PwC for the integrated audit of the company’s consolidated financial statements and the
company’s internal control over financial reporting as required by Section 404 of the Sarbanes-Oxley Act of
2002, for review of the company’s interim consolidated quarterly financial statements included in the
company’s quarterly reports on Form 10-Q and for services that are normally provided by PwC in
connection with regulatory filings or engagements for the above fiscal years. Such fees also include fees
billed by PwC in connection with its audit of the financial statements of Convida Wireless, LLC (“Convida
Wireless”), the company’s joint venture with Sony Corporation of America (“Sony”).
(2) Audit-Related Fees consist of the aggregate fees billed by PwC for the above fiscal years for assurance and
related services by PwC that were reasonably related to the performance of the audit or review of the
company’s financial statements and are not reported above under the caption “Audit Fees.” Such fees relate
to consultation concerning financial accounting and reporting standards and field verification of royalties
from certain licensees and other contract compliance reviews and also include fees billed by PwC in
connection with its audit of the financial statements of the Signal Trust for Wireless Innovation, a Delaware
statutory trust formed in 2013. In addition, for 2015, such fees include fees billed by PwC for the comfort
letter and other procedures related to the company’s offering of senior convertible notes in first quarter
2015.
Proxy Statement
22
(3) Tax Fees consist of the aggregate fees billed by PwC for the above fiscal years related to a foreign tax study
and other technical advice related to foreign tax matters.
(4) All Other Fees consist of the aggregate fees billed by PwC for the above fiscal years for certain accounting
research software licensed by the company from PwC.
Audit Committee Pre-Approval Policy for Audit and Non-Audit Services of Independent Registered Public
Accounting Firm
The Audit Committee has adopted a policy that requires the committee to pre-approve all audit and non-
audit services to be performed by the company’s independent registered public accounting firm. Unless a service
falls within a category of services that the Audit Committee already has pre-approved, an engagement to provide
the service requires specific pre-approval by the Audit Committee. Also, proposed services exceeding pre-
approved cost levels require specific pre-approval.
Consistent with the rules established by the SEC, proposed services to be provided by the company’s
independent registered public accounting firm are evaluated by grouping the services and associated fees under
one of the following four categories: Audit Services, Audit-Related Services, Tax Services and All Other Services.
All proposed services for the following year are discussed and pre-approved by the Audit Committee, generally
at a meeting or meetings that take place during the October through December time period. In order to render
approval, the Audit Committee has available a schedule of services and fees approved by category for the current
year for reference, and specific details are provided.
The Audit Committee has delegated pre-approval authority to its chair for cases where services must be
expedited. In cases where the Audit Committee chair pre-approves a service provided by the independent
registered public accounting firm, the chair is required to report the pre-approval decisions to the Audit
Committee at its next scheduled meeting. The company’s management periodically provides the Audit
Committee with reports of all pre-approved services and related fees by category incurred during the current
fiscal year, with forecasts of any additional services anticipated during the year.
All of the services performed by PwC related to fees disclosed above were pre-approved by the Audit
Committee.
Vote Required and Board Recommendation
The affirmative vote of the majority of votes cast at the annual meeting is required to ratify the appointment
of PwC as the company’s independent registered public accounting firm for the year ending December 31, 2016.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR
RATIFICATION OF THE APPOINTMENT OF PRICEWATERHOUSECOOPERS LLP AS THE
COMPANY’S INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
FOR THE YEAR ENDING DECEMBER 31, 2016.
23
Proxy Statement
REPORT OF THE AUDIT COMMITTEE
As more fully described in its charter, the Audit Committee oversees the company’s financial reporting
processes on behalf of the Board. In fulfilling our oversight responsibilities, the Audit Committee reviewed and
discussed with management the company’s audited consolidated financial statements for the year ended
December 31, 2015, including a discussion of the acceptability and appropriateness of significant accounting
principles and management’s assessment of the effectiveness of the company’s internal control over financial
reporting. Management represented to us that the company’s consolidated financial statements were prepared in
accordance with accounting principles generally accepted in the United States and considered appropriate in the
circumstances to present fairly the company’s financial position, results of operations and cash flows. The Audit
Committee also reviewed and discussed with PwC, the company’s independent registered public accounting firm,
the matters required to be discussed with the independent registered public accounting firm under applicable
Public Company Accounting Oversight Board (“PCAOB”) standards.
The Audit Committee also received and reviewed the written disclosures and the letter from PwC required
by applicable requirements of the PCAOB regarding PwC’s communications with the Audit Committee
concerning independence and discussed with PwC their independence.
Based on the reviews and discussions with management and the independent registered public accounting
firm referred to above, the Audit Committee recommended to the Board that the audited financial statements be
included in the company’s annual report on Form 10-K for the year ended December 31, 2015 for filing with the
SEC, and the Audit Committee retained PwC as the company’s independent registered public accounting firm for
the year ending December 31, 2016.
AUDIT COMMITTEE:
John A. Kritzmacher, Chair
Kai O. Öistämö
Jean F. Rankin (member through March 2016)
The foregoing Audit Committee report shall not be deemed to be incorporated by reference into any filing under
the Securities Act of 1933, as amended (the “Securities Act”) or the Exchange Act and shall not otherwise be
deemed filed under these acts, except to the extent specifically incorporated by reference.
Proxy Statement
24
EXECUTIVE OFFICERS
Set forth below is certain information concerning our executive officers as of March 31, 2016:
Name
Age
Position
William J. Merritt . . . . . . . . .
Richard J. Brezski . . . . . . . . .
Jannie K. Lau . . . . . . . . . . . .
Scott A. McQuilkin . . . . . . . .
James J. Nolan . . . . . . . . . . .
Lawrence F. Shay . . . . . . . . .
57
43
40
61
55
57
President and Chief Executive Officer
Chief Financial Officer and Treasurer
Executive Vice President, General Counsel and Secretary
Senior Executive Vice President, Innovation
Executive Vice President, IoT Solutions
Senior Executive Vice President, Future Wireless, and Chief
Intellectual Property Counsel
There are no family relationships among the individuals serving as our directors or executive officers. Set
forth below are the name, office and position held with our company and principal occupations and employment
of each of our executive officers. Biographical information on Mr. Merritt is discussed under the caption
“Election of Directors” above.
Richard J. Brezski is InterDigital’s Chief Financial Officer, responsible for overseeing the company’s
finance, accounting, audit, tax, treasury, IT and facilities functions, including the company’s internal and external
financial reporting and analysis. Mr. Brezski joined the company as Director and Controller in May 2003.
Mr. Brezski was promoted to Senior Director in July 2006 and in January 2007 was appointed Chief Accounting
Officer. In January 2009, Mr. Brezski was promoted to Vice President, Controller and Chief Accounting Officer,
and in March 2011 he was appointed to the additional post of Treasurer. In May 2012, he was appointed Chief
Financial Officer. Prior to joining InterDigital, Mr. Brezski served as an audit manager for PwC in its
technology, information, communications and entertainment practice, where he provided business advisory and
auditing services to product and service companies in the electronics, software and technology industries.
Mr. Brezski earned a Bachelor of Science in Accountancy from Villanova University and an Executive Master of
Business Administration from Hofstra University.
Jannie K. Lau is InterDigital’s Executive Vice President, General Counsel and Secretary, responsible for
managing the company’s legal and government affairs functions. Ms. Lau joined InterDigital in 2008 as
Associate General Counsel and was promoted to Deputy General Counsel in 2010. She was appointed to her
current position in October 2012 and assumed responsibility for oversight of the company’s intellectual property
litigation and management of its intellectual property assets at the end of 2015. Prior to joining InterDigital,
Ms. Lau served as securities and transactional counsel at IKON Office Solutions, Inc., then a Fortune® 500
document management solutions company. Before beginning her in-house career, she was an associate at leading
global law firms in New York and Boston, where she represented public and pre-IPO companies as well as
private equity and venture capital funds. Ms. Lau serves on the boards of directors of the Delaware Children’s
Museum and Jobs for Delaware Graduates and on the development committee of the Pennsylvania Academy of
the Fine Arts. Ms. Lau earned a Juris Doctor, with honors, from the University of Pennsylvania Law School and
holds a Bachelor of Arts in English and Comparative Literature from Columbia University.
Scott A. McQuilkin is InterDigital’s Senior Executive Vice President, Innovation. Since 2014,
Mr. McQuilkin has been responsible for leading the organization’s non-patent commercial business initiatives
and overseeing strategic business investments. Mr. McQuilkin joined the company as Chief Financial Officer in
July 2007, and was appointed Senior Executive Vice President, Strategy and Finance, in May 2012, in which role
he was responsible for overseeing the organization’s strategy, corporate development and finance functions. In
October 2012, Mr. McQuilkin assumed the title of Senior Executive Vice President, Innovation, and was
responsible for leading the company’s internal and external technology sourcing efforts, through oversight of
InterDigital Labs until 2014 and of Innovation Partners through the end of 2015. Until joining InterDigital in
2007, Mr. McQuilkin served as Chief Financial Officer of Metavante Lending Solutions, a provider of banking
25
Proxy Statement
and payment technology solutions, where he was responsible for all financial activities, including accounting,
budgeting/forecasting, capital planning, cash management, strategic planning, mergers and acquisitions, tax,
purchasing and payables. Mr. McQuilkin served as Chief Financial Officer for GHR Systems, Inc. (“GHS
Systems”), a provider of lending technologies and related support services, from February 2000 to August 2006,
when GHR Systems was acquired by Metavante Corporation. Mr. McQuilkin earned a Master of Business
Administration from The Wharton School and a Bachelor of Science from Pennsylvania State University.
James J. Nolan is InterDigital’s Executive Vice President, IoT Solutions. As head of IoT Solutions,
Mr. Nolan oversees the development of IoT technology and solutions under InterDigital Labs and the
advancement of market-ready IoT technologies toward commercialization. Since joining the company in 1996,
Mr. Nolan has held a variety of engineering and management positions, including serving as the company’s
senior engineering officer from 2006 to 2014. Before assuming his current role at the end of 2015, Mr. Nolan
served as head of InterDigital Solutions and was responsible for advancing the company’s market-ready
technologies toward commercialization as well as establishing and developing strategic business relationships
and identifying potential new business opportunities. Prior to that, he was InterDigital’s Executive Vice
President, Research and Development, from 2009 to 2014. In those roles, Mr. Nolan led InterDigital’s research
and development teams, overseeing the development of standards-based technology as well as next generation
technology initiatives. Prior to leading the company’s engineering and R&D organizations, he led technology and
product development of modems, protocol software and radio designs for multiple wireless standards. Mr. Nolan
serves on the board of directors of Convida Wireless, the company’s joint venture with Sony. He is also a board
member of EvoNexus, a San Diego-based, member-supported, non-profit technology incubator, and serves on the
Dean’s advisory board for Hofstra University’s School of Engineering and Applied Science. Mr. Nolan earned a
Bachelor of Science in Electrical Engineering from the State University of New York at Buffalo, a Master of
Science in Electrical Engineering from Polytechnic University and an Executive Master of Business
Administration from Hofstra University.
Lawrence F. Shay is InterDigital’s Senior Executive Vice President, Future Wireless, and Chief Intellectual
Property Counsel. Mr. Shay is responsible for overseeing all of the company’s activities pertaining to cellular
wireless technology, including long-term research and development under InterDigital Labs, participation in
wireless standards bodies, the negotiation and administration of license agreements, the advancement of market-
ready technologies toward commercialization and strategic patent sales and joint ventures. Mr. Shay was
appointed to his current position at the end of 2015. Prior to that, Mr. Shay had served since 2008 as Executive
Vice President, Intellectual Property, and Chief Intellectual Property Counsel, overseeing the management of the
company’s intellectual property assets and litigation related to intellectual property rights in addition to
managing the company’s patent business and licensing program and, from 2014 to the end of 2015, overseeing
the InterDigital Labs function. He joined InterDigital in November 2001 as Chief Legal Officer and served as
Corporate Secretary from November 2001 to September 2004. He previously served as General Counsel of U.S.
Interactive, Inc., a multinational, publicly held Internet professional services corporation. From 1985 until 1999,
Mr. Shay practiced corporate law with Dilworth Paxson LLP, a major Philadelphia law firm. Mr. Shay earned his
Juris Doctor, with honors, from the Temple University School of Law and is a magna cum laude graduate of
Saint Joseph’s University, where he earned a Bachelor of Arts in Economics.
The company’s executive officers are appointed to the offices set forth above to hold office until their
successors are duly appointed.
Proxy Statement
26
EXECUTIVE COMPENSATION
Compensation Committee Report
The Compensation Committee has reviewed and discussed the Compensation Discussion and Analysis
required by Item 402(b) of Regulation S-K with management and, based on its review and discussions, has
recommended to the Board that the Compensation Discussion and Analysis be included in this proxy statement
and the company’s Annual Report on Form 10-K.
COMPENSATION COMMITTEE:
Jean F. Rankin, Chair
Jeffrey K. Belk
S. Douglas Hutcheson
The foregoing Compensation Committee report shall not be deemed to be incorporated by reference into any
filing under the Securities Act or the Exchange Act and shall not otherwise be deemed filed under these acts,
except to the extent specifically incorporated by reference.
Compensation Discussion and Analysis
This Compensation Discussion and Analysis covers all material elements of compensation awarded to,
earned by or paid to the company’s Named Executive Officers (“NEOs”) and focuses on the principles
underlying the company’s executive compensation policies and decisions. The following individuals are our
NEOs for 2015:
• William J. Merritt – President and Chief Executive Officer;
• Richard J. Brezski – Chief Financial Officer and Treasurer;
•
•
Scott A. McQuilkin – Senior Executive Vice President, Innovation;
James J. Nolan – Executive Vice President, IoT Solutions;
• Lawrence F. Shay – Senior Executive Vice President, Future Wireless, and Chief Intellectual Property
Counsel; and
• Byung K. Yi – Executive Vice President and Chief Technology Officer. See “Summary Compensation
Table” for additional information regarding our NEOs for 2015.
27
Proxy Statement
Executive Summary
2015 Company Performance
InterDigital delivered a very strong year, continuing to drive recurring revenue growth while managing its
operating expenses. We reported total revenue in 2015 of $441.4 million, compared to $415.8 million in 2014.
Recurring revenue (comprised of current patent royalties and current technology solutions revenue) for 2015 was
$372.8 million, an increase of 29% compared to 2014. These revenue numbers were achieved while maintaining
relatively flat operating expenses for the year. We also maintained our prolific pace of innovation, with
approximately 210 U.S. patents and approximately 1,300 non-U.S. patents issued in 2015. Finally, the company
returned a cumulative total of $125.3 million to shareholders in 2015 in the form of cash dividends and share
repurchases.
RECURRING REVENUE
($, millions)
$372.8
$288.8
29%
GROWTH
$400
$300
$200
$100
$0
$500
$400
$300
$200
$100
$0
TOTAL REVENUE
($, millions)
$441.4
$415.8
6%
GROWTH
2014
2015
2014
2015
Good Governance Practices and Policies:
The company strives to maintain good governance practices and regularly reviews and updates such
practices related to the compensation of our executive officers, including our NEOs. The following summarizes
what we do and what we do not do in our executive compensation practices to highlight both the responsible
practices we have implemented and the practices we have avoided to best serve our shareholders’ long-term
interests:
WHAT WE DO:
✓ We create a balanced compensation program through a mix of fixed and variable short- and long-term
incentives.
✓ We cap both our annual short-term incentive plan (“STIP”) pool and individual employee STIP payouts,
including those of our NEOs, at two times target, even if company or individual performance would result in
payouts in excess of two times target.
✓ We have double-trigger severance payout provisions (i.e., an executive must be terminated in connection
with a change in control in order to receive any severance) in all executive employment contracts.
✓ We have a clawback policy under which the company may recover excess compensation paid to our
executive officers if intentional misconduct or gross negligence by one or more of our executives results in a
material restatement of our financial statements.
✓ We have target stock ownership levels for our executive officers and directors. Each NEO has met the
applicable stock ownership requirements as described below under “Stock Ownership Guidelines.”
✓ We review compensation related risk with an outside independent compensation consultant on an annual
basis to ensure our plans do not create incentives that would put the company at risk of a material adverse
effect.
Proxy Statement
28
WHAT WE DO NOT DO:
È We do not provide excise tax gross-ups.
È We do not guarantee minimum STIP payouts.
È We do not use discretionary equity awards as a regular part of our executive compensation program. We
may issue such awards from time to time when necessary to align with our compensation peer group or to
reward performance. We did not grant any discretionary equity awards in 2015.
È We do not provide any perquisites to executive officers that other employees at or above the senior director
level do not receive.
È We do not permit the hedging of InterDigital stock by any employee, including executive officers.
È We do not pay out dividend equivalents on unearned RSUs; accrued dividend equivalents are paid out only
if and to the extent that the underlying RSU award vests.
2015 Compensation Decisions and Actions
Following are highlights of the key compensation decisions made by the Compensation Committee for
2015:
• Base salaries for our NEOs were increased slightly, in line with the company-wide budgeted salary
increase of 3%, except for Mr. Brezski and Dr. Yi, who received increases of 7% and 20%,
respectively. Please see “2015 Executive Compensation in Detail – Base Salary” below for details.
• The STIP executive incentive pool was funded at 163% of target, as a result of superior achievement of
the related corporate financial goal. The NEOs’target STIP levels for 2015 remained at the same levels,
stated as a percentage of base salary, as in 2014, except for Dr. Yi’s target STIP level, which was
increased. The NEOs received STIP payouts ranging from 157% to 182% of target as a result of
individual, departmental and corporate performance. Please see “2015 Executive Compensation in
Detail – Short-Term Incentive Plan” below for details.
• NEOs received Long-Term Compensation Program (“LTCP”) equity awards for the 2015-2017
performance cycle (with an emphasis on performance-based equity) as follows: 50% of the total value
in the form of performance-based RSUs, 25% of the total value in the form of stock options, and 25%
in the form of time-based RSUs. In addition, the Compensation Committee determined the total goal
achievement with respect to the goals associated with the performance-based RSUs for the 2013-2015
performance cycle to be below the minimum 80% achievement level required for vesting of any
performance-based RSUs; therefore, no vesting occurred and all performance-based RSUs for the
2013-2015 performance cycle were forfeited. Please see “2015 Executive Compensation in Detail –
Long-Term Compensation Program” below for details.
Results from 2015 Shareholder Advisory Vote on Executive Compensation
At the 2015 annual meeting of shareholders, we held an advisory vote on executive compensation.
Approximately 91% of the votes cast supported the compensation of the company’s named executive officers as
disclosed in our 2015 proxy statement. Although the support for our compensation program was very favorable
in 2015, we continued our shareholder outreach efforts in the second half of 2015 to discuss and obtain feedback
on our executive compensation programs. The Chairman of the Board of Directors led the 2015 shareholder
outreach to some of our largest institutional investors, which included discussions about executive pay and
governance issues of interest.
29
Proxy Statement
What Guides Our Program
Compensation Objectives and Philosophy
The primary purpose of our executive compensation program is to attract, retain and motivate talented
individuals who will drive the successful execution of the company’s strategic plan. Specifically, we:
• Attract talented leaders to serve as executive officers of the company by setting total compensation levels
and program targets at competitive levels for comparable roles in the marketplace;
• Retain our executives by providing a balanced mix of current and long-term compensation;
• Motivate our executives by “paying for performance,” or rewarding individual performance and the
accomplishment of corporate and departmental goals, as determined by the Compensation Committee,
through the use of performance-based compensation; and
• Align with shareholders’ interests; our compensation program seeks to reward our NEOs for increasing
our stock price over the long term and maximizing shareholder value by providing a portion of total
compensation in the form of direct ownership in our company through long-term equity awards.
Pay for Performance (Principal Elements of Pay)
Our executive compensation program is intended to hold our executive officers accountable for business
results and reward them for strong corporate performance and value creation for our shareholders by rewarding
performance that meets or exceeds the goals established by the Compensation Committee. Our NEOs’ total
compensation is comprised of a mix of base salary, STIP and LTCP and, from time to time, other equity awards.
Consistent with our compensation philosophy, the actual compensation received by our NEOs will vary based on
individual, departmental and corporate performance measured against annual and long-term performance goals.
Additionally, because a significant percentage of our NEOs’ pay is comprised of equity awards, the value of their
pay increases and decreases with changes in our stock price. For 2015, approximately 78% of our CEO’s target
compensation and close to 74%, on average, of the target compensation of our other NEOs was comprised of
STIP and LTCP awards and thus dependent upon the company’s performance.
CEO
Target Pay Mix
Other NEO
Target Pay Mix (Average)
Stock Options
14%
Performance-Based
RSUs
28%
Variable
78%
Base Salary
22%
Fixed
22%
Short-Term
Incentives
22%
Stock Options
14%
Base Salary
27%
Fixed
27%
Performance-Based
RSUs
27%
Variable
73%
Short-Term
Incentives
18%
Time-Based RSUs
14%
Time-Based RSUs
14%
Role of the Compensation Committee
The Compensation Committee oversees the executive compensation program and has final approval with
respect to the composition, structure and amount of all executive officer compensation, subject to Board review.
The Compensation Committee is comprised of no less than three independent, non-employee members of Board.
Guided in the execution of its primary functions by the Board’s philosophy that the interests of key leadership
should be aligned with the long-term interests of the company and its shareholders, the Compensation Committee
annually reviews and approves goals relevant to the performance-based incentive compensation of the Chief
Proxy Statement
30
Executive Officer and other executive officers. The Compensation Committee works very closely with
management and its independent consultant, Pearl Meyer & Partners (“Pearl Meyer”), to examine the
effectiveness of the company’s executive compensation program throughout the year. Details of the
Compensation Committee’s authority and responsibilities are specified in the Compensation Committee’s
charter, which is available on our website at http://ir.interdigital.com/committees.cfm.
Role of Executive Officers
As part of the annual performance and compensation review for executive officers other than the Chief
Executive Officer, the Compensation Committee considers the Chief Executive Officer’s assessment of the other
executive officers’ departmental and individual performances, including the identification of major individual
accomplishments and any other recommendations of the Chief Executive Officer with respect to their
compensation. The Chief Executive Officer also reports to the Compensation Committee on the company’s
achievement of objectively measurable goals established under performance-based programs, based upon data
related to achievement provided by the Chief Financial Officer and verified by the company’s internal auditors.
Role and Independence of Advisors
As referenced above, the Compensation Committee has engaged Pearl Meyer, an independent compensation
consultant, to assist in carrying out its responsibilities. The Compensation Committee is responsible for selecting
the consultant, negotiating the fees that are paid and determining the scope of the engagement. The
Compensation Committee retained the compensation consultant to advise it and the rest of the Board, as
applicable, on matters including, but not limited to, trends in executive compensation, compensation peer group
composition, assessing total direct compensation of the executives as compared to the compensation peer group,
short and long-term incentive plan design and compensation of the company’s executive officers. Based on
consideration of the various factors as set forth in the SEC rules and the listing standards of NASDAQ, the
Compensation Committee has determined that Pearl Meyer does not have any conflicts of interest.
Factors Considered in Setting Compensation Amounts and Targets
In establishing compensation amounts and program targets for executives, the Compensation Committee
seeks to provide compensation that is competitive in light of current market conditions and industry practices.
Accordingly, the Compensation Committee annually reviews market data that is comprised of proxy-disclosed
data from peer companies and information from nationally recognized published surveys for the general and
high-technology industries, adjusted for size.
In December 2014, Pearl Meyer assisted the Compensation Committee with its process of identifying peer
group companies for compensation purposes. When choosing compensation peers, we not only look for
companies with similar revenue in the communications equipment industry, but also companies for which
licensing revenue is a significant component of their total revenue stream (approximately 20% to 100% of total
revenue). The compensation peer group for 2015 contained the same companies as 2014, with the exception of
Silicon Image, Inc., which was acquired in January 2015, and Nuance Communications, Inc. (“Nuance”). The
Compensation Committee removed Nuance because the total compensation for Nuance’s chief executive officer
was much higher, and therefore an outlier, compared to the total compensation of the chief executive officers of
the other companies comprising the peer group. The companies comprising the 2015 peer group were as follows:
Acacia Research Corporation
ADTRAN Inc.
Alkermes plc
ARM Holdings plc
Comtech Telecommunications Corp.
Dolby Laboratories, Inc.
DTS Inc.
Harmonic Inc.
Immersion Corporation
Rambus Inc.
Rovi Corporation
Synaptics Inc.
Tessera Technologies Inc.
Universal Display Corp.
31
Proxy Statement
Pearl Meyer conducted a peer group review and reviewed market data from nationally recognized published
surveys. Pearl Meyer then presented a report to the Compensation Committee that included such publicly
available information about the levels and targets for base salary, short-term incentive compensation, long-term
incentive compensation and total compensation for comparable executive-level positions at such peer group
companies. The market data helps the Compensation Committee gain perspective on the compensation levels and
practices at the peer companies and to assess the relative competitiveness of the total compensation paid to the
company’s executives. The data thus guides the Compensation Committee in its efforts to set executive
compensation levels and program targets at competitive levels for comparable roles in the marketplace. The
Compensation Committee uses the data to look for outliers or, in other words, those executives whose total
compensation is substantially below the 50th percentile and those executives whose total compensation is above
the 75th percentile of peer companies. In addition, the Compensation Committee takes into account other factors,
such as the importance of each executive officer’s role to the company, individual expertise, experience and
performance, retention concerns and relevant compensation trends in the marketplace, in making its final
compensation determinations.
2015 Executive Compensation in Detail
Base Salary
Base salary is the fixed element of an executive’s current cash compensation, which the company pays to
afford each executive the baseline financial security necessary to focus on his or her day-to-day responsibilities.
Base salaries for the executives are set at competitive levels to attract and retain highly qualified and talented
leaders. The Compensation Committee reviews and approves base salaries for the executives annually. Salary
adjustments for our NEOs in 2015 were based on consideration of each NEO’s position, scope of responsibility
and importance to the company and his performance during 2014, as well as a review of the market data and a
comparison of each NEO’s total compensation against that of the other executive officers in the company’s
compensation peer group. Salary increases for NEOs other than Mr. Brezski and Dr. Yi averaged 3%, in line with
the salary increases of the rest of the company. Mr. Brezski, our Chief Financial Officer, received a salary
increase of 7% to recognize his exceptional performance in 2014 and because his base salary was substantially
below the 50th percentile. Dr. Yi received a 20% increase to bring his total compensation in line with his
expanded role as Chief Technology Officer, which role he assumed during 2014.
Set forth below are the 2014 and 2015 base salaries for our NEOs:
NEO
2014
2015
William J. Merritt
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Richard J. Brezski . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Scott A. McQuilkin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
James J. Nolan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Lawrence F. Shay . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Byung K. Yi
$600,000
325,000
400,000
350,000
425,000
290,000
$620,000
350,000
415,000
360,500
437,750
350,000
Short-Term Incentive Plan
The STIP annual incentive award is designed to reward the achievement of corporate goals and individual
accomplishments during each fiscal year. Individual STIP payouts are determined based on performance against
pre-determined strategic corporate goals, departmental performance and individual performance. The company’s
STIP provides for two “incentive pools,” an executive incentive pool from which all executive STIP payments
are made and an incentive pool for the rest of the company’s employees. The amount of money available for
payouts under both pools is based on the company’s performance against pre-determined financial goals. The
aggregate value of the STIP awards paid to the company’s executives, including the NEOs, combined with the
aggregate value of the STIP awards paid to the company’s other employees cannot be greater than the total
funded incentive pools.
Proxy Statement
32
The target executive incentive pool is an amount equal to the sum of the individual STIP targets of all
eligible executives, plus an additional 25% of such sum that is reserved for discretionary awards for strategic
leadership. The executive incentive pool is funded based on performance against a financial goal or goals pre-
established by the Compensation Committee. Actual funding of the executive incentive pool may range from a
minimum of 25% to a maximum of 200% of the target pool based on the achievement level(s) attained with
respect to the financial goal or goals. A floor of 25% of the target pool is set because the funding “floor” provides
a mechanism for the company to reward extraordinary individual results of select employees relative to
objectives other than the financial goal or goals. While there is a minimum “floor” for STIP incentive pool
funding, there is no minimum guaranteed individual STIP payout for any participant, and, as a result, NEOs are
not guaranteed an STIP payout.
For 2015, the STIP executive incentive pool was funded based on one normalized cash flow goal pre-
established by the Compensation Committee, as follows:
Threshold
Target
Superior
$145 million of normalized
cash flow
$235 - $260 million of
normalized cash flow
$350 million of normalized
cash flow
Performance at or above the superior achievement level would result in funding of the executive incentive pool at
the 200% maximum. Performance levels that fall between the amounts established for threshold, target and
superior achievement are calculated using straight-line interpolation between the achievement level amounts. For
additional information on the company’s use of normalized cash flow as a performance measure, see “Long-
Term Compensation Program – Normalized Cash Flow” below.
In January 2016, the Chief Executive Officer reported to the Compensation Committee on the company’s
achievement of the normalized cash flow goal for the purpose of funding the 2015 STIP executive incentive pool.
For 2015, normalized cash flow was $315 million. Following consideration of the performance results, the
Compensation Committee determined that, as a result of the company’s achievement, the executive incentive
pool would be funded at 163% of target. Normalized cash flow is a measure used by the company solely for the
purposes of its compensation plan goals and it is not calculated in accordance with generally accepted accounting
principles (“GAAP”). A presentation showing how the $315 million normalized cash flow number was
calculated based on numbers contained within the company’s audited financial statements is set forth in
Appendix A to this proxy statement.
While the achievement level of the normalized cash flow goal determined the executive incentive pool
funding, when making the final 2015 STIP payout determinations for the NEOs, the Compensation Committee
considered performance against pre-determined strategic corporate goals, departmental performance and
individual performance. The Compensation Committee approves strategic corporate goals with pre-defined
targets and other goals that provide for discretion upon evaluation so that it can reward meeting and exceeding
our targets while also considering the quality of our results and other factors not anticipated at the beginning of
the year.
33
Proxy Statement
For 2015, the strategic corporate goals for the company’s executives and the relative weights assigned to
each were as follows:
Goal
Licensing
Research
Pivot
Outreach
Compensation Committee
Discretion
TOTAL
2015 STIP Strategic Corporate Performance Goals:
Description
Target Weight
Achieve a specified amount of licensing revenue and achieve
additional specified licensing goal
Develop a specified number of inventions; expand participation in
certain research initiatives; expand number of commercial
initiatives
Expand number of commercial initiatives; achieve a specified
amount of revenue; invest a specified amount in technology
through partnerships with external inventors and/or research
organizations
Achieve specified outcome related to investor relations; increase
awareness of InterDigital’s research and development capability
Allow Compensation Committee to adjust performance upward or
downward as a result of unexpected outcomes or circumstances
45%
10%
10%
10%
25%
100%
These strategic corporate goals were intended to align the executive team around a key set of company
performance objectives. The strategic corporate goals were structured to challenge and motivate executives, so
that reasonable “stretch” performances would collectively yield a payout at or about 100% of target.
The actual STIP payout for the Chief Executive Officer is based on achievement of the strategic corporate goals
and his individual performance. The actual STIP award paid to all other executives is based on the achievement of the
strategic corporate goals, his or her department’s performance and his or her individual performance.
In first quarter 2015, the Compensation Committee approved target STIP levels for each of the NEOs at the
same levels as 2014, with the exception of Dr. Yi, who whose target level was increased from 50% to 60% as a
result of his expanded role as Chief Technology Officer. The 2015 target STIP levels, set as a percentage of
annual base salary, for the NEOs were as follows:
NEO
2015 Target STIP Level
William J. Merritt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Richard J. Brezski . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Scott A. McQuilkin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
James J. Nolan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Lawrence F. Shay . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Byung K. Yi
100%
60%
75%
60%
75%
60%
The Chief Executive Officer reported to the Compensation Committee on the achievement of the objectively
measurable strategic corporate goals and provided his assessment with respect to departmental and individual
executive officer performance for the year. For 2015, the strategic corporate goals related to licensing, pivot and
outreach fell short of target. However, the achievement level of the research goal far exceeded target as a result
of the impressive number of proposal wins with Horizon 2020 projects in the United Kingdom. The
Compensation Committee also considered other developments in 2015 that were not captured specifically by the
goals, including the expansion of technology development and innovation through external strategic
relationships, or were unexpected, such as the delay in the receipt of licensing revenue as a result of a licensee’s
appeal of a final arbitration award. Accordingly, using its discretion, the Compensation Committee determined
that the total achievement level with respect to the strategic corporate goals was 107%.
Proxy Statement
34
In determining the STIP payout to the Chief Executive Officer for 2015, the Compensation Committee
considered the Board’s assessment of his performance in 2015, as reflected in the recommendation of the non-
executive Chairman of the Board, who is the primary liaison between the Chief Executive Officer and the full
Board. Based on the achievement level with respect to the strategic corporate goals and the performance of the
Chief Executive Officer on an individual level, the Compensation Committee determined that Mr. Merritt’s STIP
payout for 2015 should be 177% of target. For the other NEOs, the Compensation Committee reviewed the
performance assessments provided by Mr. Merritt with respect to each executive’s individual and departmental
performance and also considered its own direct interactions with each NEO. As a result of the achievement level
with respect to the strategic corporate goals and departmental and individual performances, 2015 STIP payouts
for the NEOs ranged from 157% to 182% of target.
The 2015 STIP awards paid to the NEOs in 2016 were entirely in cash. The Grants of Plan-Based Awards
Table below reports the threshold, target and maximum potential STIP payouts for each NEO for 2015, and the
Summary Compensation Table below reports the amounts actually earned by each NEO for 2015 under the STIP.
Long-Term Compensation Program
The LTCP is designed to align management’s interests with those of the company’s shareholders to
maximize the value of the company’s stock over the long term and to enhance retention efforts by incentivizing
executive officers to drive the company’s long-term strategic plan. It currently consists of three components:
•
•
•
performance-based RSUs, which align employee and shareholder interests by tying value to both
business results and future stock price;
stock option grants, which the Compensation Committee considers to be performance-based
compensation and an important form of long-term incentive compensation because they are only
valuable if our stock price increases over time; and
time-based RSUs, which provide retention benefits and, in concert with our stock ownership guidelines,
focus our executives on long-term share ownership and sustained value.
The Compensation Committee determines annually the participation level and components of each
executive officer’s LTCP award, emphasizing internal pay equity between the company’s NEOs and other
executives to motivate and incentivize performance across the senior management team while encouraging
collaboration and shared responsibility for executing the company’s strategic plan. For performance-based RSUs,
100% achievement of the associated performance goal results in a full vesting of the associated RSUs. For each
1% change above or below 100% achievement, the actual award amount is adjusted by 2.5 percentage points,
with a threshold payout of 50% of target and a maximum payout of 200% of target. Accordingly, for
performance that falls below 80% achievement, no performance-based award would vest.
Payouts of performance-based awards under the LTCP have varied in recent years, ranging from no payout
for the most recent performance period and the 2007-2009 performance period to a 110% payout for the 2012-
2014 performance period:
Performance Period
2007-2009 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2008-2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2009-2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2010-2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2011-2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2012-2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2013-2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
LTCP Payout
none
86%
31%
100%
71%
110%
none
35
Proxy Statement
2013-2015 Cycle
For the performance cycle that began on January 1, 2013, and ended December 31, 2015 (the “2013-2015
cycle”), each NEO received 50% of their target award in performance-based RSUs, 25% in stock options and
25% in time-based RSUs that vested in March 2016. The total target values of the awards granted to the NEOs in
January 2013 for the 2013-2015 cycle were as follows:
NEO
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
William J. Merritt
Richard J. Brezski . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Scott A. McQuilkin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
James J. Nolan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Lawrence F. Shay . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Byung K. Yi
Target
$1,500,000
600,000
750,000
600,000
1,000,000
N/A*
* Dr. Yi did not receive an LTCP award for the 2013-2015 cycle because he did not join the company until
2014.
The goals associated with the performance-based RSU awards for the 2013-2015 cycle were as follows:
•
•
normalized cash flow, not including cash receipts derived from the sale of patents, of $1.05 billion
(80% weight)
normalized cash flow derived from the sale of patents of $100 million (20% weight)
In January 2016, the Chief Executive Officer reported to the Compensation Committee on the achievement
of the performance goals for the 2013-2015 cycle. The total normalized cash flow achieved, not including cash
receipts derived from the sale of patents, was $797 million, and the total normalized cash flow derived from the
sale of patents was $6 million. After reviewing the company’s progress toward these goals as of December 31,
2015, the Compensation Committee determined the company’s total goal achievement for the 2013-2015 cycle to
be below the 80% threshold required for the vesting of any portion of the performance-based RSU awards. As a
result, all performance-based RSUs granted under the 2013-2015 cycle were forfeited. As stated above,
normalized cash flow is a measure used by the company solely for the purposes of its compensation plan goals
and it is not calculated in accordance with GAAP. A presentation showing how the $797 million and $6 million
normalized cash flow numbers were calculated based on numbers contained within the company’s audited
financial statements is set forth in Appendix A to this proxy statement.
2015-2017 Cycle
For those equity awards granted in 2015 for the performance cycle that began on January 1, 2015, and runs
through December 31, 2017 (the “2015-2017 cycle”), each NEO received 50% of his total award in the form of
performance-based RSUs that vest, if at all, at the end of the performance period based on the company’s
achievement of a pre-approved goal established by the Compensation Committee, 25% in stock options and 25%
in the form of time-based RSUs that vest in full on March 15, 2018. All equity awards were granted to the NEOs
on March 15, 2015. To determine the number of performance-based RSUs and time-based RSUs awarded, the
respective allocated target amounts are divided by the closing stock price on the day prior to the grant. The
number of performance-based RSUs that vest, if any, will depend on the goal achievement as determined by the
Compensation Committee after the end of the cycle. The number of stock options that are granted is calculated
using the Black-Scholes option pricing model. For the options granted in 2015, the weighted average
assumptions underlying the valuation under the Black-Scholes model are as follows: expected life: 4.5 years;
volatility of 39.78%; a risk-free interest rate of 1.6%; and a dividend yield of 1.51%. The goal associated with the
performance-based RSU awards for the 2015-2017 cycle is to generate a specified amount of normalized cash
flow over the performance period of the cycle.
Proxy Statement
36
The total target values of the LTCP equity awards granted to the NEOs in March 2015 for the 2015-2017
cycle were as follows:
NEO
William J. Merritt
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Richard J. Brezski . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Scott A. McQuilkin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
James J. Nolan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Lawrence F. Shay . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Byung K. Yi
Target
$1,575,000
700,000
1,000,000
600,000
1,000,000
550,000
While the target values of the LTCP awards for each NEO are generally consistent with the target long-term
equity award values for the executives in our compensation peer group, when determining the value of the LTCP
awards, the Compensation Committee reviews the total direct compensation of the executives in the peer group
to ensure that the aggregate target awards for each executive result in a total direct compensation level that is not
substantially below the 50th percentile or above the 75th percentile of our compensation peer group. Pay and
equity pay mix of our compensation peers and general industry companies is also considered.
Normalized Cash Flow
The Compensation Committee has selected normalized cash flow goals for the LTCP and for funding the
incentive pool of the STIP because it believes that normalized cash flow most effectively aligns management’s
interests with those of the company and its shareholders and is the most accurate measure of the company’s
performance. As more fully described in our Annual Report on Form 10-K for the year ended December 31,
2015, revenue recognition for revenues derived from patent license agreements is complex, and we derive the
vast majority of our revenue from patent licensing. The complicated and unpredictable nature of patent licensing
revenue recognition make GAAP cash flow or revenue an inaccurate measure of performance for the company,
but using such measures could also incentivize management to enter into patent license agreements that are
structured in a way that helps meet incentive plan goals rather than in the way that is most beneficial for the
company.
The timing and amount of revenue recognized from each license depends upon a variety of factors,
including the specific terms of each agreement and the nature of the deliverables and obligations and, as a result,
components of our revenue tend to be highly variable year to year. In addition, the timing of our revenue
recognition is often disjointed from the timing of the related cash receipts as a result of components of the
agreement terms provided for prepayment of royalties, past sales, etc. So that our executives are properly
motivated to maximize the overall value of our patent portfolio and not to maximize short-term gains strictly for
the purpose of attaining incentive plan goals, we normalize the cash inflow under our license agreements to treat
all licensing revenue as if it were negotiated as royalty bearing over the life of the agreement.
In addition to normalizing our cash inflows, we also adjust our cash outflows to capture the appropriate cash
expenditures for which we manage our business. This process begins with our total operating expenses and
deducts defined non-cash expenses (e.g., depreciation and amortization) and then adds in capital expenditures.
We also exclude certain items that (a) make the calculation iterative (e.g., performance-based compensation) or
(b) are non-operational (e.g., intellectual property enforcement costs) or non-recurring (e.g., repositioning costs)
in nature and which we would otherwise back out when evaluating our financial performance.
For example, when using normalized cash flow as a measure, if a patent licensing agreement includes a
large up-front payment, in order to avoid having that payment disproportionately drive cash flow for the
performance period, the payment is spread out over the term of the license agreement, mimicking what would
happen if the cash was received pursuant to a running royalty-based license agreement. Strictly for illustrative
purposes, assume the company set a GAAP cash flow goal of $100 for a three-year LTCP performance period
37
Proxy Statement
and in each of the first two years of the performance period the company had generated $33 of cash flow from
running royalties—bringing the total cash flow achieved for the first two years to $66. Because the cash flow was
from running royalties, the amount included toward the goal for the performance period would be the same under
both a GAAP cash flow and a normalized cash flow measure. Then, during year 3 of the performance period, the
company negotiates a new 5-year $100 patent license agreement. A GAAP cash flow goal could incentivize
management to accept less than $100 in licensing royalties ($50 in this example) if the total discounted amount
was paid up front (Deal A), which would then contribute $50 toward the achievement of the goal for the
performance period, rather than the full $100 paid over five years (Deal B), which would contribute only $20
toward the achievement of the performance goal. Although Deal B is clearly better for the company and its
shareholders, the use of a GAAP cash flow performance incentive measure could create an incentive to enter into
Deal A, as that deal would have led to a larger incentive payout for the performance period (140% under Deal A
vs. 65% under Deal B, as illustrated in the following table). By using normalized cash flow as the performance
measure, management is properly incentivized to enter into Deal B, which not only leads to a higher incentive
payout (65% under Deal B vs. no payout under Deal A, as illustrated in the following table), but also to the better
outcome for the company and its shareholders.
Normalized Cash Flow Illustrative Example
Performance Period Year
DEAL A
Incentive Plan
Performance Measure
DEAL B
Incentive Plan
Performance Measure
GAAP
Cash Flow
Normalized
Cash Flow
GAAP
Cash Flow
Normalized
Cash Flow
Year 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Year 2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Year 3 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goal Achievement
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
LTCP Payout(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 33
$ 33
$ 50
$116
116%
140%
$33
$33
$10
$76
76%
0%
$33
$33
$20
$86
86%
65%
$33
$33
$20
$86
86%
65%
(a) For each 1% change above or below 100% achievement, the actual award amount is adjusted by 2.5
percentage points, with a threshold payout of 50% of target and a maximum payout of 200% of target.
Accordingly, for performance that falls below 80% achievement, no performance-based award would vest.
Other Practices, Policies and Guidelines
Grant Practices
RSU awards and stock options granted to executives under the LTCP are targeted to be granted each year on
the later of March 15 or the date the Compensation Committee approves the goals associated with the
performance-based RSUs. If a participant joins the company or becomes eligible to receive awards through a
promotion after the annual grant date, he or she would be eligible for an award on the 15th of the month following
his or her date of hire or promotion, respectively. The company’s closing stock price on the day prior to the grant
date is used to determine the number of performance-based and time-based RSUs granted, and the closing stock
price on the date of grant determines the exercise price of stock option grants. As noted above, performance-
based RSUs are tied to a 3-year performance period. Time-based RSUs vest 100% on the third anniversary of the
grant date (i.e., “cliff” vesting). Stock options vest one-third on each of the first, second and third anniversaries
of the grant date (i.e., “ratable” vesting). Stock options expire on the seventh anniversary of the grant date. The
Compensation Committee believes that these grant procedures provide assurance that the grant timing does not
take advantage of material nonpublic information.
The Compensation Committee may, in its sole discretion, grant additional equity awards to executives,
including the NEOs, outside of the LTCP and the other compensation programs described above. As noted
Proxy Statement
38
above, the Compensation Committee intends to limit the use of discretionary awards, but may issue such awards
from time to time when necessary. In approving such awards, the Compensation Committee may consider the
specific circumstances of the grantee, including, but not limited to, total compensation relative to our peer group,
compensation for his or her position, promotion, expansion of responsibilities, exceptional achievement
recognition and retention concerns.
Stock Ownership Guidelines
To align the interests of our executive officers with those of our shareholders, the company has established
stock ownership guidelines for its executive officers. The Chief Executive Officer’s target ownership level is the
lesser of an amount of company stock with a value of at least five times his current annual base salary or 65,000
shares. The company’s senior executive vice presidents (Messrs. McQuilkin and Shay) are expected to own the
lesser of an amount of company stock with a value of at least three times their current annual base salary or
25,000 shares, and the company’s other executive officers (including Messrs. Brezski and Nolan) are expected to
own the lesser of an amount of company stock with a value of at least two times their current annual base salary
or 12,500 shares. Because Dr. Yi is no longer an executive officer, he is not subject to the stock ownership
guidelines.
Qualifying stock includes shares of common stock held outright or through the company’s 401(k) Plan (as
defined below), restricted stock and, on a pre-tax basis, unvested time-based RSUs. For purposes of calculating
the value of company stock holdings, each share or other qualifying stock unit is priced at a price per share/unit
equal to the average closing stock price of the company’s common stock for the 200 trading days leading up to
and including the calculation date. The 200-day average closing stock price is calculated annually on the date of
the company’s annual meeting of shareholders.
Any executive who has not reached or fails to maintain his or her target ownership level must retain at least
50% of any after-tax shares derived from vested RSUs or exercised options until his or her level is met. An
executive may not make any disposition of shares that results in his or her holdings falling below the target level
without the express approval of the Compensation Committee. As of March 31, 2016, all of the NEOs to whom
the policy applies are in compliance and have reached their target ownership levels.
Clawback Policy
In 2014, the Board adopted a clawback policy that would, under certain circumstances, entitle the company
to recover certain compensation previously paid to the company’s executive officers, in accordance with the
requirements of Section 304 of the Sarbanes-Oxley Act of 2002 and Section 954 of the Dodd-Frank Wall Street
Reform and Consumer Protection Act. In the event of any intentional misconduct or gross negligence by one or
more executives that results in a material restatement of any company financial statement that was filed during
the company’s then-current fiscal year or during one of the three prior full fiscal years, each executive would be
required to repay or forfeit any excess compensation. The company will reevaluate its policy once final rules are
adopted by the SEC and NASDAQ.
Savings and Protection and Nonqualified Deferred Compensation Plans
The company’s Savings and Protection Plan (“401(k) Plan”) is a tax-qualified retirement savings plan
pursuant to which employees, including NEOs, are able to contribute the lesser of 100% of their annual base
salary and bonus or the annual limit prescribed by the Internal Revenue Service (“IRS”) on a pre-tax basis. The
company provides a 50% matching contribution on the first 6% of an employee’s eligible earnings contributed to
the 401(k) Plan, up to the cap mandated by the IRS. The company offers this benefit to encourage employees to
save for retirement and to provide a tax-advantaged means for doing so.
As noted above, the IRS imposes limits on the amounts that an employee may contribute annually to a
401(k) Plan account. InterDigital’s nonqualified deferred compensation plan (the “deferred compensation plan”)
39
Proxy Statement
provides certain management and highly compensated employees, including the NEOs, with an opportunity to
defer up to 40% of their base salary and up to 100% of their STIP payment. For 2015, the company matched up
to 50% of the first 6% of the participant’s eligible deferrals, determined on a combined plan basis taking into
account deferred amounts under both the deferred compensation plan and the 401(k) Plan; these contributions
will receive the investment performance of InterDigital common stock. Matching contributions are made once
annually after the end of the year. Participants vest one-third in company matching contributions after one year of
service, two-thirds after two years of service and fully after three years of service, a vesting schedule identical to
the 401(k) Plan. For more information about the nonqualified deferred compensation plan, see “Nonqualified
Deferred Compensation.”
Agreements with NEOs
In March 2013, the company entered into amended and restated employment agreements with each NEO
other than Dr. Yi. In May 2014, the company entered into an employment agreement with Dr. Yi upon his
acceptance of the role of Chief Technology Officer. Among other things, the agreements provide severance
payments and benefits upon certain qualifying terminations of employment, including upon termination of the
NEO’s employment by the company without “Cause” or by the executive for “Good Reason,” and provide for
enhanced payments and benefits if such termination occurs on or within one year after a “Change in Control” of
the company, each as defined in the applicable agreement. For more information regarding the provisions
governing these termination scenarios, see “Potential Payments upon Termination or Change in Control.”
Prohibition against Hedging
The company’s insider trading policy prohibits directors, officers, employees and consultants of the
company from engaging in any hedging transactions involving company stock.
Impact of Tax Treatment
Section 162(m) of the Code generally limits the company’s tax deduction for compensation paid to our
Chief Executive Officer and other NEOs (other than the Chief Financial Officer) to $1 million per person in any
tax year. Qualified performance-based compensation is not subject to the deduction limit if specified
requirements are met. The Compensation Committee may consider the deductibility of compensation when
making decisions, but will authorize the payment of compensation that is not deductible when it believes it is
appropriate.
Compensation-Related Risk Assessment
We have assessed our employee compensation policies and practices and determined that any risks arising
from our compensation policies and practices are not reasonably likely to have a material adverse effect on the
company. In reaching this conclusion, the Compensation Committee considered all components of our
compensation program and assessed any associated risks. The Compensation Committee also considered the
various strategies and measures employed by the company that mitigate such risk, including: (i) the overall
balance achieved through our use of a mix of cash and equity, annual and long-term incentives and time- and
performance-based compensation; (ii) our use of multi-year vesting periods for equity grants; (iii) limits on the
maximum goal achievement levels and overall payout amounts under the STIP and LTIP awards; (iv) the
company’s adoption of, and adherence to, various compliance programs, including a code of ethics, a clawback
policy, a contract review and approval process and signature authority policy and a system of internal controls
and procedures; (v) the use of normalized cash flow as a performance metric; and (vi) the oversight exercised by
the Compensation Committee over the performance metrics and results under the STIP and the LTCP. In
addition, compensation programs are reviewed with Pearl Meyer, the compensation consultant, on an annual
basis to ensure plans do not create incentives that would put the company at excessive risk. Based on the
assessment described above, the Compensation Committee concluded that any risks associated with our
compensation policies and practices were not reasonably likely to have a material adverse effect on the company.
Proxy Statement
40
Accounting for Share-Based Compensation
We follow ASC Topic 718 for our share-based compensation awards. ASC Topic 718 requires companies to
measure the compensation expense for all share-based compensation awards made to employees and directors,
including stock options and RSUs, based on the grant date “fair value” of these awards. This calculation is
performed for accounting purposes and reported in the compensation tables below, even though our NEOs may
never realize any value from their awards; ASC Topic 718 also requires companies to recognize the
compensation cost of their share-based compensation awards in their income statements over the period that an
executive officer is required to render services in exchange for the option or other award.
Summary Compensation Table
The following table contains information concerning compensation awarded to, earned by or paid to our
NEOs in the last three years. Our NEOs include: (i) William J. Merritt, our Chief Executive Officer, (ii) Richard
J. Brezski, our Chief Financial Officer, (iii) Scott A. McQuilkin, James J. Nolan and Lawrence F. Shay, who are
our three other most highly compensated executive officers in 2015 who were serving as executive officers of the
company at December 31, 2015, and (iv) Byung K. Yi, a former executive officer who would have been among
the three other most highly compensated executive officers in 2015 but for the fact that he was no longer serving
as an executive officer of the company at December 31, 2015. Additional information regarding the items
reflected in each column follows the table.
Name and Principal Position
Year
Salary
($)(2)
Stock
Awards
($)(3)(4)
Option
Awards
($)(5)
Non-Equity
Incentive Plan
Compensation
($)(6)
All Other
Compensation
(7)
Total
($)
393,785 393,780
William J. Merritt . . . . . . . . . . . . 2015 613,846
2014 600,000
393,753 393,750
2013 575,000 1,737,573 375,000
President and Chief
Executive Officer
1,100,000
1,196,908
645,000
Richard J. Brezski . . . . . . . . . . . . 2015 343,076
2014 325,000
2013 285,000
Chief Financial Officer and
Treasurer
175,039 175,000
261,395 175,000
163,459 125,000
Scott A. McQuilkin . . . . . . . . . . . 2015 410,846
2014 400,000
2013 375,000
Senior EVP, Innovation
250,033 250,000
250,001 250,000
838,881 187,500
James J. Nolan . . . . . . . . . . . . . . 2015 357,592
2014 350,000
2013 325,000
EVP, IoT Solutions
150,041 150,000
150,013 150,000
642,766 150,000
Lawrence F. Shay . . . . . . . . . . . . 2015 434,218
2014 425,000
250,033 250,000
Senior EVP, Future Wireless,
250,001 250,000
and Chief Intellectual Property 2013 410,000 1,044,806 250,000
Counsel
381,239
368,986
156,000
517,694
599,048
271,000
342,358
382,315
167,000
548,590
636,928
266,000
59,406
32,662
15,575
24,820
15,500
11,090
26,703
21,437
13,041
27,469
18,252
12,916
36,324
20,906
13,909
2,560,817
2,617,073
3,348,148
1,099,174
1,145,881
740,549
1,455,276
1,520,486
1,685,422
1,027,460
1,050,580
1,297,682
1,519,165
1,582,835
1,984,715
Byung K. Yi(1) . . . . . . . . . . . . . . 2015 333,384
137,516 137,500
329,167
131,878
1,069,445
EVP and Chief Technology
Officer
(1) At January 1, 2015, Dr. Yi was serving as the company’s Executive Vice President, InterDigital Labs, and
Chief Technology Officer and in such role had been deemed by the Board to be an “executive officer” of the
company (as that term is defined under Rule 3b-7 under the Exchange Act). As a result of organizational
changes by the company in fourth quarter 2015, Dr. Yi’s title was changed to Executive Vice President and
Chief Technology Officer and he was no longer deemed by the Board to be an “executive officer” as of the
end of 2015. Dr. Yi was not among the company’s NEOs in 2013 or 2014.
41
Proxy Statement
(2) Base salary increases for 2015 did not become effective until April 1, 2015. Amounts reported for 2015
reflect the value of base salary earned by each NEO during 2015.
(3) Amounts reported reflect the aggregate grant date fair value computed in accordance with FASB ASC Topic
718 for time-based RSU awards granted during the designated fiscal year. The assumptions used in valuing
these awards are incorporated by reference to Notes 2 and 10 to our audited financial statements included in
our annual report on Form 10-K for the year ended December 31, 2015. Under generally accepted
accounting principles, compensation expense with respect to stock awards granted to our employees and
directors is generally equal to the grant date fair value of the awards and is recognized over the vesting
periods applicable to the awards.
(4) Amounts reported also reflect the value at the grant date of performance-based RSUs granted in such years
based upon the probable outcome of the performance conditions for such awards, consistent with the
estimate of aggregate compensation cost to be recognized over the service period determined as of the grant
date under FASB ASC Topic 718, excluding the effect of estimated forfeitures. The assumptions used in
valuing these awards are incorporated by reference to Notes 2 and 10 to our audited financial statements
included in our annual report on Form 10-K for the year ended December 31, 2015.
On March 15, 2015, the company granted performance-based RSU awards to its NEOs for the 2015-2017
cycle under the LTCP. As of the date of grant, consistent with the estimate determined as of the grant date
under FASB ASC Topic 718, the probable outcome of the performance condition for these grants was 0%.
Accordingly, there is no value reported for the performance-based RSUs granted to the NEOs in 2015. The
following table sets forth the grant date fair value of the performance-based RSUs granted to the NEOs in
2015 assuming that the highest level of performance conditions will be achieved and the grants vest at their
maximum level of 200%:
NEO
Maximum Value
Performance-Based
RSU Awards
2015-2017 Cycle
($)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
William J. Merritt
Richard J. Brezski . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Scott A. McQuilkin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
James J. Nolan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Lawrence F. Shay . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Byung K. Yi . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,575,035
700,051
1,000,027
600,058
1,000,027
550,062
(5) Amounts reported reflect the value recognized for financial statement reporting purposes in accordance with
FASB ASC Topic 718.
(6) Amounts reported for fiscal 2015 include the value of payouts earned under the company’s STIP.
Proxy Statement
42
(7) The following table details each component of the “All Other Compensation” column in the Summary
Compensation Table for fiscal 2015:
NEO
401(k) Plan
Matching
Contributions
($)(a)
Supplemental
LTD
($)(b)
Deferred
Compensation
Plan Matching
Contributions
($)(c)
Relocation
Expenses
($)(d)
Gym
Membership
($)(e)
William J. Merritt . . . . . . .
Richard J. Brezski . . . . . . .
Scott A. McQuilkin . . . . . .
James J. Nolan . . . . . . . . .
Lawrence F. Shay . . . . . . .
. . . . . . . . . . .
Byung K. Yi
7,950
7,950
7,950
7,950
7,950
7,950
5,005
3,458
5,391
5,272
4,190
—
46,451
13,412
13,362
14,247
24,184
—
—
—
—
—
—
123,578
—
—
—
—
—
350
Total
($)
59,406
24,820
26,703
27,469
36,324
131,878
(a) Amounts represent company matching contributions to all employees, including the NEOs, on 50% of
the first 6% of the employee’s eligible salary and annual bonus contributed to the 401(k) Plan, up to the
maximum amount permitted by the Internal Revenue Service.
(b) Amounts represent premium amounts paid by the company for supplemental executive long-term
disability insurance for the benefit of such NEO.
(c) Amounts represent company matching contributions made pursuant to the company’s nonqualified
deferred compensation plan for NEO contributions. For more information, see “Nonqualified Deferred
Compensation.”
(d) Amount represents relocation expenses and costs paid by the company in 2015 in connection with
Dr. Yi’s relocation to the company’s San Diego office.
(e) Amount represents reimbursement of Dr. Yi’s annual gym membership fee paid, which benefit is
available to any employee whose primary office location does not have a gym.
43
Proxy Statement
Grants of Plan-Based Awards in 2015
The following table summarizes the grants of (i) cash awards under the STIP (STIP) and (ii) options (OPT),
time-based RSU awards (TRSU) and performance-based RSU awards (PSU) under the 2015-2017 cycle of the
LTCP, each made to the NEOs during the year ended December 31, 2015. Each of these types of awards is
discussed in “Compensation Discussion and Analysis” above.
Estimated Future Payouts
Under Non-Equity
Incentive Plan Awards(1)
Estimated Future Payouts
Under Equity Incentive
Plan Awards(2)
Type of
Award
Grant
Date
Threshold
($)
Target
($)
Maximum
($)
Threshold
(#)
Target
(#)
Maximum
(#)
Name
William J. Merritt
Richard J. Brezski
. . . . . STIP
OPT
3/15/2015
TRSU 3/15/2015
3/15/2015
PSU
. . . . . STIP
OPT
3/15/2015
TRSU 3/15/2015
3/15/2015
PSU
Scott A. McQuilkin . . . . STIP
OPT
3/15/2015
TRSU 3/15/2015
3/15/2015
PSU
James J. Nolan . . . . . . . . STIP
3/15/2015
OPT
TRSU 3/15/2015
3/15/2015
PSU
Lawrence F. Shay . . . . . STIP
OPT
3/15/2015
TRSU 3/15/2015
3/15/2015
PSU
Byung K. Yi . . . . . . . . . . STIP
OPT
3/15/2015
TRSU 3/15/2015
3/15/2015
PSU
155,000 620,000 1,240,000
52,500 210,000
420,000
7,450
14,901
29,802
77,813 311,250
622,500
3,311
6,623
13,246
54,075 216,300
432,600
4,730
9,461
18,922
82,078 328,313
656,625
2,838
5,677
11,354
52,500 210,000
420,000
4,730
9,461
18,922
2,602
5,204
10,408
All
Other
Stock
Awards:
Number
of
Shares
of Stock
or Units
(#)
All Other
Option
Awards:
Number of
Securities
Underlying
Options
(#)
Exercise
or Base
Price of
Option
Awards
($/Sh)
Grant
Date
Fair
Value
of
Stock
and
Option
Awards
($)(3)
24,291
10,796
15,423
9,254
15,423
8,483
7,451
3,312
4,731
2,839
4,731
2,602
52.85 393,750
393,785
0
52.85 175,000
175,039
0
52.85 250,000
250,033
0
52.85 150,000
150,041
0
52.85 250,000
250,033
0
52.85 137,500
137,516
0
(1) Amounts reported represent the potential threshold, target and maximum STIP payouts depending on the
level of performance achieved under the STIP for fiscal 2015. Such amounts ranged from 25% of the target
payout, representing the minimum percentage of the STIP executive incentive pool that would be funded
upon achievement of a certain level of performance against the related financial goal, to 200% of the target
payout, representing the maximum payout possible under the STIP. For all NEOs, the actual amount earned
for fiscal 2015, which was paid in 2016 and is reported in the Summary Compensation Table above, was
based on the company’s achievement of the 2015 financial and strategic corporate goals established by the
Compensation Committee in March 2015 and departmental and individual performance of the NEO during
2015.
(2) Amounts reported represent the potential threshold, target and maximum number of performance-based
RSUs the NEO could earn pursuant to his performance-based RSU award under the 2015-2017 cycle. 100%
achievement of the performance goal or goals results in a 100% payout of the associated target amounts. For
each 1% change above or below 100% achievement, the actual award amount is adjusted by 2.5 percentage
points, with a threshold payout of 50% of target and a maximum payout of 200% of target. Accordingly, for
performance that falls below 80% achievement, no performance-based RSUs would vest.
Proxy Statement
44
(3) Grant date fair value of RSU awards is determined in accordance with FASB ASC Topic 718. The TRSU
awards granted in 2015 are scheduled to vest in full on March 15, 2018. Amounts reported for option grants
reflect the value recognized for financial statement reporting purposes in accordance with FASB ASC Topic
718. For fiscal 2015, the weighted-average assumptions underlying the valuation of the stock options under
the Black-Scholes option pricing model are as follows: expected life of 4.5 years; volatility of 39.78%; a
risk-free interest rate of 1.6%; and a dividend yield of 1.51%. Amounts reported for performance-based
RSUs are based upon the probable outcome of the performance conditions, consistent with the estimate of
aggregate compensation cost to be recognized over the service period determined as of the grant date under
FASB ASC Topic 718, excluding the effect of estimated forfeitures. As of the date of grant, the probable
outcome of the performance condition for the 2015-2017 cycle was 0%. Accordingly, there is no value
reported for the performance-based RSUs granted in 2015.
45
Proxy Statement
Outstanding Equity Awards at 2015 Fiscal Year End
The following table sets forth information concerning outstanding option and stock awards of the NEOs as
of December 31, 2015.
Option Awards
Stock Awards
Number of
Securities
Underlying
Unexercised
Options
(#)
Exercisable
(1)
Number of
Securities
Underlying
Unexercised
Options
(#)
Unexercisable
(1)
14,723
7,362
12,552
25,106
—
24,291
4,908
2,454
5,579
11,158
—
10,796
7,361
3,681
7,970
15,940
—
15,423
5,889
2,945
4,782
9,564
—
9,254
9,815
4,908
7,970
15,940
—
15,423
Name
Grant
Date
William J. Merritt . . . . . 1/18/13
1/18/13
1/18/13(6)
3/15/14
3/15/14
3/15/14(7)
3/15/15
3/15/15
3/15/15(8)
Richard J. Brezski
. . . . 1/18/13
1/18/13
1/18/13(6)
2/15/14(9)
3/15/14
3/15/14
3/15/14(7)
3/15/15
3/15/15
3/15/15(8)
Scott A. McQuilkin . . . 1/18/13
1/18/13
1/18/13(6)
3/15/14
3/15/14
3/15/14(7)
3/15/15
3/15/15
3/15/15(8)
James J. Nolan . . . . . . . 1/18/13
1/18/13
1/18/13(6)
3/15/14
3/15/14
3/15/14(7)
3/15/15
3/15/15
3/15/15(8)
Lawrence F. Shay . . . . . 1/18/13
1/18/13
1/18/13(6)
3/15/14
3/15/14
3/15/14(7)
3/15/15
3/15/15
3/15/15(8)
Equity
Incentive
Plan
Awards:
Number
of
Unearned
Shares,
Units or
Other
Rights
That
Have Not
Vested
(#)(4)
Equity
Incentive
Plan
Awards:
Market
or Payout
Value of
Unearned
Shares,
Units or
Other
Rights
That
Have Not
Vested
($)(5)
17,634
864,815
26,363
1,292,849
15,066
738,867
5,878
288,289
11,717
574,628
6,696
328,402
8,817
432,433
16,738
820,853
9,566
469,124
7,053
345,916
10,043
492,552
5,740
281,494
11,756
576,526
16,738
820,853
9,566
469,124
Market
Value
of
Shares
or
Units of
Stock
That
Have
Not
Vested
($)(3)
Number
of
Shares
or Units
of Stock
That
Have
Not
Vested
(#)(2)
8,816 432,382
13,181 646,425
7,533 369,458
2,939 144,144
1,027
50,384
5,859 287,339
3,348 164,226
4,408 216,191
8,369 410,427
4,783 234,587
3,526 172,932
5,021 246,276
2,870 140,772
5,877 288,238
8,369 410,427
4,783 234,587
Option
Exercise
Price
($)
Option
Expiration
Date
44.19
1/18/20
30.69
3/15/21
52.85
3/15/22
44.19
1/18/20
30.69
3/15/21
52.85
3/15/22
44.19
1/18/20
30.69
3/15/21
52.85
3/15/22
44.19
1/18/20
30.69
3/15/21
52.85
3/15/22
44.19
1/18/20
30.69
3/15/21
52.85
3/15/22
Equity
Incentive
Plan
Awards:
Number of
Securities
Underlying
Unexercised
Unearned
Options
(#)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
Proxy Statement
46
Option Awards
Stock Awards
Number of
Securities
Underlying
Unexercised
Options
(#)
Exercisable
(1)
Number of
Securities
Underlying
Unexercised
Options
(#)
Unexercisable
(1)
Equity
Incentive
Plan
Awards:
Number of
Securities
Underlying
Unexercised
Unearned
Options
(#)
Option
Exercise
Price
($)
Option
Expiration
Date
—
8,483
—
52.85
3/15/22
Name
Grant
Date
Byung K. Yi . . . . . . . . . 4/15/14(10)
5/15/14(11)
5/15/14(7)
3/15/15
3/15/15
3/15/15(8)
Equity
Incentive
Plan
Awards:
Number
of
Unearned
Shares,
Units or
Other
Rights
That
Have Not
Vested
(#)(4)
Equity
Incentive
Plan
Awards:
Market
or Payout
Value of
Unearned
Shares,
Units or
Other
Rights
That
Have Not
Vested
($)(5)
6,557
321,576
5,261
258,041
Market
Value
of
Shares
or
Units of
Stock
That
Have
Not
Vested
($)(3)
Number
of
Shares
or Units
of Stock
That
Have
Not
Vested
(#)(2)
3,073
7,049
150,715
345,690
2,630
129,020
(1) Amounts reported represent awards of options under the LTCP. All options vest annually, in three equal
installments, beginning on the first anniversary of the grant date.
(2) All awards made on January 18, 2013 are time-based RSUs granted pursuant to the 2013-2015 cycle that
vested in full on January 18, 2016. All awards made on March 15, 2014 are time-based RSUs granted
pursuant to the LTCP performance cycle that began on January 1, 2014, and ends December 31, 2016 (the
“2014-2016 cycle”), and are scheduled to vest in full on March 15, 2017. All awards made on March 15,
2015 are time-based RSUs granted pursuant to the 2015-2017 cycle and are scheduled to vest in full on
March 15, 2018.
(3) Values reported were determined by multiplying the number of unvested time-based RSUs by $49.04, the
closing price of our common stock on December 31, 2015, the last trading day in 2015 (plus cash in lieu of a
fractional share).
(4) Amounts reported were based on target performance measures and represent awards of performance-based
RSUs made under the LTCP.
(5) Values reported were based on target performance measures and determined by multiplying the number of
unvested performance-based RSUs by $49.04, the closing price of our common stock on December 31,
2015, the last trading day in 2015 (plus cash in lieu of a fractional share).
(6) Performance-based RSU award granted pursuant to the 2013-2015 cycle, which was scheduled to vest on
January 18, 2016 provided that the Compensation Committee had determined that the threshold level of
performance had been achieved with respect to the goals associated with the cycle. As discussed above in
“Compensation Discussion and Analysis,” the Compensation Committee determined that a total
achievement level of less than 80% had been met with respect to the goals for this cycle, resulting in a
payout of 0% of the target performance-based RSU award.
(7) Performance-based RSU award granted pursuant to the 2014-2016 cycle, which is scheduled to vest on
March 15, 2017 provided that the Compensation Committee has determined that the threshold level of
performance has been achieved with respect to the goals associated with the cycle.
(8) Performance-based RSU award granted pursuant to the 2015-2017 cycle, which is scheduled to vest on
March 15, 2018 provided that the Compensation Committee has determined that the threshold level of
performance has been achieved with respect to the goals associated with the cycle.
(9) Supplemental grant of time-based RSUs awarded in connection with a promotion.
(10) Amount reported represents a discretionary grant of time-based RSUs (including dividend equivalents
accrued) awarded to Dr. Yi upon hire. The grant is scheduled to vest annually, in three equal installments,
beginning on the first anniversary of the grant date.
(11) Time-based RSU award granted pursuant to the 2014-2016 cycle, which is scheduled to vest in full on
March 15, 2017.
47
Proxy Statement
Option Exercises and Stock Vested in 2015
The following table sets forth information, on an aggregated basis, concerning stock options exercised and
stock awards vested during 2015 for the NEOs.
Name
William J. Merritt . . . . . . .
Richard J. Brezski . . . . . . .
Scott A. McQuilkin . . . . .
James J. Nolan . . . . . . . . .
Lawrence F. Shay . . . . . . .
Byung K. Yi . . . . . . . . . . .
Option Awards
Stock Awards
Number of Shares
Acquired on Exercise
(#)
Value Realized on
Exercise
($)
Number of Shares
Acquired on Vesting
(#)(1)
Value Realized on
Vesting
($)(2)
—
—
—
—
—
—
—
—
—
—
—
—
29,398
6,640
12,506
9,964
14,905
1,519
1,547,415
348,705
657,869
524,402
783,937
77,326
(1)
Includes dividend equivalents accrued and paid out in additional shares of common stock upon the vesting
of the underlying awards.
(2) Amounts reported represent the total pre-tax value realized upon the vesting of RSUs (number of shares
vested times the closing price of our common stock on the vesting date) plus cash in lieu of a fractional
share.
Nonqualified Deferred Compensation
In 2013, the company introduced a nonqualified deferred compensation plan to complement the 401(k) Plan.
The IRS imposes limits on the amounts that an employee may contribute annually to a 401(k) plan account. The
deferred compensation plan provides the company’s directors and certain designated highly compensated
employees, including the NEOs, with an opportunity to set aside additional compensation for their retirement.
Pursuant to the terms of the deferred compensation plan, each eligible employee, including each NEO, may elect
to defer base salary and STIP payouts, and non-employee members of the Board of Directors may elect to defer
Board fees, in each case on a pre-tax basis and up to a maximum amount selected annually by the Compensation
Committee.
An employee participant or director may allocate deferrals to one or more deemed investments under the
deferred compensation plan. The amount of earnings (or losses) that accrue to a participant’s account attributable
to deferrals depends on the performance of investment alternatives selected by the participant. The deemed
investment options are currently similar to those available under the 401(k) Plan. However, a participant’s
election of investment alternatives as measuring devices for determining the value of a participant’s account does
not represent actual ownership of, or any ownership rights in or to, the investments to which the investment
alternatives refer, nor is the company in any way bound or directed to make actual investments corresponding to
such deemed investments.
The company will not make any matching or discretionary contributions to the accounts of directors.
However, the company may, but is not required to, make matching or discretionary contributions in cash to the
accounts of employee participants. Any such company contributions are subject to a vesting schedule as
determined by the Compensation Committee. The specific terms for each plan year, including eligible
compensation, minimum and maximum deferral amounts (by percentage of compensation) and matching terms,
are determined on an annual basis by the Compensation Committee.
Employee participant and director account payment obligations are payable in cash on a date or dates
selected by the employee participant or director or upon certain specified events such as termination of
employment, death or disability, subject to change in certain specified circumstances. An employee participant or
director may elect to defer to a single lump-sum payment of his or her account, or may elect payments over time.
Proxy Statement
48
For the 2015 plan year, eligible employees could elect to defer 6%, 10%, 20%, 30% or 40% of their base
salary and 25%, 50%, 75% or 100% of their STIP. Matching contributions are determined on a combined plan
basis taking into account deferred amounts under both the 401(k) Plan and the deferred compensation plan.
Deferral elections had to be made by December 31, 2014. For 2015, a participant’s combined match for the
401(k) and deferred compensation plan was 50% of the combined deferrals up to 6% of the participant’s eligible
deferrals. Matching contributions are deemed to be notionally invested in the InterDigital Stock Fund and are not
eligible for transfer to other investment options. Matching contributions vest ratably based on years of service of
the participant over three years in one-third increments, with the first vesting occurring after one year of service.
Each NEO participating in the plan had at least three years of service with the company prior to the adoption of
this plan; therefore, all will be immediately and fully vested in any matching contributions. Matching
contributions are made once annually after the end of the year.
The following table sets forth the relevant information regarding the deferred compensation plan for 2015.
Name
Executive
Contributions
in Last FY
($)(1)
Registrant
Contributions
in Last FY
($)(2)
William J. Merritt . . . . . . . . . . . . . . . .
Richard J. Brezski . . . . . . . . . . . . . . . .
Scott A. McQuilkin . . . . . . . . . . . . . . .
James J. Nolan . . . . . . . . . . . . . . . . . .
Lawrence F. Shay . . . . . . . . . . . . . . . .
Byung K. Yi(5) . . . . . . . . . . . . . . . . . .
361,112
34,231
24,623
372,440
491,995
—
46,451
13,412
13,362
14,247
24,184
—
Aggregate
Earnings
(Losses) in
Last FY
($)(3)
(8,460)
(1,277)
(946)
(7,235)
(2,137)
—
Aggregate
Withdrawals/
Distributions
($)
Aggregate Balance at
Last FYE
($)(4)
—
—
—
—
—
—
825,375
71,497
117,427
473,833
917,233
—
(1) Contributions include deferred 2015 salary amounts and deferred 2014 STIP amounts (which were paid in
2015). The payouts of the 2015 STIP were not made until 2016; as a result, any deferrals of 2015 STIP
amounts are not reflected in this column. For Messrs. Merritt, Brezski, McQuilkin and Shay, $61,385,
$34,231, $24,623 and $173,531, respectively, were included in the “Salary” column of the Summary
Compensation Table for fiscal 2015.
(2) For the 2015 plan year, the company matched deferrals up to 50% of the first 6% of the participant’s base
salary and annual bonus, determined on a combined plan basis taking into account amounts deferred under
both the 401(k) Plan and the deferred compensation plan during the 2015 calendar year. The amounts
disclosed in this column reflect matching contributions (made by the company in 2016) for 2015 NEO
deferral contributions and are included in the “All Other Compensation” column of the Summary
Compensation Table for fiscal 2015. Because the 2015 STIP payments were made in 2016, the 2015 STIP
deferrals are considered 2016 contributions and will be matched after year-end 2016.
(3) The company does not pay guaranteed, above-market or preferential earnings on deferred compensation;
therefore, the amounts in this column are not included in the Summary Compensation Table. Balances
include earnings or losses credited to the NEO’s account from notional investment alternatives elected by
the NEO from alternatives that are similar to those available to participants in the 401(k) Plan. Because the
2015 STIP payouts were not made until 2016, there were no 2015 earnings or losses associated with the
2015 STIP deferral amounts.
(4) Aggregate balance consists of employee contributions made in 2013, 2014 and 2015, company matching
contributions for 2013, 2014 and 2015 and notional investment earnings in 2013, 2014 and 2015.
49
Proxy Statement
Set forth below are the amounts reported in the aggregate balance that were previously reported in the
“Salary,” “Non-Equity Incentive Plan Compensation” and “All Other Compensation” columns of the
Summary Compensation Table for fiscal 2013 and 2014, in the aggregate:
Name
William J. Merritt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Richard J. Brezski . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Scott A. McQuilkin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
James J. Nolan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Lawrence F. Shay . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-Equity
Incentive Plan
Compensation
($)
All Other
Compensation
($)(a)
460,977
19,500
67,750
455,940
451,464
24,490
4,260
8,246
5,186
10,029
Salary
($)
215,962
—
—
—
237,770
The deferred compensation plan was newly implemented in 2013; therefore, there are no amounts included
that were reported as compensation to any NEO prior to 2013.
(5) Dr. Yi has not made any contributions to the deferred compensation plan.
Potential Payments upon Termination or Change in Control
Employment Agreements
As discussed above in “Compensation Discussion and Analysis,” each NEO has an employment agreement
with the company that provides for severance pay and benefits, among other things, in certain events of
termination of employment, as described below.
Time-Based RSU, Performance-Based RSU, Option and STIP Awards
If an NEO’s employment terminates due to disability or death or the NEO is terminated by the company
without cause (as described below), the NEO would be entitled to pro-rata vesting of all time-based RSUs. For
time-based RSU awards, the pro-rata portion of each grant is determined by multiplying the total number of
RSUs by a fraction equal to the number of company payroll periods during the vesting period for which the NEO
was employed by the total number of payroll periods during the vesting period.
If an NEO’s employment terminates for any reason prior to the second anniversary of the grant date of an
award of performance-based RSUs, the NEO would forfeit eligibility to receive any payout of such performance-
based RSUs. If, however, the NEO’s employment terminates subsequent to the second anniversary of the grant
date of a performance-based RSU award, in the event of disability or death or termination by the company
without cause, the NEO would be eligible to earn a pro-rata portion of such performance-based RSU award. For
such awards, the pro-rated amount is determined by multiplying the number of RSUs that would otherwise have
vested (based on actual performance over the performance period) by a fraction equal to the portion of the
vesting period that had transpired prior to the cessation of employment.
If an NEO is terminated by the company without cause, the NEO would be entitled to pro-rata vesting of
options granted under the LTCP. The pro-rata portion of each option grant is determined by multiplying the total
number of options by a fraction equal to the number of company payroll periods during the vesting period for
which the NEO was employed by the total number of payroll periods during the vesting period.
Pursuant to the terms of their respective employment agreements, in the event of his termination without
“cause” or his resignation for “good reason,” in each case, on or within one year following a “change in control”
of the company, Messrs. Merritt, McQuilkin and Shay and Dr. Yi each would be entitled to receive an amount
equal to 200% of his target payout under the STIP and Messrs. Brezski and Nolan each would be entitled to
receive an amount equal to 100% of his target payout under the STIP.
Proxy Statement
50
Pursuant to the terms of the LTCP and STIP awards, the NEO forfeits any such awards if his employment
terminates for cause.
Any rights that the NEOs would have under these awards in connection with other termination scenarios are
discussed below in connection with the relevant scenario.
Deferred Compensation
If an NEO’s employment terminates due to retirement or disability or the NEO voluntarily terminates his
employment with the company for any reason, the NEO would receive a distribution of his deferred amounts
under the deferred compensation plan, including the vested portion of any company matching or discretionary
contributions, in accordance with the NEO’s applicable distribution elections. In the event of a termination due to
death, the NEO would receive the balance of his deferred compensation account in a lump sum as soon as
administratively practicable. In the event the NEO is involuntarily terminated by the company, the NEO would
receive the balance of his deferred compensation account in a lump sum within 90 days of the date of
termination. In the event of a change in control, as defined by the deferred compensation plan, the NEO would
receive a distribution of his account balance in a lump sum as soon as administratively practicable, but in no
event later than 30 days from the effective date of the change in control.
Termination Scenarios
The following is a discussion of the various termination scenarios that would require us to make payments
to the NEOs. Unless different treatment is indicated below, please see “Time-Based RSU, Performance-Based
RSU, Option and STIP Awards” above for the treatment of the LCTP and STIP awards upon termination under
each of the following termination scenarios.
Termination Due to Retirement
The retirement of an NEO would trigger the distribution of such NEO’s deferred amounts under the deferred
compensation plan in accordance with his applicable distribution elections.
Termination Due to Death
In the event of the termination of an NEO’s employment due to death, the company would pay to the NEO’s
executors, legal representatives or administrators an amount equal to the accrued but unpaid portion of the
NEO’s base salary. The NEO’s executors, legal representatives or administrators would be entitled to receive the
payment prescribed under any death or disability benefits plan in which the NEO was a participant as our
employee, and to exercise any rights afforded under any compensation or benefit plan then in effect.
Termination for Cause
Pursuant to the terms of the NEO employment agreements, the company may terminate the employment of
any NEO at any time for “cause” which is generally defined in the employment agreements to include: (a) acts or
omissions constituting gross negligence, recklessness or willful misconduct on the part of the NEO with respect
to the NEO’s obligations or otherwise relating to the business of the company; (b) the NEO’s material breach of
his employment agreement or the company’s nondisclosure and assignment of ideas agreement; (c) the NEO’s
conviction or entry of a plea of nolo contendere for fraud, misappropriation or embezzlement, any felony, or any
crime of moral turpitude; or (d) the NEO’s willful neglect of duties as determined in the sole and exclusive
discretion of the Board. In the event of such a termination, the NEO would be entitled to receive any earned but
unpaid base salary and any accrued but unused paid time off, in each case as of the date of the termination
(together, the “Standard Entitlements”).
51
Proxy Statement
Termination Without Cause
Pursuant to the terms of the NEO employment agreements, the company may terminate the employment of
any NEO at any time, for any reason, without cause upon 30 days prior written notice to the NEO. In the event of
a termination without cause, the NEO would be entitled to receive the Standard Entitlements. In addition,
provided he executes a separation agreement in a form acceptable to the company (which includes, among other
things, a broad release of all claims against the company and a non-disparagement provision) (a “Separation
Agreement”), the NEO would be entitled to receive: (i) severance in an amount equal to one and a half times his
base salary then in effect (in the case of Mr. Merritt, two and a half times his base salary then in effect) paid over
a period of twelve months (eighteen months in the case of Mr. Merritt) commencing 60 days after his date of
termination; (ii) health coverage on terms and conditions comparable to those most recently provided to him for
the period of one year (18 months in the case of Mr. Merritt) commencing upon the date of termination; and
(iii) outplacement services in an amount not to exceed $10,000, paid by the company directly to the entity
providing such services.
Termination by the NEO
Pursuant to the terms of the NEO employment agreements, each NEO may terminate his employment with
us at any time for “good reason,” which means the NEO’s resignation of employment with the company follows
the occurrence of one or more of the following, in each case without the NEO’s consent: (i) a material diminution
in the NEO’s base salary or in the NEO’s target bonus opportunity under the STIP as in effect for the year in
which the termination occurs; (ii) a material diminution in the NEO’s title, authority, duties or responsibilities;
(iii) a material failure to comply with the compensation provision of the NEO’s employment agreement;
(iv) relocation of the NEO’s primary office more than 50 miles from the NEO’s current office; or (v) any other
action or inaction that constitutes a material breach by the company of the employment agreement or the
company’s nondisclosure and assignment of ideas agreement. In the event that an NEO terminates his
employment for good reason, the NEO would be entitled to receive the Standard Entitlements. In addition,
provided he executes a Separation Agreement, the NEO would be entitled to receive: (i) severance in an amount
equal to one and a half times his base salary then in effect (in the case of Mr. Merritt, two and a half times his
base salary then in effect) paid over a period of eighteen months; (ii) health coverage on terms and conditions
comparable to those most recently provided to him for the period of one year (18 months in the case of
Mr. Merritt) commencing upon the date of termination; and (iii) outplacement services in an amount not to
exceed $10,000, paid by the company directly to the entity providing such services.
In addition, pursuant to the terms of the employment agreements, each NEO can terminate his employment
with us without good reason, provided that the date of termination is at least 30 days after the date he gives
written notice of the termination to the company. In the event that an NEO terminates his employment without
good reason, he would be entitled to receive the Standard Entitlements.
Termination Following a Change in Control
Pursuant to the terms of the NEO employment agreements, if the company terminates an NEO other than for
cause or such NEO terminates his employment with us for good reason, in each case within one year following a
change in control of the company, he would be entitled to receive the Standard Entitlements. In addition,
provided that he executes a Separation Agreement, the NEO would be entitled to (i) severance in an amount
equal to (a) for Messrs. Merritt, McQuilkin and Shay and Dr. Yi, two times the sum of his base salary and target
bonus under the STIP then in effect and (b) for Messrs. Brezski and Nolan, two times the base salary then in
effect and one times the bonus target under the STIP then in effect, in each case, paid in a lump sum 60 days after
his date of termination; (ii) an amount equal to the cost of continued health coverage on terms and conditions
comparable to those most recently provided to him for the period of twenty-four months, paid in a lump sum
60 days after date of termination and (iii) outplacement services in an amount not to exceed $10,000, paid by the
company directly to the entity providing such services.
Proxy Statement
52
For this purpose, under the NEO employment agreements, “change in control” of the company generally
means the acquisition (including by merger or consolidation, or by our issuance of securities) by one or more
persons, in one transaction or a series of related transactions, of more than 50% of the voting power represented
by our outstanding stock on the date of the NEO’s employment agreement, or a sale of substantially all of our
assets.
If the company terminates an NEO other than for cause or such NEO terminates his employment with us for
good reason, in each case within one year following a change in control of the company, (i) the NEO would be
entitled to the early vesting of all outstanding performance-based RSU awards at target and (ii) all outstanding
stock option and time-based RSU awards would become fully vested.
Change in Control without Termination
In the event of a change in control without termination, each outstanding performance-based RSU award
would be deemed to have been earned at target as of the effective date of the change in control; however, the
award would remain subject to any employment and time-based vesting conditions.
Post-Termination Obligations
Each of the NEOs is bound by certain confidentiality obligations, which extend indefinitely, and, pursuant
to the terms of their respective employment agreements by certain non-competition and non-solicitation
covenants (i) for a period of (a) one year for Mr. Merritt following termination of employment by the company
for any reason or resignation by Mr. Merritt for any reason, and (b) for a period up to a maximum of one year for
all other NEOs except Dr. Yi, depending on the nature of termination and whether the company pays severance
to the NEO following termination; or (ii) two years following termination of employment by the company
without cause or resignation by the NEO for good reason, in each case, on or within twelve months after a
change in control. Pursuant to the terms of his employment agreement, Dr. Yi is bound by certain non-
solicitation covenants for a period of one year following termination of employment. In addition, each of the
NEOs is bound by certain covenants protecting our right, title and interest in and to certain intellectual property
that either has been or is being developed or created in whole or in part by the NEO.
Taxes
In the event that the payments made to each NEO upon termination constitute “parachute payments”
pursuant to Section 280G of the Code, the NEO employment agreements provide that either (i) the payments will
be reduced to such lesser amount that would result in no amount being subject to excise tax or (ii) the payments
will be made in full, whichever produces the larger after-tax net benefit to the NEO. The employment agreements
do not provide for an excise tax “gross-up.”
Term of Employment
The employment agreement with each NEO other than Dr. Yi provides for an initial employment term of
two years, and the employment agreement with Dr. Yi provides for an initial term of 21 months, which terms
automatically renew for additional successive one-year periods (unless either party provides notice of non-
renewal at least 90 days before the expiration of the term (as extended by any renewal period)). In the event that
a change in control occurs at any time during the term, then the term shall extend for an additional year and 90
days from the date of the change in control, provided such extension serves to lengthen the term that would
otherwise have been in place.
53
Proxy Statement
Potential Payments upon Termination or Change in Control
The following tables reflect the potential payments and benefits that would be provided to each NEO upon:
(i) termination due to disability, (ii) retirement, (iii) death, (iv) termination without cause, (v) termination by the
NEO for good reason, (vi) termination upon a change in control of the company (by the company without cause
or by the NEO for good reason) within one year of a change in control and (vii) change in control of the company
without a termination. The amounts shown assume that the termination (or the change in control in the case of
(vii)) was effective as of December 31, 2015, the last business day of 2015, and the price per share used to
calculate the value of the company’s stock awards was $49.04, the per share closing market price of our common
stock as of that date. The amounts reflected are estimates of the amounts that would have been paid to the NEOs
upon their termination. In addition, note that the tables below do not take into account the cutback provision
described above under “Termination Scenarios — Taxes;” as a result, the actual amounts paid could be lower
than what is presented. The actual amounts to be paid can be determined only at the time the events described
above actually occur.
William J. Merritt
Assuming the following events occurred on December 31, 2015, Mr. Merritt’s payments and benefits would
have an estimated value of:
Long-Term
Compensation
Awards
($)
Deferred
Compensation
($)(5)
Severance
($)
Payments
under
Executive
Life
Insurance
Program
($)(6)
Payments
under
Executive
Long-Term
Disability
Program
($)(7)
Welfare
Benefits
($)
Out-
placement
Services
($)(10)
902,797(3)
Disability . . . . . . . . . . . . . . . . . . . . . . .
—
Retirement
. . . . . . . . . . . . . . . . . . . . . .
Death . . . . . . . . . . . . . . . . . . . . . . . . . . .
902,797(3)
Without Cause . . . . . . . . . . . . . . . . . . . 1,550,000(1) 1,209,755(3)
Voluntary Resignation for Good
—
—
—
825,375
825,375
825,375
825,375
—
—
300,000
—
20,000
—
—
—
—
—
—
—
—
—
14,391(8) 10,000
Reason . . . . . . . . . . . . . . . . . . . . . . . 1,550,000(1)
—
825,375
Change in Control (Termination by Us
Without Cause or by Mr. Merritt for
Good Reason, within 1 year) . . . . . . 2,480,000(2) 4,841,197(4)
825,375
Change in Control (Without
Termination) . . . . . . . . . . . . . . . . . . .
—
—
825,375
—
—
—
—
14,391(8) 10,000
—
—
19,188(9) 10,000
—
—
(1) This amount represents severance equal to two and a half times Mr. Merritt’s base salary of $620,000,
which he is entitled to receive once his Separation Agreement becomes effective and is payable in equal
installments over a period of 18 months after the date of his termination.
(2) This amount represents severance equal to two times the sum of Mr. Merritt’s base salary of $620,000 and
target 2015 STIP payout of $620,000. He is entitled to this amount at the date of his termination if his
termination (by us without cause or by him for good reason) occurred within one year following a change in
control, in a lump sum after his Separation Agreement becomes effective.
(3) This amount represents the value, at December 31, 2015, of Mr. Merritt’s time-based and performance-
based RSUs granted under the 2013-2015 cycle, time-based RSUs granted under the 2014-2016 cycle and
time-based RSUs granted under the 2015-2017 cycle that would vest upon termination due to disability,
death or termination by the company without cause. Pursuant to the terms of the awards, Mr. Merritt would
forfeit eligibility to receive any payout of performance-based RSUs under the 2014-2016 and 2015-2017
cycles since a termination on December 31, 2015 would be prior to the second anniversary of the grant date
for such awards. For time-based RSU awards, the amounts were prorated based on the portion of the vesting
period that would have transpired prior to cessation of employment. For the performance-based RSU award
granted under the 2013-2015 cycle (the performance period for which ended December 31, 2015), the value
Proxy Statement
54
is zero, as performance for that cycle was below the threshold required for the vesting of any performance-
based RSUs. All RSU amounts include accrued dividend equivalents, which are paid out in the form of
additional shares of common stock at the time, and only to the extent, that the awards vest. The value shown
is comprised of: (a) $426,839, representing the value of 8,703 time-based RSUs granted under the 2013-
2015 cycle (plus cash in lieu of a fractional share); (b) $381,225, representing the value of 7,773 time-based
RSUs granted under the 2014-2016 cycle (plus cash in lieu of a fractional share); and (c) $94,733,
representing the value of 1,931 time-based RSUs granted under the 2015-2017 cycle (plus cash in lieu of a
fractional share). In addition, in the event of a termination by the company without cause, this amount also
includes the value of Mr. Merritt’s options granted under the 2013-2015, 2014-2016, and 2015-2017 cycles
that would vest. Pursuant to the terms of the awards, such options would vest on a pro rata basis, resulting in
the accelerated vesting of 7,268, 14,807 and 6,229 options, with a value of $35,250, $271,708 and $0,
respectively. The value of accelerated options is the aggregate spread between the closing stock price on
December 31, 2015 of $49.04 and the exercise price of the options, if less than $49.04. The stock options
granted for the 2015-2017 cycle were underwater at December 31, 2015.
(4) This amount represents the value, at December 31, 2015, of Mr. Merritt’s time-based RSUs, performance-
based RSUs and option awards granted under the 2013-2015, 2014-2016 and 2015-2017 cycles that would
vest upon termination (by us without cause or by him for good reason) within one year following a change
in control. All performance-based RSU awards would be paid out at target. All RSU amounts include
accrued dividend equivalents, which are paid out in the form of additional shares of common stock at the
time, and only to the extent, that the awards vest. The value shown is comprised of: (a) $432,382,
representing the value of 8,816 time-based RSUs granted under the 2013-2015 cycle (plus cash in lieu of a
fractional share); (b) $864,815, representing the value of 17,634 performance-based RSUs granted under the
2013-2015 cycle (plus cash in lieu of a fractional share); (c) $646,425, representing the value of 13,181
time-based RSUs granted under the 2014-2016 cycle (plus cash in lieu of a fractional share); (d) $1,292,849,
representing the value of 26,363 performance-based RSUs granted under the 2014-2016 cycle (plus cash in
lieu of a fractional share); (e) $369,458, representing the value of 7,533 time-based RSUs granted under the
2015-2017 cycle (plus cash in lieu of a fractional share); (f) $738,867 representing the value of 15,066
performance-based RSUs granted under the 2015-2017 cycle (plus cash in lieu of a fractional share);
(g) $35,706, representing the value of 7,362 options granted under the 2013-2015 cycle; (h) $460,695
representing the value of 25,106 options granted under the 2014-2016 cycle and (i) $0 representing the value
of 24,291 options granted under the 2015-2017 cycle. The value of accelerated options is the aggregate
spread between the closing stock price of $49.04 on December 31, 2015 and the exercise price of the
options, if less than $49.04. The stock options granted for the 2015-2017 cycle were underwater at
December 31, 2015.
(5) This amount represents the balance, at December 31, 2015, of Mr. Merritt’s deferred compensation plan
account (including matching contributions), which is payable (a) upon retirement, disability or his voluntary
termination of employment with the company for any reason, a portion of which would be paid out in a
lump sum within 90 days of the date of termination and a portion of which would be paid out in annual
installments over five years, as applicable pursuant to Mr. Merritt’s deferral elections, (b) upon death, in a
lump sum as soon as administratively practicable following his death, (c) upon an involuntary termination
by the company, in a lump sum within 90 days of the date of termination and (d) upon a change in control,
in a lump sum as soon as administratively practicable, but in no event later than 30 days from the effective
date of the change in control.
(6) This amount represents the payment prescribed under our basic term life insurance program, calculated as
follows: 1.5 times base salary, up to a maximum of $300,000.
(7) This amount represents the monthly benefit that would become payable to Mr. Merritt under our executive
long-term disability plan in the event of his termination due to disability on December 31, 2015, calculated
as follows: 60% of his monthly earnings (i.e., pre-tax base salary and annual bonus), up to $10,000, and a
supplemental monthly payment of up to $10,000. Monthly benefits would be payable until the earlier of (a)
the date he ceases to be totally disabled or (b) his 65th birthday.
55
Proxy Statement
(8) This amount represents the value of health coverage pursuant to COBRA for a period of 18 months after
termination on terms and conditions comparable to those most recently provided to Mr. Merritt as of
December 31, 2015 pursuant to his employment agreement.
(9) This amount represents the value of health coverage pursuant to COBRA for a period of 24 months after
termination on terms and conditions comparable to those most recently provided to Mr. Merritt as of
December 31, 2015 pursuant to his employment agreement.
(10) This amount represents the maximum amount payable by the company for outplacement services in the
event of termination by the company without cause or termination by the NEO for good reason.
Richard J. Brezski
Assuming the following events occurred on December 31, 2015, Mr. Brezski’s payments and benefits would
have an estimated value of:
Disability . . . . . . . . . . . . . .
Retirement . . . . . . . . . . . . .
Death . . . . . . . . . . . . . . . . .
Without Cause . . . . . . . . . .
Voluntary Resignation for
Severance
($)
—
—
—
525,000(1)
Long-Term
Compensation
Awards
($)
Value of
Other RSUs
Subject to
Acceleration
($)
Deferred
Compensation
($)(7)
Payments
under
Executive
Life
Insurance
Program
($)(8)
Payments
under
Executive
Long-Term
Disability
Program
($)(9)
Welfare
Benefits
($)
Out-
placement
Services
($)(12)
353,861(3)
—
353,861(3)
486,374(3)
46,508(5)
—
46,508(5)
46,508(5)
71,497
71,497
71,497
71,497
71,497
—
—
300,000
—
20,000
—
—
—
—
—
—
—
—
—
15,912(10) 10,000
—
—
15,912(10) 10,000
Good Reason . . . . . . . . .
525,000(1)
—
—
Change in Control
(Termination by Us
Without Cause or by
Mr. Brezski for Good
Reason, within 1
year) . . . . . . . . . . . . . . . .
Change in Control
(Without
Termination) . . . . . . . . .
910,000(2)
2,003,679(4)
50,384(6)
71,497
—
—
—
71,497
—
—
—
31,825(11) 10,000
—
—
—
(1) This amount represents severance equal to one and a half times Mr. Brezski’s base salary of $350,000,
which he is entitled to receive once his Separation Agreement becomes effective and is payable in equal
installments over a period of 12 months after the date of his termination.
(2) This amount represents severance equal to the sum of two times Mr. Brezski’s base salary of $350,000 and
one times his target 2015 STIP payout of $210,000. He is entitled to this amount at the date of his
termination if his termination (by us without cause or by him for good reason) occurred within one year
following a change in control, in a lump sum after his Separation Agreement becomes effective.
(3) This amount represents the value, at December 31, 2015, of Mr. Brezski’s time-based and performance-
based RSUs granted under the 2013-2015 cycle, time-based RSUs granted under the 2014-2016 cycle and
time-based RSUs granted under the 2015-2017 cycle that would vest upon termination due to disability,
death or termination by the company without cause. Pursuant to the terms of the awards, Mr. Brezski would
forfeit eligibility to receive any payout of performance-based RSUs under the 2014-2016 and 2015-2017
cycles since a termination on December 31, 2015 would be prior to the second anniversary of the grant date
for such awards. For time-based RSU awards, the amounts were prorated based on the portion of the vesting
period that would have transpired prior to cessation of employment. For the performance-based RSU award
granted under the 2013-2015 cycle (the performance period for which ended December 31, 2015), the value
is zero, as performance for that cycle was below the threshold required for the vesting of any performance-
based RSUs. All RSU amounts include accrued dividend equivalents, which are paid out in the form of
Proxy Statement
56
additional shares of common stock at the time, and only to the extent, that the awards vest. The value shown
is comprised of: (a) $142,296, representing the value of 2,901 time-based RSUs granted under the 2013-
2015 cycle (plus cash in lieu of a fractional share); (b) $169,456, representing the value of 3,455 time-based
RSUs granted under the 2014-2016 cycle (plus cash in lieu of a fractional share); and (c) $42,109,
representing the value of 858 time-based RSUs granted under the 2015-2017 cycle (plus cash in lieu of a
fractional share). In addition, in the event of a termination by the company without cause, this amount also
includes the value of Mr. Brezski’s options granted under the 2013-2015, 2014-2016 and 2015-2017 cycles
that would vest. Pursuant to the terms of the awards, such options would vest on a pro rata basis, resulting in
the accelerated vesting of 2,423, 6,581 and 2,769 options, with a value of $11,752, $120,761 and $0,
respectively. The value of accelerated options is the aggregate spread between the closing stock price on
December 31, 2015 of $49.04 and the exercise price of the options, if less than $49.04. The stock options
granted for the 2015-2017 cycle were underwater at December 31, 2015.
(4) This amount represents the value, at December 31, 2015, of Mr. Brezski’s time-based RSUs, performance-
based RSUs and option awards granted under the 2013-2015, 2014-2016 and 2015-2017 cycles that would
vest upon termination (by us without cause or by him for good reason) within one year following a change
in control. All performance-based RSU awards would be paid out at target. All RSU amounts include
accrued dividend equivalents, which are paid out in the form of additional shares of common stock at the
time, and only to the extent, that the awards vest. The value shown is comprised of: (a) $144,144,
representing the value of 2,939 time-based RSUs granted under the 2013-2015 cycle (plus cash in lieu of a
fractional share); (b) $288,289, representing the value of 5,878 performance-based RSUs granted under the
2013-2015 cycle (plus cash in lieu of a fractional share); (c) $287,339, representing the value of 5,859 time-
based RSUs granted under the 2014-2016 cycle (plus cash in lieu of a fractional share); (d) $574,628,
representing the value of 11,717 performance-based RSUs granted under the 2014-2016 cycle (plus cash in
lieu of a fractional share); (e) $164,226, representing the value of 3,348 time-based RSUs granted under the
2015-2017 cycle (plus cash in lieu of a fractional share); (f) $328,402 representing the value of 6,696
performance-based RSUs granted under the 2015-2017 cycle (plus cash in lieu of a fractional share); (g)
$11,902, representing the value of 2,454 options granted under the 2013-2015 cycle; (h) $204,749
representing the value of 11,158 options granted under the 2014-2016 cycle and (i) $0 representing the value
of 10,796 options granted under the 2015-2017 cycle. The value of accelerated options is the aggregate
spread between the closing stock price of $49.04 on December 31, 2015 and the exercise price of the
options, if less than $49.04. The stock options granted for the 2015-2017 cycle were underwater at
December 31, 2015.
(5) This amount represents the value upon termination due to disability, death or termination by the company
without cause, at December 31, 2015, of 948 time-based RSUs (plus cash in lieu of a fractional share) from
the pro rata vesting of a supplemental RSU grant.
(6) This amount represents the value, at December 31, 2015, of an unvested supplemental grant of 1,027 time-
based RSUs (plus cash in lieu of a fractional share) that would vest in full upon termination (by us without
cause or by Mr. Brezski for good reason) within one year following a change in control.
(7) This amount represents the balance, at December 31, 2015, of Mr. Brezski’s deferred compensation plan
account (including matching contributions), which is payable (a) upon retirement, disability or his voluntary
termination of employment with the company for any reason, in a lump sum within 90 days of the date of
termination, (b) upon death, in a lump sum as soon as administratively practicable following his death, (c)
upon an involuntary termination by the company, in a lump sum within 90 days of the date of termination
and (d) upon a change in control in a lump sum as soon as administratively practicable, but in no event later
than 30 days from the effective date of the change in control.
(8) This amount represents the payment prescribed under our basic term life insurance program, calculated as
follows: 1.5 times base salary, up to a maximum of $300,000.
(9) This amount represents the monthly benefit that would become payable to Mr. Brezski under our executive
long-term disability plan in the event of his termination due to disability on December 31, 2015, calculated
57
Proxy Statement
as follows: 60% of his monthly earnings (i.e., pre-tax base salary and annual bonus), up to $10,000, and a
supplemental monthly payment of up to $10,000. Monthly benefits would be payable until the earlier of (a)
the date he ceases to be totally disabled or (b) his 65th birthday.
(10) This amount represents the value of health coverage pursuant to COBRA for a period of one year after
termination on terms and conditions comparable to those most recently provided to Mr. Brezski as of
December 31, 2015 pursuant to his employment agreement.
(11) This amount represents the value of health coverage pursuant to COBRA for a period of 24 months after
termination on terms and conditions comparable to those most recently provided to Mr. Brezski as of
December 31, 2015 pursuant to his employment agreement.
(12) This amount represents the maximum amount payable by the company for outplacement services in the
event of termination by the company without cause or termination by the NEO for good reason.
Scott A. McQuilkin
Assuming the following events occurred on December 31, 2015, Mr. McQuilkin’s payments and benefits
would have an estimated value of:
Long-Term
Compensation
Awards
($)
Deferred
Compensation
($)(5)
Severance
($)
Payments
under
Executive
Life
Insurance
Program
($)(6)
Payments
under
Executive
Long-Term
Disability
Program
($)(7)
Welfare
Benefits
($)
Out-
placement
Services
($)(10)
—
—
—
622,500(1)
515,617(3)
—
515,617(3)
705,750(3)
117,427
117,427
117,427
117,427
—
—
300,000
—
20,000
—
—
—
—
—
—
—
—
—
15,912(8) 10,000
Disability . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . .
Retirement
Death . . . . . . . . . . . . . . . . . . . . . . . .
Without Cause . . . . . . . . . . . . . . . . .
Voluntary Resignation for Good
Reason . . . . . . . . . . . . . . . . . . . . .
622,500(1)
—
117,427
—
—
15,912(8) 10,000
Change in Control (Termination by
Us Without Cause or by
Mr. McQuilkin for Good Reason,
within 1 year) . . . . . . . . . . . . . . . . 1,452,500(2) 2,893,967(4)
117,427
Change in Control (Without
Termination) . . . . . . . . . . . . . . . . .
—
—
117,427
—
—
—
—
31,825(9) 10,000
—
—
(1) This amount represents severance equal to one and a half times Mr. McQuilkin’s base salary of $415,000,
which he is entitled to receive once his Separation Agreement becomes effective and is payable in equal
installments over a period of 12 months after the date of his termination.
(2) This amount represents severance equal to two times the sum of Mr. McQuilkin’s base salary of $415,000
and target 2015 STIP payout of $311,250. He is entitled to this amount at the date of his termination if his
termination (by us without cause or by him for good reason) occurred within one year following a change in
control, in a lump sum after his Separation Agreement becomes effective.
(3) This amount represents the value, at December 31, 2015, of Mr. McQuilkin’s time-based and performance-
based RSUs granted under the 2013-2015 cycle, time-based RSUs granted under the 2014-2016 cycle and
time-based RSUs granted under the 2015-2017 cycle that would vest upon termination due to disability,
death or termination by the company without cause. Pursuant to the terms of the awards, Mr. McQuilkin
would forfeit eligibility to receive any payout of performance-based RSUs under the 2014-2016 and 2015-
2017 cycles since a termination on December 31, 2015 would be prior to the second anniversary of the grant
date for such awards. For time-based RSU awards, the amounts were prorated based on the portion of the
vesting period that would have transpired prior to cessation of employment. For the performance-based RSU
award granted under the 2013-2015 cycle (the performance period for which ended December 31, 2015), the
Proxy Statement
58
value is zero, as performance for that cycle was below the threshold required for the vesting of any
performance-based RSUs. All RSU amounts include accrued dividend equivalents, which are paid out in the
form of additional shares of common stock at the time, and only to the extent, that the awards vest. The
value shown is comprised of: (a) $213,419, representing the value of 4,351 time-based RSUs granted under
the 2013-2015 cycle (plus cash in lieu of a fractional share); (b) $242,047, representing the value of 4,935
time-based RSUs granted under the 2014-2016 cycle (plus cash in lieu of a fractional share); and (c)
$60,151, representing the value of 1,226 time-based RSUs granted under the 2015-2017 cycle (plus cash in
lieu of a fractional share). In addition, in the event of a termination by the company without cause, this
amount also includes the value of Mr. McQuilkin’s options granted under the 2013-2015, 2014-2016 and
2015-2017 cycles that would vest. Pursuant to the terms of the awards, such options would vest on a pro rata
basis, resulting in the accelerated vesting of 3,634, 9,401 and 3,955 options, with a value of $17,625,
$172,508 and $0, respectively. The value of accelerated options is the aggregate spread between the closing
stock price on December 31, 2015 of $49.04 and the exercise price of the options, if less than $49.04. The
stock options granted for the 2015-2017 cycle were underwater at December 31, 2015.
(4) This amount represents the value, at December 31, 2015, of Mr. McQuilkin’s time-based RSUs,
performance-based RSUs and option awards granted under the 2013-2015, 2014-2016 and 2015-2017 cycles
that would vest upon termination (by us without cause or by him for good reason) within one year following
a change in control. All performance-based RSU awards would be paid out at target. All RSU amounts
include accrued dividend equivalents, which are paid out in the form of additional shares of common stock
at the time, and only to the extent, that the awards vest. The value shown is comprised of: (a) $216,191,
representing the value of 4,408 time-based RSUs granted under the 2013-2015 cycle (plus cash in lieu of a
fractional share); (b) $432,433, representing the value of 8,817 performance-based RSUs granted under the
2013-2015 cycle (plus cash in lieu of a fractional share); (c) $410,427, representing the value of 8,369 time-
based RSUs granted under the 2014-2016 cycle (plus cash in lieu of a fractional share); (d) $820,853,
representing the value of 16,738 performance-based RSUs granted under the 2014-2016 cycle (plus cash in
lieu of a fractional share); (e) $234,587, representing the value of 4,783 time-based RSUs granted under the
2015-2017 cycle (plus cash in lieu of a fractional share); (f) $469,124 representing the value of 9,566
performance-based RSUs granted under the 2015-2017 cycle (plus cash in lieu of a fractional share); (g)
$17,853, representing the value of 3,681 options granted under the 2013-2015 cycle; (h) $292,499
representing the value of 15,940 options granted under the 2014-2016 cycle and (i) $0 representing the value
of 15,423 options granted under the 2015-2017 cycle. The value of accelerated options is the aggregate
spread between the closing stock price of $49.04 on December 31, 2015 and the exercise price of the
options, if less than $49.04. The stock options granted for the 2015-2017 cycle were underwater at
December 31, 2015.
(5) This amount represents the balance, at December 31, 2015, of Mr. McQuilkin’s deferred compensation plan
account (including matching contributions), which is payable (a) upon retirement, disability or his voluntary
termination of employment with the company for any reason, in a lump sum within 90 days of the date of
termination, (b) upon death, in a lump sum as soon as administratively practicable following his death, (c)
upon an involuntary termination by the company, in a lump sum within 90 days of the date of termination
and (d) upon a change in control in a lump sum as soon as administratively practicable, but in no event later
than 30 days from the effective date of the change in control.
(6) This amount represents the payment prescribed under our basic term life insurance program, calculated as
follows: 1.5 times base salary, up to a maximum of $300,000.
(7) This amount represents the monthly benefit that would become payable to Mr. McQuilkin under our
executive long-term disability plan in the event of his termination due to disability on December 31, 2015,
calculated as follows: 60% of his monthly earnings (i.e., pre-tax base salary and annual bonus), up to
$10,000, and a supplemental monthly payment of up to $10,000. Monthly benefits would be payable until
the earlier of (a) the date he ceases to be totally disabled or (b) 48 months from the commencement of
benefits (since his benefits would have commenced under the plan after he reached age 61).
59
Proxy Statement
(8) This amount represents the value of health coverage pursuant to COBRA for a period of one year after
termination on terms and conditions comparable to those most recently provided to Mr. McQuilkin as of
December 31, 2015 pursuant to his employment agreement.
(9) This amount represents the value of health coverage pursuant to COBRA for a period of 24 months after
termination on terms and conditions comparable to those most recently provided to Mr. McQuilkin as of
December 31, 2015 pursuant to his employment agreement.
(10) This amount represents the maximum amount payable by the company for outplacement services in the
event of termination by the company without cause or termination by the NEO for good reason.
James J. Nolan
Assuming the following events occurred on December 31, 2015, Mr. Nolan’s payments and benefits would
have an estimated value of:
Long-Term
Compensation
Awards
($)
Deferred
Compensation
($)(5)
Severance
($)
Payments
under
Executive
Life
Insurance
Program
($)(6)
Payments
under
Executive
Long-Term
Disability
Program
($)(7)
Welfare
Benefits
($)
Out-
placement
Services
($)(10)
Disability . . . . . . . . . . . . . . . . . . . . . . .
Retirement . . . . . . . . . . . . . . . . . . . . . .
Death . . . . . . . . . . . . . . . . . . . . . . . . . .
Without Cause . . . . . . . . . . . . . . . . . . . 540,750(1)
Voluntary Resignation for Good
—
—
—
352,050(3)
—
352,050(3)
469,666(3)
473,833
473,833
473,833
473,833
—
—
300,000
—
20,000
—
—
—
—
—
—
—
—
—
15,912(8) 10,000
Reason . . . . . . . . . . . . . . . . . . . . . . . 540,750(1)
—
473,833
Change in Control (Termination by Us
Without Cause or by Mr. Nolan for
Good Reason, within 1 year) . . . . . . 937,300(2) 1,869,724(4)
473,833
Change in Control (Without
Termination)
. . . . . . . . . . . . . . . . . .
—
—
473,833
—
—
—
—
15,912(8) 10,000
—
—
31,825(9) 10,000
—
—
(1) This amount represents severance equal to one and a half times Mr. Nolan’s base salary of $360,500, which
he is entitled to receive once his Separation Agreement becomes effective and is payable in equal
installments over a period of 12 months after the date of his termination.
(2) This amount represents severance equal to the sum of two times Mr. Nolan’s base salary of $360,500 and
one times his target 2015 STIP payout of $216,300. He is entitled to this amount at the date of his
termination if his termination (by us without cause or by him for good reason) occurred within one year
following a change in control, in a lump sum after his Separation Agreement becomes effective.
(3) This amount represents the value, at December 31, 2015, of Mr. Nolan’s time-based and performance-based
RSUs granted under the 2013-2015 cycle, time-based RSUs granted under the 2014-2016 cycle and time-
based RSUs granted under the 2015-2017 cycle that would vest upon termination due to disability, death or
termination by the company without cause. Pursuant to the terms of the awards, Mr. Nolan would forfeit
eligibility to receive any payout of performance-based RSUs under the 2014-2016 and 2015-2017 cycles
since a termination on December 31, 2015 would be prior to the second anniversary of the grant date for
such awards. For time-based RSU awards, the amounts were prorated based on the portion of the vesting
period that would have transpired prior to cessation of employment. For the performance-based RSU award
granted under the 2013-2015 cycle (the performance period for which ended December 31, 2015), the value
is zero, as performance for that cycle was below the threshold required for the vesting of any performance-
based RSUs. All RSU amounts include accrued dividend equivalents, which are paid out in the form of
additional shares of common stock at the time, and only to the extent, that the awards vest. The value shown
is comprised of: (a) $170,715, representing the value of 3,481 time-based RSUs granted under the 2013-
2015 cycle (plus cash in lieu of a fractional share); (b) $145,240, representing the value of 2,961 time-based
Proxy Statement
60
RSUs granted under the 2014-2016 cycle (plus cash in lieu of a fractional share); and (c) $36,095,
representing the value of 736 time-based RSUs granted under the 2015-2017 cycle (plus cash in lieu of a
fractional share). In addition, in the event of a termination by the company without cause, this amount also
includes the value of Mr. Nolan’s options granted under the 2013-2015, 2014-2016 and 2015-2017 cycles
that would vest. Pursuant to the terms of the awards, such options would vest on a pro rata basis, resulting in
the accelerated vesting of 2,908, 5,641 and 2,373 options, with a value of $14,104, $103,512 and $0,
respectively. The value of accelerated options is the aggregate spread between the closing stock price on
December 31, 2015 of $49.04 and the exercise price of the options, if less than $49.04. The stock options
granted for the 2015-2017 cycle were underwater at December 31, 2015.
(4) This amount represents the value, at December 31, 2015, of Mr. Nolan’s time-based RSUs, performance-
based RSUs and option awards granted under the 2013-2015, 2014-2016 and 2015-2017 cycles that would
vest upon termination (by us without cause or by him for good reason) within one year following a change
in control. All performance-based RSU awards would be paid out at target. All RSU amounts include
accrued dividend equivalents, which are paid out in the form of additional shares of common stock at the
time, and only to the extent, that the awards vest. The value shown is comprised of: (a) $172,932,
representing the value of 3,526 time-based RSUs granted under the 2013-2015 cycle (plus cash in lieu of a
fractional share); (b) $345,916, representing the value of 7,053 performance-based RSUs granted under the
2013-2015 cycle (plus cash in lieu of a fractional share); (c) $246,276, representing the value of 5,021 time-
based RSUs granted under the 2014-2016 cycle (plus cash in lieu of a fractional share); (d) $492,552,
representing the value of 10,043 performance-based RSUs granted under the 2014-2016 cycle (plus cash in
lieu of a fractional share); (e) $140,772, representing the value of 2,870 time-based RSUs granted under the
2015-2017 cycle (plus cash in lieu of a fractional share); (f) $281,494 representing the value of 5,740
performance-based RSUs granted under the 2015-2017 cycle (plus cash in lieu of a fractional share); (g)
$14,283, representing the value of 2,945 options granted under the 2013-2015 cycle; (h) $175,499
representing the value of 9,564 options granted under the 2014-2016 cycle and (i) $0 representing the value
of 9,254 options granted under the 2015-2017 cycle. The value of accelerated options is the aggregate
spread between the closing stock price of $49.04 on December 31, 2015 and the exercise price of the
options, if less than $49.04. The stock options granted for the 2015-2017 cycle were underwater at
December 31, 2015.
(5) This amount represents the balance, at December 31, 2015, of Mr. Nolan’s deferred compensation plan
account (including matching contributions), which is payable (a) upon retirement, disability or his voluntary
termination of employment with the company for any reason, a portion of which would be paid out in
annual installments over five years beginning in 2020 and a portion of which would be paid out in annual
installments over 10 years, as applicable pursuant to Mr. Nolan’s deferral elections (b) upon death, in a
lump sum as soon as administratively practicable following his death, (c) upon an involuntary termination
by the company, in a lump sum within 90 days of the date of termination and (d) upon a change in control in
a lump sum as soon as administratively practicable, but in no event later than 30 days from the effective date
of the change in control.
(6) This amount represents the payment prescribed under our basic term life insurance program, calculated as
follows: 1.5 times base salary, up to a maximum of $300,000.
(7) This amount represents the monthly benefit that would become payable to Mr. Nolan under our executive
long-term disability plan in the event of his termination due to disability on December 31, 2015, calculated
as follows: 60% of his monthly earnings (i.e., pre-tax base salary and annual bonus), up to $10,000, and a
supplemental monthly payment of up to $10,000. Monthly benefits would be payable until the earlier of (a)
the date he ceases to be totally disabled or (b) his 65th birthday.
(8) This amount represents the value of health coverage pursuant to COBRA for a period of one year after
termination on terms and conditions comparable to those most recently provided to Mr. Nolan as of
December 31, 2015 pursuant to his employment agreement.
61
Proxy Statement
(9) This amount represents the value of health coverage pursuant to COBRA for a period of 24 months after
termination on terms and conditions comparable to those most recently provided to Mr. Nolan as of
December 31, 2015 pursuant to his employment agreement.
(10) This amount represents the maximum amount payable by the company for outplacement services in the
event of termination by the company without cause or termination by the NEO for good reason.
Lawrence F. Shay
Assuming the following events occurred on December 31, 2015, Mr. Shay’s payments and benefits would
have an estimated value of:
Long-Term
Compensation
Awards
($)
Deferred
Compensation
($)(5)
Severance
($)
Disability . . . . . . . . . . . . . . . . . . . . . . .
Retirement . . . . . . . . . . . . . . . . . . . . . .
Death . . . . . . . . . . . . . . . . . . . . . . . . . .
Without Cause . . . . . . . . . . . . . . . . . . .
Voluntary Resignation for Good
—
—
—
656,625(1)
586,740(3)
—
586,740(3)
782,751(3)
Reason . . . . . . . . . . . . . . . . . . . . . . .
Change in Control (Termination by Us
Without Cause or by Mr. Shay for
Good Reason, within 1 year) . . . . . . 1,532,126(2) 3,116,058(4)
656,625(1)
—
917,233
917,233
917,233
917,233
917,233
917,233
Change in Control (Without
Termination) . . . . . . . . . . . . . . . . . .
—
—
917,233
Payments
under
Executive
Life
Insurance
Program
($)(6)
Payments
under
Executive
Long-Term
Disability
Program
($)(7)
—
—
300,000
—
20,000
—
—
—
Welfare
Benefits
($)
Out-
placement
Services
($)(10)
—
—
—
—
—
—
15,912(8) 10,000
—
—
—
—
15,912(8) 10,000
—
—
31,825(9) 10,000
—
—
(1) This amount represents severance equal to one and a half times Mr. Shay’s base salary of $437,750, which
he is entitled to receive once his Separation Agreement becomes effective and is payable in equal
installments over a period of 12 months after the date of his termination.
(2) This amount represents severance equal to two times the sum of Mr. Shay’s base salary of $437,750 and
target 2015 STIP payout of $328,313. He is entitled to this amount at the date of his termination if his
termination (by us without cause or by him for good reason) occurred within one year following a change in
control, in a lump sum after his Separation Agreement becomes effective.
(3) This amount represents the value, at December 31, 2015, of Mr. Shay’s time-based and performance-based
RSUs granted under the 2013-2015 cycle, time-based RSUs granted under the 2014-2016 cycle and time-
based RSUs granted under the 2015-2017 cycle that would vest upon termination due to disability, death or
termination by the company without cause. Pursuant to the terms of the awards, Mr. Shay would forfeit
eligibility to receive any payout of performance-based RSUs under the 2014-2016 and 2015-2017 cycles
since a termination on December 31, 2015 would be prior to the second anniversary of the grant date for
such awards. For time-based RSU awards, the amounts were prorated based on the portion of the vesting
period that would have transpired prior to cessation of employment. For the performance-based RSU award
granted under the 2013-2015 cycle (the performance period for which ended December 31, 2015), the value
is zero, as performance for that cycle was below the threshold required for the vesting of any performance-
based RSUs. All RSU amounts include accrued dividend equivalents, which are paid out in the form of
additional shares of common stock at the time, and only to the extent, that the awards vest. The value shown
is comprised of: (a) $284,542, representing the value of 5,802 time-based RSUs granted under the 2013-
2015 cycle (plus cash in lieu of a fractional share); (b) $242,047, representing the value of 4,935 time-based
RSUs granted under the 2014-2016 cycle (plus cash in lieu of a fractional share); and (c) $60,151,
representing the value of 1,226 time-based RSUs granted under the 2015-2017 cycle (plus cash in lieu of a
fractional share). In addition, in the event of a termination by the company without cause, this amount also
includes the value of Mr. Shay’s options granted under the 2013-2015, 2014-2016 and 2015-2017 cycles
Proxy Statement
62
that would vest. Pursuant to the terms of the awards, such options would vest on a pro rata basis, resulting in
the accelerated vesting of 4,846, 9,401 and 3,955 options, with a value of $23,503, $172,508 and $0,
respectively. The value of accelerated options is the aggregate spread between the closing stock price on
December 31, 2015 of $49.04 and the exercise price of the options, if less than $49.04. The stock options
granted for the 2015-2017 cycle were underwater at December 31, 2015.
(4) This amount represents the value, at December 31, 2015, of Mr. Shay’s time-based RSUs, performance-
based RSUs and option awards granted under the 2013-2015, 2014-2016 and 2015-2017 cycles that would
vest upon termination (by us without cause or by him for good reason) within one year following a change
in control. All performance-based RSU awards would be paid out at target. All RSU amounts include
accrued dividend equivalents, which are paid out in the form of additional shares of common stock at the
time, and only to the extent, that the awards vest. The value shown is comprised of: (a) $288,238,
representing the value of 5,877 time-based RSUs granted under the 2013-2015 cycle (plus cash in lieu of a
fractional share); (b) $576,526, representing the value of 11,756 performance-based RSUs granted under the
2013-2015 cycle (plus cash in lieu of a fractional share); (c) $410,427, representing the value of 8,369 time-
based RSUs granted under the 2014-2016 cycle (plus cash in lieu of a fractional share); (d) $820,853,
representing the value of 16,738 performance-based RSUs granted under the 2014-2016 cycle (plus cash in
lieu of a fractional share); (e) $234,587, representing the value of 4,783 time-based RSUs granted under the
2015-2017 cycle (plus cash in lieu of a fractional share); (f) $469,124 representing the value of 9,566
performance-based RSUs granted under the 2015-2017 cycle (plus cash in lieu of a fractional share); (g)
$23,804, representing the value of 4,908 options granted under the 2013-2015 cycle; (h) $292,499
representing the value of 15,940 options granted under the 2014-2016 cycle and (i) $0 representing the value
of 15,423 options granted under the 2015-2017 cycle. The value of accelerated options is the aggregate
spread between the closing stock price of $49.04 on December 31, 2015 and the exercise price of the
options, if less than $49.04. The stock options granted for the 2015-2017 cycle were underwater at
December 31, 2015.
(5) This amount represents the balance, at December 31, 2015, of Mr. Shay’s deferred compensation plan
account (including matching contributions), which is payable (a) upon retirement, disability or his voluntary
termination of employment with the company for any reason, a portion of which would be paid out in
annual installments over two years and a portion of which would be paid out in annual installments over
four years, as applicable pursuant to Mr. Shay’s deferral elections, (b) upon death, in a lump sum as soon as
administratively practicable following his death, (c) upon an involuntary termination by the company, in a
lump sum within 90 days of the date of termination and (d) upon a change in control in a lump sum as soon
as administratively practicable, but in no event later than 30 days from the effective date of the change in
control.
(6) This amount represents the payment prescribed under our basic term life insurance program, calculated as
follows: 1.5 times base salary, up to a maximum of $300,000.
(7) This amount represents the monthly benefit that would become payable to Mr. Shay under our executive
long-term disability plan in the event of his termination due to disability on December 31, 2015, calculated
as follows: 60% of his monthly earnings (i.e., pre-tax base salary and annual bonus), up to $10,000, and a
supplemental monthly payment of up to $10,000. Monthly benefits would be payable until the earlier of (1)
the date he ceases to be totally disabled or (2) his 65th birthday.
(8) This amount represents the value of health coverage pursuant to COBRA for a period of one year after
termination on terms and conditions comparable to those most recently provided to Mr. Shay as of
December 31, 2015 pursuant to his employment agreement.
(9) This amount represents the value of health coverage pursuant to COBRA for a period of 24 months after
termination on terms and conditions comparable to those most recently provided to Mr. Shay as of
December 31, 2015 pursuant to his employment agreement.
(10) This amount represents the maximum amount payable by the company for outplacement services in the
event of termination by the company without cause or termination by the NEO for good reason.
63
Proxy Statement
Byung K. Yi
Assuming the following events occurred on December 31, 2015, Dr. Yi’s payments and benefits would have
an estimated value of:
Long-Term
Compensation
Awards
($)
Value of
Other RSUs
Subject to
Acceleration
($)
Deferred
Compensation
($)(7)
Severance
($)
Disability . . . . . . . . . . . .
Retirement
. . . . . . . . . . .
Death . . . . . . . . . . . . . . .
Without Cause . . . . . . . .
Voluntary Resignation
—
—
—
525,000(1)
236,951(3)
—
236,951(3)
236,951(3)
86,951(5)
—
86,951(5)
86,951(5)
for Good Reason . . . .
525,000(1)
—
—
Change in Control
(Termination by Us
Without Cause or by
Dr. Yi for Good
Reason, within 1
year) . . . . . . . . . . . . . .
Change in Control
(Without
Termination) . . . . . . . .
1,120,000(2) 1,054,327(4)
150,715(6)
—
—
—
—
—
—
—
—
—
—
Payments
under
Executive
Life
Insurance
Program
($)(8)
—
—
300,000
—
Payments
under
Long-Term
Disability
Program
($)(9)
Welfare
Benefits
($)
Out-
placement
Services
($)(12)
10,000
—
—
—
—
—
—
—
—
—
12,232(10) 10,000
—
—
12,232(10) 10,000
—
—
—
—
24,463(11) 10,000
—
—
(1) This amount represents severance equal to one and a half times Dr. Yi’s base salary of $350,000, which he
is entitled to receive once his Separation Agreement becomes effective and is payable in equal installments
over a period of 12 months after the date of his termination.
(2) This amount represents severance equal to two times the sum of Dr. Yi’s base salary of $350,000 and target
2015 STIP payout of $210,000. He is entitled to this amount at the date of his termination if his termination
(by us without cause or by him for good reason) occurred within one year following a change in control, in a
lump sum after his Separation Agreement becomes effective.
(3) This amount represents the value, at December 31, 2015, of Dr. Yi’s time-based RSUs granted under the
2014-2016 and 2015-2017 cycles that would vest upon termination due to disability, death or termination by
the company without cause. Pursuant to the terms of the awards, Dr. Yi would forfeit eligibility to receive
any payout of performance-based RSUs under the 2014-2016 and 2015-2017 cycles since a termination on
December 31, 2015 would be prior to the second anniversary of the grant date for such awards. Because Dr.
Yi joined the company in 2014, he was not eligible to participate in the 2013-2015 cycle. For time-based
RSU awards, the amounts were prorated based on the portion of the vesting period that would have
transpired prior to cessation of employment. All RSU amounts include accrued dividend equivalents, which
are paid out in the form of additional shares of common stock at the time, and only to the extent, that the
awards vest. The value shown is comprised of: (a) $203,869, representing the value of 4,157 time-based
RSUs granted under the 2014-2016 cycle (plus cash in lieu of a fractional share); and (b) $33,082,
representing the value of 674 time-based RSUs granted under the 2015-2017 cycle (plus cash in lieu of a
fractional share). In addition, in the event of a termination by the company without cause, this amount also
includes the value of Dr. Yi’s options granted under the 2015-2017 cycle that would vest. Dr. Yi did not
receive any option awards pursuant to the 2013-2015 or 2014-2016 cycles. Pursuant to the terms of the
2015-2017 cycle award, such options would vest on a pro rata basis, resulting in the accelerated vesting
2,176 options, with a value of $0. The value of accelerated options is the aggregate spread between the
closing stock price on December 31, 2015 of $49.04 and the exercise price of the options, if less than
$49.04. The stock options granted for the 2015-2017 cycle were underwater at December 31, 2015.
(4) This amount represents the value, at December 31, 2015, of Dr. Yi’s time-based and performance-based
RSUs granted under the 2014-2016 and 2015-2017 cycles and options granted under the 2015-2017 cycle
Proxy Statement
64
that would vest upon termination (by us without cause or by him for good reason) within one year following
a change in control. All performance-based RSU awards would be paid out at target. All RSU amounts
include accrued dividend equivalents, which are paid out in the form of additional shares of common stock
at the time, and only to the extent, that the awards vest. The value shown is comprised of: (a) $345,690,
representing the value of 7,049 time-based RSUs granted under the 2014-2016 cycle (plus cash in lieu of a
fractional share); (b) $321,576, representing the value of 6,557 performance-based RSUs granted under the
2014-2016 cycle (plus cash in lieu of a fractional share); (c) $129,020, representing the value of 2,630 time-
based RSUs granted under the 2015-2017 cycle (plus cash in lieu of a fractional share); (d) $258,041
representing the value of 5,261 performance-based RSUs granted under the 2015-2017 cycle (plus cash in
lieu of a fractional share) and (e) $0 representing the value of 8,483 options granted under the 2015-2017
cycle. The value of accelerated options is the aggregate spread between the closing stock price of $49.04 on
December 31, 2015 and the exercise price of the options, if less than $49.04. The stock options granted for
the 2015-2017 cycle were underwater at December 31, 2015.
(5) This amount represents the value upon termination due to disability, death or termination by the company
without cause, at December 31, 2015, of 1,773 time-based RSUs (plus cash in lieu of a fractional share)
from the pro rata vesting of a discretionary new hire RSU grant.
(6) This amount represents the value, at December 31, 2015, of an unvested discretionary new hire grant of
3,073 time-based RSUs (plus cash in lieu of a fractional share) that would vest in full upon termination (by
us without cause or by Dr. Yi for good reason) within one year following a change in control.
(7) As of December 31, 2015, Dr. Yi had not made any contributions pursuant to the deferred compensation
plan.
(8) This amount represents the payment prescribed under our basic term life insurance program, calculated as
follows: 1.5 times base salary, up to a maximum of $300,000.
(9) This amount represents the actuarial present value of the monthly benefit that would become payable to
Dr. Yi under our long-term disability plan in the event of his termination due to disability on December 31,
2015, calculated as follows: 66% of his monthly (pre-tax) base salary, up to $10,000.
(10) This amount represents the value of health coverage pursuant to COBRA for a period of one year after
termination on terms and conditions comparable to those most recently provided to Dr. Yi as of
December 31, 2015 pursuant to his employment agreement.
(11) This amount represents the value of health coverage pursuant to COBRA for a period of 24 months after
termination on terms and conditions comparable to those most recently provided to Dr. Yi as of
December 31, 2015 pursuant to his employment agreement.
(12) This amount represents the maximum amount payable by the company for outplacement services in the
event of termination by the company without cause or termination by the NEO for good reason.
65
Proxy Statement
EQUITY COMPENSATION PLAN INFORMATION
The following table summarizes the company’s equity compensation plan information relating to the
common stock authorized for issuance under the company’s equity compensation plans as of December 31, 2015:
(a)
Number of Securities to be
Issued Upon Exercise of
Outstanding Options,
Warrants and Rights(1)
(b)
Weighted-Average
Exercise Price of
Outstanding Options,
Warrants and Rights
(c)
Number of Securities
Remaining Available for
Future Issuance Under
Equity Compensation Plans
(excluding securities
reflected in column (a))(2)
1,902,692
$31.16
1,403,022
—
1,902,692
$ —
$31.16
—
1,403,022
Plan Category
Equity compensation plans
approved by InterDigital
shareholders . . . . . . . . . . . . . .
Equity compensation plans not
approved by InterDigital
shareholders(3)
. . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . .
(1) Column (a) includes 589,113 shares of common stock underlying outstanding time-based RSU awards and
891,141 shares of common stock underlying outstanding performance-based RSU awards, assuming a
maximum payout of 200% of the target number of performance-based awards after the end of the applicable
performance period, in each case including dividend equivalents credited. Because there is no exercise price
associated with RSUs, these stock awards are not included in the weighted-average exercise price
calculation presented in column (b). Dividend equivalents are paid in shares of common stock at the time,
and only to the extent, that the related RSU awards vest.
(2) On June 4, 2009, the company’s shareholders adopted and approved our 2009 Stock Incentive Plan (the
“2009 Plan”), which provides for grants of stock options, stock appreciation rights, restricted stock, RSUs
and incentive bonuses, and on June 12, 2014, the company’s shareholders re-approved the material terms of
the 2009 Plan. Amounts reported relate to the 2009 Plan.
(3) The company does not have any awards outstanding or shares remaining available for grant under equity
compensation plans not approved by its shareholders.
Proxy Statement
66
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
How many shares of the company’s common stock do the directors, director nominees, executive officers and
certain significant shareholders own?
The following table sets forth information regarding the beneficial ownership of the 34,663,945 shares of
our common stock outstanding as of March 31, 2016, except as otherwise indicated below, by each person who is
known to us, based upon filings with the SEC, to beneficially own more than 5% of our common stock, as well
as by each director, each director nominee, each NEO and all directors and executive officers as a group. Except
as otherwise indicated below and subject to the interests of spouses of the named beneficial owners, each named
beneficial owner has sole voting and sole investment power with respect to the stock listed. None of the shares
reported are currently pledged as security for any outstanding loan or indebtedness. If a shareholder holds options
or other securities that are exercisable or otherwise convertible into our common stock within 60 days of
March 31, 2016, pursuant to SEC rules, we treat the common stock underlying those securities as beneficially
owned by that shareholder, and as outstanding shares when we calculate that shareholder’s percentage ownership
of our common stock. However, pursuant to SEC rules, we do not consider that common stock to be outstanding
when we calculate the percentage ownership of any other shareholder.
Name
Directors and Director Nominees:
Jeffrey K. Belk . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
S. Douglas Hutcheson . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
John A. Kritzmacher . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
William J. Merritt(1)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Kai O. Öistämö . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Jean F. Rankin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Robert S. Roath(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Philip P. Trahanas . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Named Executive Officers:
Richard J. Brezski(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Scott A. McQuilkin(4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
James J. Nolan(5) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Lawrence F. Shay(6)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Byung K. Yi(7) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
All directors and executive officers as a group (14 persons)(8) . . . . . . . . . . . . . .
Greater Than 5% Shareholders:
BlackRock, Inc.(9) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
55 East 52nd Street
New York, New York 10055
Common Stock
Shares
Percent
of Class
15,216
4,147
6,893
169,772
5,247
14,317
18,246
—
38,793
77,826
63,923
72,377
5,319
512,625
*
*
*
*
*
*
*
—
*
*
*
*
*
1.5%
3,137,093
8.9%
The Vanguard Group(10) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2,512,776
7.1%
100 Vanguard Boulevard
Malvern, Pennsylvania 19355
*
Represents less than 1% of our outstanding common stock.
(1)
Includes 55,287 shares of common stock that Mr. Merritt has the right to acquire through the exercise of
stock options within 60 days of March 31, 2016 and 3,476 whole shares of common stock beneficially
owned by Mr. Merritt through participation in the 401(k) Plan.
(2)
Includes 13,214 shares of common stock that have vested but have been deferred by Mr. Roath.
67
Proxy Statement
(3)
(4)
(5)
(6)
(7)
(8)
Includes 22,118 shares of common stock that Mr. Brezski has the right to acquire through the exercise of
stock options within 60 days of March 31, 2016 and 1,904 whole shares of common stock beneficially
owned by Mr. Brezski through participation in the 401(k) Plan.
Includes 32,123 shares of common stock that Mr. McQuilkin has the right to acquire through the exercise of
stock options within 60 days of March 31, 2016 and 1,446 whole shares of common stock beneficially
owned by Mr. McQuilkin through participation in the 401(k) Plan.
Includes 21,482 shares of common stock that Mr. Nolan has the right to acquire through the exercise of
stock options within 60 days of March 31, 2016 and 3,456 whole shares of common stock beneficially
owned by Mr. Nolan through participation in the 401(k) Plan.
Includes 35,804 shares of common stock that Mr. Shay has the right to acquire through the exercise of stock
options within 60 days of March 31, 2016 and 3,513 whole shares of common stock beneficially owned by
Mr. Shay through participation in the 401(k) Plan.
Includes 2,827 shares of common stock that Dr. Yi has the right to acquire through the exercise of stock
options within 60 days of March 31, 2016 and 1,543 shares of common stock issuable to Dr. Yi upon the
settlement of an RSU award that is scheduled to vest within 60 days of March 31, 2016.
Includes: 182,490 shares of common stock that all directors and executive officers as a group have the right
to acquire through the exercise of stock options within 60 days of March 31, 2016; 1,543 shares of common
stock issuable to all directors and executive officers as a group upon settlement of RSU awards that are
scheduled to vest within 60 days of March 31, 2016; 13,214 shares of common stock that have vested but
have been deferred by all directors and executive officers as a group; and 13,795 whole shares of common
stock beneficially owned by all directors and executive officers as a group through participation in the
401(k) Plan.
(9) As of December 31, 2015, based on information contained in the Schedule 13G/A filed on February 10,
2016 by BlackRock, Inc. With respect to the shares beneficially owned, BlackRock, Inc. reported that it has
sole voting power with respect to 3,055,301 shares and sole dispositive power with respect to 3,137,093
shares.
(10) As of December 31, 2015, based on information contained in the Schedule 13G/A filed on February 10,
2016 by The Vanguard Group. With respect to the shares beneficially owned, the Vanguard Group reported
that it has sole voting power with respect to 75,556 shares, shared voting power with respect to 2,100 shares,
sole dispositive power with respect to 2,437,320 shares and shared dispositive power with respect to 75,456
shares.
Proxy Statement
68
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The company has a written statement of policy with respect to related person transactions that is
administered by the Audit Committee. Under the policy, a “Related Person Transaction” means any transaction,
arrangement or relationship (or any series of similar transactions, arrangements or relationships) between the
company (including any of its subsidiaries) and a related person, in which the related person had, has or will have
a direct or indirect interest. A “Related Person” includes any of our executive officers, directors or director
nominees, any shareholder owning in excess of 5% of our common stock, any immediate family member of any
of the foregoing persons, and any firm, corporation or other entity in which any of the foregoing persons is
employed as an executive officer or is a partner or principal or in a similar position or in which such person has a
5% or greater beneficial ownership interest. Related Person Transactions do not include certain transactions
involving only director or executive officer compensation, transactions where the Related Person receives
proportional benefits as a shareholder along with all other shareholders, transactions involving competitive bids
or transactions involving certain bank-related services.
Pursuant to the policy, a Related Person Transaction may be consummated or may continue only if:
• The Audit Committee approves or ratifies the transaction in accordance with the terms of the policy; or
• The chair of the Audit Committee, pursuant to authority delegated to the chair by the Audit Committee,
pre-approves or ratifies the transaction and the amount involved in the transaction is less than
$100,000, provided that, for the Related Person Transaction to continue, it must be approved by the
Audit Committee at its next regularly scheduled meeting.
It is the company’s policy to enter into or ratify Related Person Transactions only when the Audit
Committee determines that the Related Person Transaction in question is in, or is not inconsistent with, the best
interests of the company, including but not limited to situations where the company may obtain products or
services of a nature, quantity or quality, or on other terms, that are not readily available from alternative sources
or where the company provides products or services to Related Persons on an arm’s length basis on terms
comparable to those provided to unrelated third parties or on terms comparable to those provided to employees
generally.
In determining whether to approve or ratify a Related Person Transaction, the committee takes into account,
among other factors it deems appropriate, whether the Related Person Transaction is on terms no less favorable
than terms generally available to an unaffiliated third party under the same or similar circumstances and the
extent of the Related Person’s interest in the transaction.
69
Proxy Statement
OTHER MATTERS
Section 16(a) Beneficial Ownership Reporting Compliance
During 2015, did all directors and officers timely file all reports required by Section 16(a)?
Based upon a review of filings with the SEC furnished to us and written representations that no other reports
were required, we believe that during and with respect to 2015 all of our directors and officers timely filed all
reports required by Section 16(a) of the Exchange Act.
Shareholder Proposals
How may shareholders make proposals or director nominations for the 2017 annual meeting?
Shareholders interested in submitting a proposal for inclusion in our proxy statement for the 2017 annual
meeting may do so by submitting the proposal in writing to our Secretary at InterDigital, Inc., 200 Bellevue
Parkway, Suite 300, Wilmington, DE 19809-3727. To be eligible for inclusion in our proxy statement for the
2017 annual meeting, shareholder proposals must be received no later than December 26, 2016, and they must
comply with all applicable SEC requirements. The submission of a shareholder proposal does not guarantee that
it will be included in our proxy statement.
Our bylaws also establish an advance notice procedure with regard to nominations of persons for election to
the Board and shareholder proposals that are not submitted for inclusion in the proxy statement but that a
shareholder instead wishes to present directly at an annual meeting. Shareholder proposals and nominations may
not be brought before the 2017 annual meeting unless, among other things, the shareholder’s submission contains
certain information concerning the proposal or the nominee, as the case may be, and other information specified
in our bylaws, and we receive the shareholder’s submission no earlier than March 10, 2017, and no later than
April 9, 2017. However, if the date of our 2017 annual meeting is more than 30 days before or more than 60 days
after the anniversary of our 2016 annual meeting, the submission and the required information must be received
by us no earlier than the 90th day prior to the 2017 annual meeting and no later than the later of the 60th day
prior to the annual meeting or the 15th day following the day on which we first publicly announce the date of the
2017 annual meeting. Proposals or nominations that do not comply with the advance notice requirements in our
bylaws will not be entertained at the 2017 annual meeting. A copy of the bylaws may be obtained on our website
at http://ir.interdigital.com under the heading “Corporate Governance – CG Documents,” or by writing to our
Secretary at InterDigital, Inc., 200 Bellevue Parkway, Suite 300, Wilmington, DE 19809-3727.
Proxy Solicitation Costs and Potential Savings
Who pays for the proxy solicitation costs?
We will bear the entire cost of proxy solicitation, including preparation, assembly, printing and mailing of
the Notice, this proxy statement, the proxy card and any additional materials furnished to shareholders. Copies of
proxy solicitation materials will be furnished to brokerage houses, fiduciaries and custodians holding shares in
their names that are beneficially owned by others to forward to such beneficial owners. In addition, we may
reimburse such persons for their cost of forwarding the solicitation materials to such beneficial owners. Our
directors, officers or regular employees may supplement solicitation of proxies by mail through the use of one or
more of the following methods: telephone, email, telegram, facsimile or personal solicitation. No additional
compensation will be paid for such services. For 2016, we have also engaged Alliance Advisors, LLC, a
professional proxy solicitation firm, to aid in the solicitation of proxies from certain brokers, bank nominees and
other institutional owners for an anticipated fee of not more than $10,000.
Proxy Statement
70
What is “householding” of proxy materials, and can it save the company money?
The SEC has adopted rules that permit companies and intermediaries such as brokers to satisfy delivery
requirements for proxy materials with respect to two or more shareholders sharing the same address by delivering
a single annual report and proxy statement to those shareholders. This process, which is commonly referred to as
“householding,” potentially provides extra convenience for shareholders and cost savings for companies.
Although we do not household for registered shareholders, a number of brokerage firms have instituted
householding for shares held in street name, delivering a single set of proxy materials to multiple shareholders
sharing an address unless contrary instructions have been received from the affected shareholders. Once you have
received notice from your broker that they will be householding materials to your address, householding will
continue until you are notified otherwise or until you revoke your consent. If, now or in the future, you no longer
wish to participate in householding and would prefer to receive a separate Notice or annual report and proxy
statement, please notify us by calling (302) 281-3600 or by sending a written request to our Secretary at
InterDigital, Inc., 200 Bellevue Parkway, Suite 300, Wilmington, DE 19809-3727, and we will promptly deliver
a separate copy of our Notice or annual report and proxy statement, as applicable. If you hold your shares in
street name and are receiving multiple copies of the Notice or annual report and proxy statement and wish to
receive only one, please notify your broker.
Annual Report on Form 10-K
How can I receive the annual report?
We will provide to any shareholder without charge a copy of our 2015 annual report on Form 10-K
upon written request to our Secretary at InterDigital, Inc., 200 Bellevue Parkway, Suite 300, Wilmington,
DE 19809-3727. Our annual report booklet and this proxy statement are also available online at
http://ir.interdigital.com/annuals-proxies.cfm.
Other Business
Will there be any other business conducted at the annual meeting?
As of the date of this proxy statement, we know of no business that will be presented for consideration at the
annual meeting other than the items referred to in this proxy statement. If any other matter is properly brought
before the annual meeting for action by shareholders, proxies will be voted in accordance with the
recommendation of the Board or, in the absence of such a recommendation, in accordance with the judgment of
the proxy holder.
71
Proxy Statement
Calculation of Normalized Cash Flow for 2015 STIP Goal
APPENDIX A
For the Year Ended
12/31/15
($, in thousands)
GOAL—Normalized Cash Flow
Total cash receipts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Adjustment to normalize cash inflow (1) . . . . . . . . . . . . . . . . . .
Normalized Cash Receipts
Total Operating Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$408,025
57,475
232,886
Less Defined Non-Cash Expenses (2)
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . .
Other share-based compensation . . . . . . . . . . . . . . . . . . .
(47,793)
(2,090)
Add Capital Expenditures
Purchases of property and equipment . . . . . . . . . . . . . . . .
Capitalized patent costs . . . . . . . . . . . . . . . . . . . . . . . . . .
3,700
29,766
Less Additional Items (3)
Performance-based compensation . . . . . . . . . . . . . . . . . .
Intellectual property enforcement and non-patent
litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Repositioning . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net loss attributable to noncontrolling interest
. . . . . . . .
(32,312)
(32,700)
—
(2,831)
Normalized Expenses
Normalized Cash Flow—Actual
Normalized Cash Flow—Goal
Total Achievement STIP Goal (4)
465,500
148,626
$316,874
$260,000
163%
(1) As discussed in “Compensation Discussion and Analysis,” we normalize the cash inflow under our license
agreements to treat all licensing revenue as if it were negotiated as royalty bearing over the life of the
agreement.
(2) Defined non-cash expenses include depreciation, patent amortization, and other share-based compensation
(i.e. share- based awards other than those granted to employees under the LTCP).
(3) As discussed in “Compensation Discussion and Analysis,” we also exclude certain items that (a) make the
calculation iterative (e.g., performance-based compensation) or (b) are non-operational (e.g., intellectual
property enforcement costs) or non-recurring (e.g., repositioning costs) in nature.
(4) As discussed in “Compensation Discussion and Analysis,” goal achievement is calculated using straight-
line interpolation between the target achievement level (which was between $235 million and $260 million
of normalized cash flow) and the superior achievement level ($350 million of normalized cash flow), with a
maximum potential goal achievement of 200%.
A-1
Proxy Statement
Calculation of Normalized Cash Flow for 2013-2015 LTCP Goals
For the Three Years Ended
12/31/15
($, in thousands)
GOAL 1—Normalized Cash Flow not Including Patent Sales
Total Cash Receipts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less cash receipts from patent sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Adjustment to normalize cash inflow (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$1,409,556
(5,999)
(168,557)
Normalized Cash Receipts not Including Patent Sales
Total Operating Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
720,352
1,235,000
Less Defined Non-Cash Expenses (2)
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other share-based compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(123,424)
(8,943)
Add Capital Expenditures
Purchases of property and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Capitalized patent costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
15,386
95,755
Less Additional Items (3)
Performance-based compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Intellectual property enforcement and non-patent litigation . . . . . . . . . . . . .
Repositioning . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net loss attributable to noncontrolling interest
. . . . . . . . . . . . . . . . . . . . . . .
(90,848)
(160,600)
(1,544)
(8,235)
Normalized Expenses
Normalized Cash Flow not including Patent Sales—Actual
Normalized Cash Flow not including Patent Sales—Goal
Achievement—Goal 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Weighting—Goal 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Weighted Contribution—Goal 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
GOAL 2—Normalized Cash Flow from Patent Sales
Cash receipts from Patent Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash Flow from Patent Sales—Actual (4)
Cash Flow from Patent Sales—Goal
Achievement—Goal 2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Weighting—Goal 2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Weighted Contribution—Goal 2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total Achievement 2013-2015 LTCP Goals
437,899
$ 797,101
$1,054,000
76%
80%
61%
5,999
$
5,999
$ 100,000
6%
20%
1%
62%
(1) As discussed in “Compensation Discussion and Analysis,” we normalize the cash inflow under our license
agreements to treat all licensing revenue as if it were negotiated as royalty bearing over the life of the
agreement.
(2) Defined non-cash expenses include depreciation, patent amortization, and other share-based compensation
(i.e. share- based awards other than those granted to employees under the LTCP).
(3) As discussed in “Compensation Discussion and Analysis,” we also exclude certain items that (a) make the
calculation iterative (e.g., performance-based compensation) or (b) are non-operational (e.g., intellectual
property enforcement costs) or non-recurring (e.g., repositioning costs) in nature.
(4) No normalization of the cash receipts from patent sales was required. Normalization of expenses was
captured in Goal 1 calculation.
Proxy Statement
A-2
ANNUAL REPORT 2015
BOARD OF DIRECTORS
S. DOUGLAS HUTCHESON
Chairman of the Board, InterDigital, Inc.
Chief Executive Officer, Laser, Inc.
WILLIAM J. MERRITT
President and Chief Executive Officer,
InterDigital, Inc.
ROBERT S. ROATH
Retired Chief Financial Officer, RJR
Nabisco, Inc.
JEFFREY K. BELK
Managing Director, ICT168 Capital, LLC
JOHN A. KRITZMACHER
Executive Vice President and Chief
Financial Officer, John Wiley & Sons, Inc.
EXECUTIVE OFFICERS
WILLIAM J. MERRITT
President and Chief Executive Officer
RICHARD J. BREZSKI
Chief Financial Officer and Treasurer
SHAREHOLDER INFORMATION
ANNUAL MEETING OF SHAREHOLDERS
Wednesday, June 8, 2016
11:00 a.m. Eastern Time
IDCC.onlineshareholdermeeting.com
COMMON STOCK INFORMATION
The primary market for InterDigital’s
common stock is the NASDAQ Global
Select Market®. InterDigital trades under
the ticker symbol “IDCC”.
LOCATIONS
CORPORATE HEADQUARTERS
200 Bellevue Parkway, Suite 300
Wilmington, Delaware 19809
+1 302 281 3600
KAI O. ÖISTÄMÖ
Former Executive Vice President, Chief
Development Officer, Nokia Corporation
PHILIP P. TRAHANAS
Former Managing Director, General Atlantic
LLC
JEAN F. RANKIN
Former Executive Vice President, General
Counsel and Secretary, LSI Corporation
JANNIE K. LAU
Executive Vice President, General Counsel
and Secretary
SCOTT A. MCQUILKIN
Senior Executive Vice President, Innovation
JAMES J. NOLAN
Executive Vice President, IoT Solutions
LAWRENCE F. SHAY
Senior Executive Vice President, Future
Wireless, and Chief Intellectual Property
Counsel
REGISTRAR AND TRANSFER AGENT
Shareholders with questions concerning
stock certificates, shareholder records,
account information, dividends, or stock
transfers should contact InterDigital’s
transfer agent:
American Stock Transfer &
Trust Company, LLC
Operations Center
6201 15th Avenue
Brooklyn, New York 11219
+1 800 937 5449
http://www.amstock.com
INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM
PricewaterhouseCoopers LLP
Philadelphia, Pennsylvania
INVESTOR RELATIONS
Patrick Van de Wille
Chief Communications Officer
+1 858 210 4814
e-mail: patrick.vandewille@InterDigital.com
DEVELOPMENT FACILITIES:
1001 E. Hector Street, Suite 300
Conshohocken, Pennsylvania 19428
Two Huntington Quadrangle, 4th Floor
Melville, New York 11747
1000 Sherbrooke Street West, 10th Floor
Montreal, Quebec, Canada
H3A 3G4
9710 Scranton Road, Suite #250
San Diego, California 92121
64 Great Easter Street, 2nd Floor
London, England
EC2A 3QR
(Yeoksam-dong) 21-6
Teheran-ro 34-gil
Gangnam-gu, Seoul
South Korea
Corporate Information is as of April 14th, 2016.
InterDigital is a registered trademark of InterDigital, Inc. oneMPOWER, EdgeHaul, wot.io and Creating
the Living Network are trademarks of InterDigital, Inc. All other trademarks, service marks, and/or trade
names appearing in this Annual Report are the property of their respective holders.
www.interdigital.com
InterDigital, Inc.
200 Bellevue Parkway, Suite 300
Wilmington, Delaware 19809
+1 302 281 3600
www.interdigital.com
CREATINGTHE LIVINGNETWORK