InterDigital

Annual Report 2019

Notice of 2020
Annual Meeting & Proxy Statement
InterDigital, Inc.

2

REBORNINTERDIGITAL,INC.TO OUR 
SHAREHOLDERS

A MESSAGE FROM OUR CHAIRMAN OF THE BOARD 
AND CHIEF EXECUTIVE OFFICER

Almost 30 years ago, International 
Mobile Machines acquired SCS 
Mobilecom, bringing together 
companies that each had a foot-
hold in one of the major digital mo-
bile technologies of the time, and 
InterDigital was born. The name 
reflected the bringing together of 
those two technologies.

This year, InterDigital took another 
major step, again via a strategic 
transaction. Through the acquisi-
tion of Technicolor’s patent licens-
ing business in 2018, and then 
through the subsequent acquisition 
of their world-class research and 
development unit, we’ve laid the 
basis for an entirely new compa-
ny, one that continues to reap the 
value of its existing market and that 
is poised to reap the value from 
the growth markets of the future. 
InterDigital is reborn.

What triggered the move? Equal 
parts strategy and opportunity. The 
opportunity was significant: the 
licensing business we acquired, 
and the research that drove it, was 
at one time a business worth hun-
dreds of millions of dollars yearly. 
Circumstances gave us the oppor-
tunity to acquire it for a fraction of 
what we saw as its value. 

But let’s talk about the strategy. 
Portuguese explorer Ferdinand 
Magellan was driven to circum-
navigate the world at a time when 
many thought the Earth was flat, 
because he had “seen Earth’s 
shadow on the moon” and knew it 
was round. We had a similar expe-

rience: we would see the shadow 
of visual technologies, of future 
content capabilities, everywhere 
we looked. Even as far back as our 
first mobile broadband demonstra-
tions, video was the use case for 
the wireless technology. In recent 
years, almost all of our most cut-
ting-edge technology demonstra-
tions have had to do with network 
and device capabilities around 
future visual technologies – video 
streaming, 360-degree video, net-
work architecture for video, and 
AR/VR, among others. Branching 
into those technologies – some-
thing we began exploring as early 
as a decade ago and were pursu-
ing more seriously with a small but 
highly-skilled team at the time of 
the acquisition – was a natural fit. 

Beyond the technology fit, 
there’s also an immediate and 
longer-term business rationale. 
Immediately, the reborn InterDigital 
now has multiple markets it can 
address in a meaningful way. Prior 
to the acquisitions, our position 
in mobile standards had given us 
a directly applicable market in 
mobile devices and infrastructure, 
and because wireless technology 
is so pervasive today that same 
technology gave us a toe-hold in 
a broader range of technologies. 
That toe-hold is now a stairway. 
The value we bring to consumer 
devices with display technology 
and the services that are delivered 
to them, the added value we 
bring to smartphones, and the role 
we play in defining future areas 
of horizontal adoption and high 

value in areas like gaming, VR/AR, 
immersive video and other areas is 
clear.

In an industry that has always 
been characterized by giants, 
InterDigital has been able to thrive 
through independent thinking and 
tremendous foresight. While mo-
bile handset licensing remains an 
attractive market with potential for 
tremendous growth, we can see 
that value is transitioning towards 
the capabilities and services that 
leverage that web of connectivity. 
The reborn InterDigital is ideally po-
sitioned to help define, and draw 
value from, that new paradigm.

S. Doug Hutcheson, Chairman of the Board

William J. Merritt, President & Chief Executive Officer

3

ANNUAL REPORT 2019CONTINUED ADVANCEMENT IN WIRELESS...
AND INSTANTANEOUS 
LEADERSHIP IN VISUAL 
TECHNOLOGIES

Any connection has two 
components: a means of 
connecting, and a reason to 
connect. To date, wireless has 
been marked by relentless 
advances in the means of 
connecting, which has opened 
the door to new personal, business 
and social possibilities. But while 
connectivity capabilities continue 
to advance, more and more 
attention – and value – has shifted 
to the reason for connecting. 
Unleashed by wireless, we’re 
seeing not just new ways of 
delivering and accessing content, 
but new content types, new 
identities, new entertainment and 
business paradigms. The first few 
decades of wireless – indeed, of 
technology writ large – was about 
finding a way to connect. The next 
few will be about new reasons to. 

In 2019, InterDigital – launched 
forward through the acquisition 
of Technicolor’s world-leading 
Research & Innovation unit 
– expanded our research 
dramatically beyond wireless 
connectivity and into the full range 
of visual technologies that will 
define that future, re-architecting 
our research to explore and 
define the intersection between 
content and capabilities and the 
connectivity that brings them, and 
people, together. In 2018, we were 
a leader in 5G research, network 
virtualization and new network 
architectures, edge computing, 

4

and other areas of wireless. Today, 
our research team – rebranded 
InterDigital R&I – remains at the 
forefront of those technologies, 
but is also defining a future of 
immersive content, of digital 
doubles, of synthetic realities, and 
of the artificial intelligence that will 
underpin it.

At Mobile World Congress 2019, 
while we worked to close the 
R&I acquisition, we were able 
to see for the first time the two 
capabilities alongside each other. 
While our wireless research team 

That was just a preview of what the 
year would hold for our research. 
On the connectivity side, 2019 
was marked by successful 5G 
trials with the Horizon 2020 Flame 
project in Bristol, UK, our rollout of 
a 5G experimentation platform 
at the Brooklyn 5G Summit and 
delivery of an edge solution to the 
COSMOS Wireless PAWR testbed in 
New York City, and our leadership 
of the EMPOWER project that’s 
defining a joint EU-US 5G roadmap. 
Our work was recognized when 
our contribution to the 5G-CORAL 
project, was shortlisted for both a 

The first few decades of wireless – indeed, of 
technology writ large – was about finding a 
way to connect. The next few will be about 
new reasons to.

unveiled new edge connectivity 
capabilities that drove VR/AR, 
robotics and drones, among other 
technologies, visitors to our booth 
were shown the latest in 360° video 
streaming, with a novel technology 
that adapted the stream based 
on viewer position and orientation, 
optimizing bandwidth usage. 
Attendees could also visit our 
Volumetric Photobooth, where 
their faces were “scanned” using a 
16-camera array and a volumetric 
portrait produced in moments

CSI Award and the Global Telecom 
Award in the 5G innovation 
categories.

We also began to define a world 
beyond 5G. Working with the EPIC 
consortium – which includes Dr. 
Erdal Arikan of Bilkent University, 
who pioneered Polar Coding 
– InterDigital helped pioneer a 
platform that can offer terabit-
per-second data rates. We also 
announced, in September, 
our partnership with Finland’s 
6GFlagship project. A decade 

INTERDIGITAL,INC.ago, InterDigital was focusing 
research on 5G just as the world 
was beginning deployment of 4G 
solutions. Today, we’re again far 
ahead.

With the completion of the 
R&I acquisition in mid-2019, 
InterDigital’s expanded technology 
footprint made an immediate 
impact. In addition to a compelling 
set of technologies showcased at 
the industry’s important SIGGRAPH 
conference in Los Angeles, 
InterDigital R&I was able to use the 
IBC 2019 conference as a visual 
technology coming-out party.

And what a party it was! 
InterDigital’s new suite of visual 
technologies included some of the 
most cutting-edge technologies 
today. In terms of core research 
into video standards, InterDigital 

demonstrated the first MPEG 
codec for point-cloud compression 
(PCC), one of the most exciting 
and multi-purpose visual 
technologies being developed 
today, which drives data rates and 
file sizes that can be economically 
used through cloud-decoding of 
VR content. We also demonstrated 
the Versatile Video Coding 
(VVC) standard, which provides 
significant compression efficiency 
compared to the High Efficiency 
Video Coding (HEVC) standard 
that was published in 2013, on 
Standard Dynamic Range (SDR), 
High Dynamic Range (HDR) as well 
as immersive, 360-degree video 
content.

But the star of the show, literally, 
was InterDigital R&I’s Digital Double 
technology. With a pioneering 

dedicated facial animation control 
for expression transfer (FACET) 
tool, which streamlines 3D facial 
animation for VFX and animation 
artists, InterDigital’s technology 
can create a textured model of 
a digital face using a 14-camera 
capture rig within 25 minutes. 
Currently, these digital doubles 
can be used to create secondary 
characters in movie production. 
Soon, they could be used in 
gaming, retailing applications, 
or to create our presence in a 
fully immersive synthetic reality. 
The technology was voted 
“Best in Show” at IBC – a major 
achievement. 

5

ANNUAL REPORT 20196

INTERDIGITAL,INC.INTERDIGITAL has always been a leader in 
research for the wireless industry, pioneering 
many of today’s capabilities. With the addition 
of world-leading visual technology research 
through our R&I acquisition, InterDigital is more 
than transformed: our company is REBORN. 

7

ANNUAL REPORT 20198

INTERDIGITAL,INC.FINANCIAL HIGHLIGHTS

Total Revenue

Income from Operations

Net Income

Net Income Attributable to InterDigital, Inc.

Net Income Per Common Share – Diluted

Total Cash, Cash Equivalents, Restricted Cash 
& Short Term Investments

Total Assets

Total InterDigital, Inc. Shareholders’ Equity

Total Equity

*2018 and 2019 results reflect the implementation
 of ASC 606 accounting rules.

2017

$532.9

301.5

170.7

176.2

$4.93

1,158.0

1,854.4

863.8

873.1

2018

$307.4

62.6

59.5

65.0

$1.84

959.5

1,626.6

936.7

938.0

2019

$318.9

37.8

15.0

20.9

$0.66

936.3

1,612.1

761.6

786.3

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 belief that we are well-
positioned to maintain a strong 
presence in mobile handset 
licensing and derive value from 
consumer electronics, video and 
related emerging technologies, 
potential avenues for continued 
growth, the expected monetization 
and market adoption of our 
research and development efforts, 

our belief that we are ahead of our 
competitors in the development 
of certain mobile technologies, 
and our belief that adding other 
technologies to our offering 
can drive substantial value, 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 “Iterm 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. 

9

ANNUAL REPORT 2019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, 2019

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from

to

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)

82-4936666
(IRS Employer
Identification No.)

200 Bellevue Parkway, Suite 300, Wilmington, DE 19809-3727
(Address of Principal Executive Offices and Zip Code)
Registrant’s telephone number, including area code (302) 281-3600

Securities registered pursuant to Section 12(b) of the Act:

Title of each class
Common Stock (par value $0.01 per share)

Trading Symbol(s)
IDCC

Name of each exchange on which registered
NASDAQ Stock Market LLC

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 every Interactive Data File required to be
submitted 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 such files). Yes Í

No ‘

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a
smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated
filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer Í

Non-accelerated filer ‘

Accelerated filer ‘

Smaller reporting company ‘
Emerging growth company ‘

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition
period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the
Exchange Act. ‘

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ‘ No Í

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: $1,989,033,542 as of June 28, 2019.

The number of shares outstanding of the registrant’s common stock was 30,722,894 as of February 18, 2020.

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 2020 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

Page

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13
31
31
31
31

32
35

36
61
64

121
121
122

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123

AND RELATED STOCKHOLDER MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

123

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 . . . . . . . . . . . . . . . . . . . . . . . . . . .
ITEM 16. FORM 10-K SUMMARY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

123
123

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128

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.

2019 Annual Report

2

EXPLANATORY NOTE ABOUT INTERDIGITAL, INC.

On April 3, 2018, for the purpose of reorganizing its holding company structure, InterDigital, Inc., a
Pennsylvania corporation and then-existing NASDAQ-listed registrant (the “Predecessor Company”), executed
an Agreement and Plan of Merger (“Merger Agreement”) with InterDigital Parent, Inc., a Pennsylvania
corporation (the “Successor Company”) 100% owned by the Predecessor Company, and another newly formed
Pennsylvania corporation owned 100% by the Successor Company (“Merger Sub”). Pursuant to the Merger
Agreement, on April 3, 2018, Merger Sub merged (the “Merger” or “Reorganization”) with and into the
Predecessor Company, with the Predecessor Company surviving. As a result of the Merger, the Predecessor
Company is now a wholly owned subsidiary of the Successor Company. Neither the business conducted by the
Successor Company and the Predecessor Company in the aggregate, nor the consolidated assets and liabilities of
the Successor Company and the Predecessor Company in the aggregate, changed as a result of
the
Reorganization. By virtue of the Merger, each share of the Predecessor Company’s outstanding common stock
was converted, on a share-for-share basis, into a share of common stock of the Successor Company. As a result,
each shareholder of the Predecessor Company became the owner of an identical number of shares of common
stock of the Successor Company. Immediately following the Reorganization, the Successor Company was
renamed as “InterDigital, Inc.,” identical to the Predecessor Company’s name prior to the Merger. The Successor
Company’s common stock continues to be traded under the name “InterDigital, Inc.” and continues to be listed
on the NASDAQ Global Select Market under the ticker symbol “IDCC.” In addition, immediately following the
Merger the directors and executive officers of the Successor Company were the same individuals who were
directors and executive officers, respectively, of the Predecessor Company immediately prior to the Merger.

For the purpose of this Annual Report on Form 10-K, references to the Company, our Board of Directors or
any committee thereof, or our management, employees, business or financial results at or for any period prior to
the Merger refer to those of the Predecessor Company and thereafter to those of the Successor Company.

3

2019 Annual Report

Item 1.

BUSINESS.

Overview

PART I

InterDigital, Inc. (“InterDigital”) is a research and development company that licenses its innovations to the
global wireless and consumer electronics industries. We design and develop advanced technologies that enable
connected, immersive experiences in a broad range of communications and entertainment products and services.
Since our founding in 1972, our engineers have designed and developed a wide range of innovations that are used
in wireless products and networks, from the earliest digital cellular systems to 5G and, today, solutions that we
believe will shape the world beyond 5G. With the acquisition of the patent licensing business of visual
technology industry leader Technicolor SA (“Technicolor”) in 2018 (the “Technicolor Patent Acquisition”),
followed by the acquisition of their Research & Innovation unit in 2019 (the “R&I Acquisition” and, together
with the Technicolor Patent Acquisition,
the “Technicolor Acquisitions”), we are now a leader in video
processing, encoding/decoding, and display technology, with a significant Artificial Intelligence (“AI”) research
effort that intersects with both wireless and visual technologies.

InterDigital is one of the largest pure research & development and licensing companies in the world, with
one of the most significant patent portfolios in the technology industry. As of December 31, 2019, InterDigital’s
wholly owned subsidiaries held a portfolio of approximately 32,000 patents and patent applications related to
wireless communications, video coding, display technology, and other areas relevant to the wireless and
consumer electronics industries. Our portfolio includes numerous patents and patent applications that we believe
are or may be essential or may become essential to standards established by many Standards Development
Organizations (“SDOs”), including cellular and other wireless communications and video technology standards.
Those wireless standards include 3G, 4G and the IEEE 802 suite of standards, as well as patents and patent
applications that we believe are or may become essential to 5G standards that currently exist and as they continue
to develop. Our video technology portfolio includes patents and applications relating to standards established by
ISO/IEC Moving Picture Expert Group (MPEG), the ITU-T Video Coding Expert Group (VCEG), the Joint
Collaborative Team on Video Coding (JCT-VC) and the Joint Video Expert Team (JVET), among others.

Our wireless portfolio has largely been built

through internal development, supplemented by joint
development projects with other companies, as well as select acquisitions of patents and companies. Products
incorporating our patented inventions in wireless include: mobile devices, such as cellular phones, tablets,
notebook computers and wireless personal digital assistants; wireless infrastructure equipment, such as base
stations; components, dongles and modules for wireless devices; and Internet of Things (“IoT”) devices and
software platforms. Our video technology portfolio largely represents patents and applications that came to
InterDigital as a result of the Technicolor Patent Acquisition, supplemented by internal development. Our
patented inventions in video are incorporated in a range of products and services, including cellular phones,
notebook computers,
televisions, gaming consoles, set-top boxes, streaming devices and other consumer
electronics.

InterDigital derives revenues primarily from patent licensing, with contributions from patent sales, product
sales, technology solutions licensing and sales and engineering services. On January 1, 2018, we adopted the
requirements of new revenue accounting guidance, ASU No. 2014-09 “Revenue from Contracts with Customers
(Topic 606)” (“ASC 606”), using the modified retrospective method. Consistent with the modified retrospective
adoption method, our results of operations for periods prior to our adoption of ASC 606 remain unchanged and
are presented in accordance with ASC Topic 605, “Revenue Recognition” (“ASC 605”).

In 2019, our total revenues were $318.9 million, including recurring revenues of $298.2 million, which
consists of current patent royalties and current technology solutions revenue. In 2018, our total revenues were
$307.4 million, which consisted of recurring revenues of $280.3 million. 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.

2019 Annual Report

4

Our Strategy

Our objective is to continue to be a leading designer and developer of technology solutions and innovation
for the wireless and consumer electronics industries and to monetize those solutions and innovations primarily
through licensing, combined with patent sales and other revenue opportunities.

To execute our strategy, we intend to:

• Continue to invest in advanced research and development related to wireless, video, IoT and AI. We
intend to grow or maintain a leading position in advanced wireless technology, IoT, video coding, and
other related technology areas by leveraging our expertise to guide internal research and development
capabilities, direct our efforts in partnering with leading inventors and industry players to source new
technologies and pursue select acquisitions of technologies, businesses and/or companies.

• Grow our patent-based revenue. We intend to grow our licensing revenue base by adding licensees and
leveraging the size of the overall mobile technology market, expanding our licensing revenue in the
consumer electronics market, and expanding into adjacent and new technology areas that align with our
intellectual property position. These licensing efforts can be self-driven or executed in conjunction with
licensing partnerships, trusts and other efforts, and may involve the vigorous enforcement and defense of
our intellectual property through litigation and other means. We also believe that our ongoing research
efforts and associated patenting activities may enable us to sell patent assets that are not vital to our core
licensing programs and to execute patent swaps that can strengthen our overall portfolio.

• Maintain a collaborative relationship with key industry players and worldwide standards bodies. We
intend to continue contributing to the ongoing process of defining wireless, video and other 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 help guide technology
and intellectual property sourcing through partners and other external sources.

• Pursue commercial opportunities for our advanced platforms and solutions. As part of our ongoing
research and development efforts, InterDigital often builds out entire functioning platforms in various
technology areas. Moreover, we believe that our advanced capabilities in visual technologies will
continue to result in solutions that can be implemented in adjacent industries, such as content production,
gaming, and other 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.

Technology Research and Development

InterDigital R&I

InterDigital operates a diversified research and development operation, InterDigital Research & Innovation
(“InterDigital R&I”). InterDigital R&I was created through the combination of InterDigital’s research team with
Technicolor’s R&I team acquired in the R&I Acquisition.

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. That early involvement, and our
continued development of advanced digital wireless 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. With the completion of the Technicolor Acquisitions, InterDigital R&I is a leader in key video
technologies, including emerging technologies such as digital avatars, immersive video and AI. Our current
research efforts are focused on a variety of areas related to future technology and devices, including cellular
wireless technology, advanced video coding and transmission, and AI.

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Our capabilities in the development of advanced technologies are based on the efforts of a highly
specialized engineering team, leveraging leading-edge equipment and software platforms. As of December 31,
2019, InterDigital employed approximately 290 engineers, approximately 90% of whom hold advanced degrees
(including 107 doctorate degrees). Over the last three years, investment in development has ranged from
$69.7 million to $75.7 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.

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. Many of our inventions are being used in all 2G, 3G, 4G and
5G wireless networks and mobile terminal devices. We also continue to be engaged in development efforts to
build and enhance our 3GPP technology portfolio in areas including 5G NR, LTE-Advanced, and cellular IoT.
Further, we continue to develop additional technologies in response to existing or perceived challenges of
connected devices in the expanding terminal markets. These include technologies for automobiles, wearables,
smart homes, drones and other connected consumer electronic products. We are developing solutions that enable
connectivity in both licensed and unlicensed spectrum, and across a large range of frequencies up to the
millimeter wave bands.

Our wireless research and development activities focus on solutions that apply to 3GPP and other wireless
market segments. Segments outside of 3GPP primarily fall within the scope of the IEEE 802, IETF and ETSI
standards. We continue to grow a portfolio of technology related to Wi-Fi, Internet Standards, and Edge
Computing, that includes, for example, improvements to the IEEE 802.11 PHY and MAC to increase peak data
rates (802.11ax, 802.11ay), integrated access and backhaul, and terminal mobility for edge and fog computing
services.

Advanced Video Coding and Transmission Technology

An important and growing segment of wireless traffic is devoted to video streaming. InterDigital has been
active for a number of years in developing advanced technologies that address the challenges of video as it
relates to mobile, and we further enhanced our capabilities in this area with the completion of the R&I
Acquisition. Specifically, in the area of video research and standards, we have been actively engaged in video
standards development work in the ISO/IEC Moving Picture Expert Group (MPEG), the ITU-T Video Coding
Expert Group (VCEG), the Joint Collaborative Team on Video Coding (JCT-VC) and the Joint Video Expert
Team (JVET). Those efforts have focused on H.265/HEVC versions 1 to 4 and MPEG DASH, as well as
development of the FVC/H.266 and the MPEG Immersive (MPEG-I) standards suite for the future. Beyond
standards, InterDigital R&I is conducting research in groundbreaking areas such as digital doubles and digital
twins, immersive video, augmented and mixed reality, and other emerging technologies.

Artificial Intelligence

In addition to our historical work in major wireless standards that integrate some AI capabilities, the R&I
Acquisition brought an advanced AI lab to InterDigital that is researching a variety of aspects of AI that intersect
with video and wireless technology. Those areas of research include: energy-efficient deep learning, aimed at
reducing the energy-intensive rollout of AI into specific service areas; deep video and M2M compression,
seeking to design disruptive video codecs based on deep learning techniques; AI for dynamic wireless
environments, focused on learning and optimizing wireless systems, particularly when channel dynamics are
highly dynamic; and explainable or interpretable AI, addressing weaknesses in neural networks in providing
transparency and generating trust.

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Patent Portfolio; R&D Facilities

As of December 31, 2019, our patent portfolio consisted of approximately 32,000 patents and patent
applications worldwide. The patents and applications comprising our portfolio relate predominantly to cellular
wireless standards, including 3G, 4G and 5G technologies (sometimes referred to as “3GPP”), other wireless
standards, including 802.11 (Wi-Fi) technology, and a variety of video technologies and standards, such as
HEVC. Issued patents expire at differing times ranging from 2020 through 2038. We currently operate eight
research and development facilities in five countries: Berlin, Germany; Conshohocken, Pennsylvania, USA;
London, United Kingdom; Montreal, Canada; New York, New York, USA; Palo Alto, California, USA; Rennes,
France; and San Diego, California, USA.

Our Revenue Sources

Patent-Based Revenue

Overview of Patent Licenses

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 Apple Inc. (“Apple”), Google LLC (“Google”), LG Electronics,
Inc. (“LG”), Samsung Electronics Co., Ltd. (“Samsung”), Sony Corporation of America (“Sony”), and ZTE
Corporation (“ZTE”), among others.

We have striven to be recognized within the licensing industry for the transparency of our business, fairness
and flexibility of our approach, and our willingness to work with licensees. In furtherance of this objective, in
January 2020, we made publicly available our rates, portfolio data and licensing policies with regard to mobile
handsets, potentially setting a new industry standard for transparency in licensing.

Most of our patent license agreements are structured on a variable royalty basis, while others are structured
on a fixed-fee 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).

Some of our patent

licenses are fixed-fee agreements, 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 become paid-up based on the payment of fixed amounts or
after the payment of royalties for a term.

Some of our 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. Our license agreements typically contain provisions that give us the right to audit our

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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.

For a discussion of our revenue recognition policies with respect to patent license agreements, see “Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations—Overview—Critical
Accounting Policies and Estimates—Revenue Recognition—Patent License Agreements.”

Licensing Through Platforms

As part of the Technicolor Patent Acquisition, we assumed Technicolor’s rights and obligations under a
joint licensing program with Sony relating to digital televisions (“DTVs”) and standalone computer display
monitors (“CDMs”) (such program, the “Madison Arrangement”), including Technicolor’s role as sole licensing
agent. Under the Madison Arrangement, Technicolor and Sony combined portions of their respective DTV and
CDM patent portfolios and created a combined licensing opportunity to DTV and CDM manufacturers. As
licensing agent for the Madison Arrangement, we are responsible for making decisions regarding the prosecution
and maintenance of the combined patent portfolio and the licensing and enforcement of the combined patent
portfolio in the field of use of DTVs and CDMs. Refer to Note 5, “Business Combinations and Other
Transactions,” within the Notes to the Consolidated Financial Statements included in Part II, Item 8 of this Form
10-K for further information about the Madison Arrangement.

In third quarter 2016, InterDigital joined Avanci, the industry’s first marketplace for the licensing of cellular
standards-essential technology for the IoT. The licensing platform brings together some of InterDigital’s peers in
standards-essential technology leadership, and makes 2G, 3G, 4G and 5G standards-essential patents available to
IoT players in specific product segments with one flat-rate license. The Avanci licensing programs in specific
product segments for the IoT industry will provide access to the entire applicable standards-essential wireless
patent portfolios held by all of the platform participants, as well as any additions to their portfolios during the
term of the license. Since December 2017, Avanci has announced signed patent license agreements with BMW
Group, Audi and Porsche, the Volkswagen Group Companies and Volvo Cars.

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 are 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.

Patent Sales

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 Opportunities

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

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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 all of its technology areas, InterDigital works 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. Those commercial efforts sometimes include the
establishment of a separate commercial initiative focused on the specific opportunity. Although these initiatives
are in their early stages, they are potential revenue opportunities for the Company.

In 2012, we formed 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. This joint venture was renewed in
2015 with its focus expanded to include advanced research and development into 5G and future wireless
technologies, and further renewed in 2018.

Overview of Wireless Communications and Consumer Electronics Industries

The wireless communications industry continues to be significant worldwide, and the number of device
types entering the market is growing. For example, the introduction of 5G wireless networks is expected to drive
a significant upgrade cycle for mobile phones, and 5G technology is expected to be implemented in an expanding
range of products. In particular, IoT is an important new market that is expected to result in a significant increase
in the number of connected devices worldwide and unlock new business capabilities. IoT is still in its early
stages, and estimates vary broadly as far as how many connections it will yield, but by some estimates there
could be as many as 120 billion connected devices by 2030, a significant portion of which is expected to
comprise cellular IoT devices. According to data from IHS Markit, more than 2 billion devices in the video,
audio and IoT/other technology areas were shipped in 2019. Those devices include TV displays, computer
displays, set-top boxes, gaming consoles, wireless assistants and headphones, wearables, smart home devices,
and other types of consumer electronic devices that implement video or wireless technology, or a combination of
both. The consumer electronics industry is also experiencing significant change, as technology-enabled services
such as video streaming and 4K UHD video are being adopted globally.

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. Industry
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 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. The consumer electronics industry also implements many of the same
standards, including standards related to Wi-Fi and increasingly, cellular technologies, as well as a broad range
of video coding standards that are governed by regional and global SDOs.

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.

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2019 Annual Report

InterDigital often publicly characterizes aspects of

including license agreements and
development projects, as pertaining to mobile industry standards such as, for example, 3G, 4G, 5G, Wi-Fi and
HEVC. In doing this, we generally rely on the positions of the applicable SDOs in defining the relevant
standards. However, the definitions may evolve or change over time, including after we have characterized
certain transactions.

its business,

Business Activities

2019 Patent Licensing Activity

Direct Licenses

During fourth quarter 2019, we entered into a multi-year, worldwide, non-exclusive, royalty-bearing patent
license and settlement agreement with ZTE. The agreement covers the sale of ZTE’s 3G, 4G and 5G handset and
tablet products, as well as 802.11 and HEVC technologies incorporated into such products.

Also during fourth quarter 2019, we entered into a multi-year, worldwide, non-exclusive, royalty-bearing
patent license agreement with u-blox AG (“u-blox”). The agreement covers the sale of u-blox’s 3G and 4G
machine to machine modules and certain consumer modules.

During second quarter 2019, we entered into a multi-year, worldwide, non-exclusive, royalty-bearing patent
license agreement with Teltronic S.A.U. (“Teltronic”). The agreement covers the sale of Teltronic’s 4G terminal
units as well as 3G and 4G infrastructure equipment.

Also during second quarter 2019, we entered into a Settlement Agreement and First Amendment to the
Patent License Agreement with Asustek Computer Incorporated (“Asus”). The agreement provides for, among
other things, a multi-year amendment to our 2008 patent license agreement with Asus (the “2008 Asus PLA”)
that adds coverage for 4G technologies and amends certain other terms of the 2008 Asus PLA.

Licenses Through Platforms

During fourth quarter 2019, Google was granted a multi-year, worldwide, non-exclusive, royalty-bearing
patent license covering the sale of certain of its 3G and 4G mobile communication devices. We entered into this
agreement through a licensing platform.

Also during fourth quarter 2019, as part of the Madison Arrangement, we entered into a multi-year,
non-exclusive, royalty-bearing patent license agreement with Funai Electric Co., Ltd. (“Funai”). The agreement
covers the U.S. sales of Funai’s DTVs.

During 2019, Avanci announced that it entered into several patent license agreements with new licensees,

including Audi and Porsche, the Volkswagen Group Companies and Volvo Cars.

Customers Generating Revenues Exceeding 10% of Total 2019 Revenues

Apple, Samsung and LG Electronics comprised approximately 35%, 25% and 10% of our total 2019

revenues, respectively.

In 2016, we entered into a multi-year, royalty-bearing, worldwide and non-exclusive patent

license
agreement with Apple (the “Apple PLA”). The agreement sets forth terms covering the sale by Apple of its
products and services, including, but not limited to, its 3G, 4G and future generation cellular and wireless-
enabled products. The Apple PLA gives Apple the right to terminate certain rights and obligations under the
license for the period after September 30, 2021, but has the potential to provide a license to Apple for a total of
up to six years. During 2019, we recognized a total of $111.7 million of revenue associated with the Apple PLA
under ASC 606.

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10

In 2014, we entered into a patent license agreement with Samsung (the “Samsung PLA”). The royalty-
bearing license agreement sets forth terms covering the sale by Samsung of 3G, 4G and certain future generation
wireless products. The Samsung PLA provided Samsung the right to terminate certain rights and obligations
under the license for the period after 2017 but had the potential to provide a license to Samsung for a total of ten
years, including 2013. Samsung did not elect to terminate such rights and obligations, and the period for such
election has expired. Accordingly, the term of the Samsung PLA ends on December 31, 2022. During 2019, we
recognized a total of $78.3 million of revenue associated with the Samsung PLA under ASC 606.

In 2017, we entered into a multi-year, worldwide, non-exclusive patent license agreement with LG (the “LG
PLA”), a global leader and technology innovator in consumer electronics, mobile communications and home
appliances. The LG PLA covers the 3G, 4G and 5G terminal unit products of LG and its affiliates and sets forth a
royalty of cash payments to InterDigital as well as a process for the transfer of patents from LG to InterDigital.
The term of the LG PLA expires on December 31, 2020. During 2019, we recognized a total of $31.8 million of
revenue associated with the LG PLA under ASC 606.

Patent Infringement and Declaratory Judgment Proceedings

From time to time, if we believe a 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 (or be prepared to offer) a license to that party for patents that are or may
become standards-essential patents (“SEPs”) on fair, reasonable and non-discriminatory (“FRAND”) 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 SEPs. 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.

Contractual Arbitration Proceedings

We and our licensees, 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 patent license agreements typically provide for
audit rights as well as private confidential arbitration as the mechanism for resolving disputes, and we may
attempt to resolve such disputes in arbitration. In arbitration, licensees may seek to assert various claims,
defenses, or counterclaims, such as claims based on waiver, promissory estoppel, breach of contract, fraudulent
inducement to contract, antitrust, and unfair competition. 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

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arbitration award may seek to have that award confirmed as 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.

In addition, arbitration may be a particularly effective means for resolving disputes with prospective
licensees concerning the appropriate FRAND terms and conditions for license agreements that include SEPs,
particularly where negotiations have otherwise reached an impasse. Binding arbitration to resolve the terms and
conditions of a worldwide FRAND license to our relevant portfolio of SEPs is an efficient and cost-effective
mechanism, as it allows the parties to avoid piecemeal litigation in multiple jurisdictions and ensures that an
enforceable patent license agreement that is consistent with FRAND commitments will be in place at the end of
the arbitration process.

Competition

With respect to our technology development activities and resulting commercialization efforts, we face
competition from companies, including in-house development teams at other wireless and consumer electronics
device companies, semiconductor companies and wireless operators, developing other and similar technologies
that are competitive with our products and 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 patent 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, 5G and other wireless products, as well as other consumer electronics devices. However, numerous
companies also claim that they hold patents that are or may be essential or may become essential to standards-
based technology deployed on wireless products and other consumer electronics devices. 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 SEPs. 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, 2019, we had approximately 487 employees, including approximately 206 employees in

France who were subject to collective bargaining arrangements. We consider our employee relations to be good.

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 headquarters
are located in Wilmington, Delaware, USA. Our research and development activities are conducted primarily in

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12

facilities located in Berlin, Germany; Conshohocken, Pennsylvania, USA; London, United Kingdom; Montreal,
Canada; New York, New York, USA; Palo Alto, California, USA; Rennes, France; and San Diego, California,
USA. We are also a party to leases for several smaller research and/or office spaces, including in Brussels,
Belgium; Buffalo, New York, USA; Indianapolis, Indiana, USA; Paris, France; San Francisco, California, USA;
and Shanghai, China. In addition, we own a building in Washington, District of Columbia, USA, that houses
administrative office space.

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 (the
“Exchange Act”), 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

Our plans to license handset manufacturers in China may be adversely affected by a deterioration in United
States-China trade and geopolitical relations, our customers facing economic uncertainty there or our failure
to establish a positive reputation in China, which could materially adversely affect our long-term business,
financial condition and operating results.

Companies headquartered in China currently comprise a substantial portion of the handset manufacturers
that remain unlicensed to our patent portfolio. Our ability to license such manufacturers is, among other things,
affected by the macroeconomic and geopolitical climate, as well as our business relationships and perceived
reputation in China. The U.S. and Chinese governments are currently engaged in trade negotiations, and the U.S.
State Department issued a travel advisory in January 2019 that advised U.S. citizens to exercise increased caution
in China due to arbitrary enforcement of local laws. This travel advisory and other security concerns have
restricted our ability to conduct in-person negotiations with prospective Chinese licensees in the past, and they,
along with certain public health concerns (e.g., the current coronavirus outbreak), could do so in the future. In
January 2020, the U.S. and China entered into Phase One of the Economic and Trade Agreement Between the
United States of America and the People’s Republic of China (the “Phase One Trade Agreement”). The Phase
One Trade Agreement takes steps to ease certain trade tensions between the U.S. and China, including tensions
involving intellectual property theft and forced intellectual property transfers by China. Although the Phase One
Trade Agreement is an encouraging sign of progress in the trade negotiations between the U.S. and China,
questions still remain as to the enforcement of its terms, the resolution of a number of other points of dispute
between the parties, and the prevention of further tensions. If the U.S.-China trade dispute re-escalates or
relations between the United States and China deteriorate, these conditions could adversely affect our ability to
license our patent portfolio to Chinese handset manufacturers. Our ability to license such manufacturers could
also be affected by economic uncertainty, particularly in the handset market, in China or by our failure to
establish a positive reputation and relationships in China. The occurrence of any of these events could have an
adverse effect on our ability to enter into license agreements with Chinese handset manufacturers, which, in turn,
could cause our long-term business, financial condition and operating results to be materially adversely affected.

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2019 Annual Report

Royalty rates, or other terms, under our patent license agreements could be subject to determination through
arbitration or other third-party adjudications or regulatory or court proceedings, and arbitrators, judges 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, we strive for the terms of our patent license agreements, including our royalty rates, to be
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 FRAND consistency of such terms or the manner in which such terms are determined, including by
determining a worldwide royalty rate for our SEPs. Changes to or clarifications of our obligations to be prepared
to offer licenses to SEPs on FRAND terms and conditions could require such terms, including our royalty rates,
to be determined through third party adjudications. Finally, we and certain of our current and prospective
legal proceedings or regulatory
licensees have initiated, and we and others could in the future initiate,
proceedings requesting third party adjudicators or regulators to set FRAND terms and conditions for, or
determine the FRAND-consistency of current terms and conditions in, our patent license agreements, and which
could result in such third party adjudicators or regulators determining a worldwide royalty rate for our SEPs. To
the extent that our patent royalty rates for our patent license agreements are determined through arbitration or
other third party adjudications or regulatory or court 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 historical rates, and this 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.

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
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, or that claim that our patents are invalid, unenforceable or not infringed. Litigation
adversaries may allege that we have not complied with certain commitments to 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 a party on FRAND terms and conditions, and may also file
antitrust claims, unfair competition claims or regulatory complaints on that or other bases, and may seek damages
and other relief based on such claims. Litigation adversaries have also filed against us, and other third parties
may in the future file, validity challenges such as inter partes 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.

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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 licensing commitments and/or engaged in anticompetitive or
unfair 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 in certain jurisdictions the costs and fees of opposing counsel if we are unsuccessful. In addition,
for
litigation, arbitration and administrative proceedings require significant key employee involvement
significant periods of time, which could divert these employees from other business activities.

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, the number of forums in which we can seek to enforce our patents, the
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 make it more difficult for us to
enforce our patents, whether in adversarial proceedings or in 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.

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 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 us. Decisions that occur in the U.S. or in international forums
may change the law applicable to various patent law issues, such as, for example, patentability, validity, claim
construction, patent exhaustion, patent misuse, permissible licensing practices, available forums, and remedies
such as damages and injunctive relief, in ways that are detrimental to the ability of patentees to enforce patents
and obtain suitable relief.

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.

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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
or unfair 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 as part of court or arbitration proceedings, a judgment could require 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, and, depending on the damages requested, could
lead to the refund of certain payments already made. Finally, adverse legal decisions related to our licensing
practices could have an adverse effect on our ability to enter into 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 patent royalties.

Royalty payments to us under future license agreements could be lower than anticipated. Certain licensees
and others in the wireless and consumer electronics industries, individually and collectively, are demanding that
royalty rates for patents be lower than historic royalty rates and/or that such rates should be applied to royalty
bases smaller than the selling price of an end product (such as the “smallest salable patent practicing unit”).
There is also increasing downward pricing pressure on certain wireless products, including handsets, and other
consumer electronics devices that we believe implement our patented inventions, and some of our royalty rates
are tied to the pricing of these devices. In addition, a number of other companies also claim to hold patents that
are essential with respect to products we aim to license. Demands by certain licensees to reduce royalties due to
pricing pressure or the number of patent holders seeking royalties on these 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 revenue opportunities through acquiring or developing technology in new or
expanded areas, such as technologies in the consumer electronics and IoT spaces, and enhanced intellectual
property sourcing and joint ventures, may not be successful and could materially adversely affect our long-
term business, financial condition and operating results.

research partnerships,

As part of our business strategy, we are seeking to broaden our revenue opportunities through targeted
acquisitions,
joint ventures and the continued development of new technologies.
Increasingly, our future growth in part depends on developing or acquiring technology in new or expanded areas
that are used on cellular devices (such as video coding technologies) and adjacent industry segments outside of
traditional cellular industries (such as other consumer electronics devices and the IoT, including the connected
home and smart cities, automotive, mobile computing, mobile health and sensor technology), and on third parties
incorporating our technology and solutions into device types used in these areas and industry segments. There is
no guarantee that we will succeed in acquiring or developing technology and patents or partnering with inventors
and research organizations to create new revenue opportunities and/or 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 licensing or other avenues of
revenue generation related to such development activities. In the event that any of these risks materialize, our
long-term business, financial condition and operating results may be materially adversely affected.

Setbacks in defending and enforcing our patent rights could cause our revenue and cash flow to decline.

Some third parties 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

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narrowed or declared invalid, unenforceable, not essential or not infringed. We cannot ensure 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 technologies may not become patented, adopted by wireless or video 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, 5G,
HEVC and others, 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. In addition, it is possible that in certain technology areas, such as in the IoT space, the adoption of
proprietary systems could compete with or replace standards-based technology. It is also possible in certain
technology areas, such as video coding and the IoT, that open source solutions such as AV1, VP-9 and OCF
could compete with or replace proprietary standards-based technology. If the technologies in which we invest do
not become patented or are not adopted by the relevant standards, or are not adopted by and deployed in the
mainstream markets, at all or at the rate or within time periods that we expect, or in the case of open source
solutions, do not infringe our technology, our business, financial condition and operating results could be
adversely affected.

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 or 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, our revenue and
cash flow could be materially adversely affected.

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 SEPs, including the
enforcement of such patents against competitors and others. Such scrutiny has already resulted in enforcement
actions against Qualcomm and could lead to additional investigations of, or enforcement actions against, us. Such
inquiries and/or enforcement actions could 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 also result in monetary fines, penalties or other
remedies or sanctions that could adversely affect our business and financial condition.

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Our commercialization, licensing and/or mergers and acquisitions (“M&A”) activities could lead to patent
exhaustion or implied license issues that could materially adversely affect our business.

The legal doctrines of patent exhaustion and implied license may be subject

judicial
interpretations. Our commercialization or licensing of certain technologies and/or our M&A activities could
potentially lead to patent exhaustion or implied license issues that could adversely affect our patent licensing
program(s) and limit our ability to derive licensing revenue from certain patents under such program(s), whether
through the assumption of license agreements that would result
in our patents being captured by such
agreements, the acquisition of a business that sells or licenses products that practice our patents, or otherwise. In
the event of successful challenges by current or prospective licensees based on these doctrines that result in a
material decrease to our patent licensing revenue, our financial condition and operating results may be materially
adversely affected.

to different

We may not be able to realize all of the anticipated benefits from the integration of the patent licensing
business that we acquired from Technicolor in 2018 and the Research & Innovation unit of Technicolor
(collectively, the “Technicolor business”).

We may fail to realize the anticipated benefits from our integration of the Technicolor business on a timely

basis, or at all, for a variety of reasons, including the following:

• failure of the acquisitions to materially increase the value of our core handset licensing business by not
increasing the royalty amount we would otherwise derive on each handset, not accelerating the pace of
licensing, or not allowing us to avoid litigation to protect our intellectual property;

• failure to continue to develop and expand our portfolio of video technology patent assets;

• failure to execute a successful business plan and licensing program related to consumer electronics;

• the risk that we could lose key employees of the Technicolor business;

• challenges associated with managing a geographically remote business;

• failure to forecast accurately the long-term value and costs of the Technicolor business or of certain assets

acquired in the transactions;

• liabilities that are not covered by, or exceed the coverage under, the indemnification or other provisions

of the acquisition-related agreements; and

• patent validity, infringement, exhaustion or enforcement issues not uncovered during our diligence

process.

In the event that we fail to realize the anticipated benefits from the acquisition of the Technicolor business, our
business and results of operations, and our stock price, may be adversely affected.

We have in the past and may in the future make acquisitions or engage in other strategic transactions that
could result in significant changes, costs and/or management disruption and that may fail to enhance
shareholder value or produce the anticipated benefits.

We have in the past and may in the future acquire companies, businesses, technology and/or intellectual
property, enter into joint ventures or other strategic transactions. Acquisitions or other strategic transactions 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 or of any technologies we may acquire.

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
including, among others: successfully integrating new
or businesses may result

in significant challenges,

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18

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 that we anticipate will be
realized from such acquisitions. Our plans to integrate and/or expand upon research and development programs
and technologies obtained through acquisitions may result in products or technologies that are not adopted by the
market, or the market may adopt solutions competitive to our products or technologies. 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. In addition, to the extent we are separately seeking
a patent license from a customer or customers of an acquired entity, the acquired entity may lose such customers.
Following the completion of the acquisition, we may be subject to liabilities that are not covered by, or exceed
the coverage under, the indemnification protection we may obtain, and we may encounter patent validity,
infringement or enforcement issues or unforeseen expenses not uncovered during our diligence process. 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.

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
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
ensure 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 in these Risk Factors, 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 above in these Risk Factors 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.

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 2019, Apple, Samsung and LG Electronics accounted for
approximately 35%, 25% and 10% 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 the event that one or more of our significant licensees or customers fail to meet their

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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. In addition, in the event that there is a material decrease in shipments of licensed
products by one of our per-unit licensees, our revenues from such licensee could significantly decline and our
future revenue and cash flow could be 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
alternative licensing arrangements (such as the Signal Trust and the Avanci licensing platform) or patent sales
will be greater than the revenue and cash flow we would have generated if we had retained and/or 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.

A portion of 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 portion of our licensing revenues is dependent on sales by our licensees that are outside our control and
that could be negatively affected by a variety of factors, including global, regional and/or country-specific
economic conditions and/or public health concerns (e.g., the current coronavirus outbreak), country-specific
natural disasters impacting licensee manufacturing and sales, demand and buying patterns of end users, which are
often driven by replacement and innovation cycles, the service life of products incorporating our technologies,
competition for our licensees’ products, supply chain disruptions, 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 or market
position of any licensee or (iii) the failure of sales to meet market forecasts due to global or regional economic
conditions, political instability, natural disasters, competitive technologies, lower demand or otherwise. It is also
difficult to predict the timing, nature and amount of licensing revenue associated with past infringement
(including as a result of the unwillingness of our licensees to compensate us for such 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 upfront 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, 4G
and 5G technologies or future-generation video standards, by the timing of such deployment, 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 including video coding technologies, our patent portfolio licensing
program for future-generation wireless standards or video coding 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 and video coding
standards, including standards that will define 5G, our technologies might not be adopted by the relevant

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standards. In addition, we may not be as successful in the licensing of future-generation products as we have
been in licensing products deploying existing wireless and video coding standards, or we may not achieve a level
of royalty revenues on such products that is comparable to that which we have historically received on products
deploying existing wireless and video coding standards. Furthermore, if there is a delay in the standardization
and/or deployment of 5G or future video coding standards, our business and revenue could be negatively
impacted.

The licenses that we grant under our patent license agreements typically only cover products designed to
operate in accordance with specified 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 and maintaining offices 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. In addition, in recent years,
we have expanded, and we may continue to expand, our international operations, opening offices in France, the
United Kingdom, China, Belgium and Germany. Accordingly, we are subject to the risks and uncertainties of
operating internationally and could be affected by 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; retaliatory practices by foreign actors; currency control regulations and variability in the
value of the U.S. dollar against foreign currency; export license requirements and restrictions on the use of
technology; social, economic and political instability; natural disasters, acts of terrorism, widespread illness and
war; potentially adverse tax consequences; general delays in remittance of and difficulties collecting non-U.S.
payments; foreign labor regulations; anti-corruption laws; and difficulty in staffing and managing operations
remotely. In 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 effectiveness of our executive officers and other key personnel,
including our ability to put in place adequate succession plans for such key personnel, and/or organizational
strategies related to the departure of such key personnel. Our success also depends in part 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 as a result in part of the
specialized nature of our industry. In particular, competition exists for qualified individuals with expertise in
patents and in licensing and with significant engineering experience in cellular and air interface , video coding,
and artificial intelligence 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,
the perception of our company both internally and externally, 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 or to have in place adequate succession plans and/or

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2019 Annual Report

organizational strategies related to the departure of certain key personnel 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.

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 products and solutions that we may market or set forth, including into the standards-setting arena. Due to
competing products and solutions, our products and solutions may not find a viable commercial marketplace or,
where applicable, 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 SEPs, 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 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.

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 2019, Samsung, Apple and Huawei collectively accounted for approximately 40% of
worldwide shipments of 3G and 4G handsets and 50% of worldwide smartphone shipments. Although the rollout
of 5G handsets is still in its early stages, we anticipate a similar level of concentration in worldwide shipments of
those units as well. 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. We may also face a reduction
in the number of licensing opportunities or existing royalty obligations as a result of government-imposed bans
or other restrictions on the importation, manufacture and/or sale of cellular handsets by certain companies. 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.

Our use of open source software could materially adversely affect our business, financial condition, operating
results and cash flow.

Certain of our technology and our suppliers’ technology may contain or may be derived from “open source”
software, which, under certain open source licenses, may offer accessibility to a portion of a product’s source
code and may expose related intellectual property to adverse licensing conditions. Licensing of such technology

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may impose certain obligations on us if we were to distribute derivative works of the open source software. For
example, these obligations may require us to make source code for derivative works available or license such
derivative works under a particular type of license that is different from what we customarily use to license our
technology. While we believe we have taken appropriate steps and employ adequate controls to protect our
intellectual property rights, our use of open source software presents risks that, if we inappropriately use open
source software, we may be required to re-engineer our technology, discontinue the sale of our technology,
release the source code of our proprietary technology to the public at no cost or take other remedial actions,
which could adversely affect our business, operating results and financial condition. There is a risk that open
source licenses could be construed in a way that could impose unanticipated conditions or restrictions on our
ability to commercialize our solutions, which could adversely affect our business, operating results and financial
condition. In addition, developing open source products, while adequately protecting the intellectual property
rights upon which our licensing business depends, may prove burdensome and time-consuming under certain
circumstances, thereby placing us at a competitive disadvantage.

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 assert in our filings and foreign tax liability and withholding. Pursuant to 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, 2019, and 2018, 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.

Changes in financial accounting standards or policies may affect our reported financial condition or results of
operations and, in certain cases, could cause a decline and/or fluctuations in the price of our common stock.

From time to time the Financial Accounting Standards Board (the “FASB”) and the Staff of the Securities
and Exchange Commission (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. 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.

The high amount of capital required to obtain radio frequency licenses, deploy and expand wireless networks
and obtain new subscribers, as well as the cost of new handsets could slow the growth of the wireless
communications industry and adversely affect our business.

Our growth is partially dependent upon the increased use of wireless communications services and cellular
handsets 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 growth may be affected by the amount of capital required to obtain licenses to

23

2019 Annual Report

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. Growth in the number of
cellular handsets may slow as the number of people worldwide without a cellular handset declines. In addition, if
the cost of cellular handsets increases, customers may be less likely to replace their existing devices with new
devices. The growth of our business could be adversely affected if either of these events occur.

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.

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.

It can be difficult for us to verify royalty amounts owed to us under our per-unit licensing agreements, and
this may cause us to lose potential revenue.

The standard terms of our per-unit 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.

Our plans to expand our revenue opportunities through commercializing our market-ready technologies and
acquiring and/or 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 opportunities through the continued
development, commercialization and licensing of technology projects,
including in the IoT space. Our
technology development and acquisition activities may experience delays, or the markets for our technology
solutions may fail to materialize to the extent or at the rate we expect, if at all, each of which could reduce our
opportunities for technology sales and licensing. In addition, there could be fewer applications for our technology

2019 Annual Report

24

and products than we expect. 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. Additionally, investing in technology development is costly and may
require structural changes to the organization that could require additional costs, including without limitation
legal and accounting fees. Furthermore, delays or failures to enter into additional partnering relationships to
facilitate technology development efforts and secure support for our technologies 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.

We have in the past and may in the future make investments that may fail to enhance shareholder value or
produce the anticipated benefits.

We have in the past and may in the future make investments in other entities by purchasing minority equity
interests or corporate bonds/notes in publicly traded or privately held companies. Most strategic investments
entail a high degree of risk and may not become liquid for a period of time, if ever. 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 have made in the past and may make in the future strategic investments in early-
stage companies, which may 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.

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, such as video coding technology and other
technologies for use on consumer electronics devices. 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. In the event that any of these risks materialize, our long-term
business, financial condition and operating results may be materially adversely affected.

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.

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2019 Annual Report

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.

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.

• If, as a result of tax treaty procedures, the U.S. government reaches an agreement with certain foreign
governments to whom we have paid foreign taxes, resulting in a partial refund of foreign taxes paid with a
related reduction in our foreign tax credits, such agreement could result in foreign currency gain or loss.

Our business and operations could suffer in the event of security breaches and our business is subject to a
variety of domestic and international laws, rules and policies and other obligations regarding data protection.

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 (whether through a breach of our own systems or the breach of a
system of a third party that provides services to us) 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 affected by existing and proposed laws and regulations, as well as government policies
and practices related to cybersecurity, privacy and data protection. For example, the European General Data

2019 Annual Report

26

Protection Regulation (“GDPR”) adopted by the European Commission became effective in May 2018, the
California Consumer Privacy Act of 2018 (the “CCPA”) adopted by the California State Legislature became
effective in January 2020, and China adopted a new cybersecurity law as of June 2017. Complying with the
GDPR, the CCPA and other existing and emerging and changing requirements could cause us to incur substantial
costs or require us to change our business practices. Non-compliance could result in monetary penalties or
significant legal liability.

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.

The United Kingdom’s (“U.K.”) decision to exit the European Union (“E.U.”) will continue to have uncertain
effects and could adversely impact our business, results of operations and financial condition.

The U.K. held a referendum on June 23, 2016 in which a majority voted for the U.K.’s withdrawal from the
E.U. (commonly referred to as “Brexit”), and on January 31, 2020, the U.K. formally withdrew from the E.U.
The U.K. is now in a transition period until December 31, 2020 during which time the final terms of Brexit are to
be negotiated with the E.U. The terms of Brexit and the U.K.’s relationship with the E.U. going forward continue
to be uncertain for global companies like ours that conduct business both in the U.K. and the E.U. The actual and
perceived impacts of Brexit may adversely affect business activity and economic and market conditions in the
U.K., the Eurozone and globally, and could contribute to instability in global financial and foreign exchange
markets. In addition, Brexit could lead to additional political, legal and economic instability in the U.K and the
E.U. While we have not experienced any material financial impacts from Brexit on our business to date, we
cannot predict its future implications. Any impact on our business from Brexit in the long term will depend, in
part, on the outcome of tariff, tax treaties, trade, regulatory and other negotiations that the U.K and the E.U.
conduct.

Risks Relating to Our Common Stock and our Convertible 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 2, 2018 to February 18, 2020, the trading price of our common stock has ranged from a
low of $47.02 per share to a high of $85.85 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,
litigation,
arbitration and other legal proceedings in which we are involved and intellectual property impacting us or
our business;

technology development,

• 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;

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2019 Annual Report

• changes in GAAP,

including new accounting standards that may materially affect our revenue

recognition;

• 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.

In the past, shareholders 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 shareholders 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 $0.35 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 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.

Approved stock repurchase programs may not result in a positive return of capital to shareholders.

Our board-approved stock repurchase program may not return value to shareholders 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 shareholder value over the long term, but stock price fluctuations
can reduce the effectiveness of such programs.

Our 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, 2019 was approximately $516.0 million, inclusive of debt
resulting from the Technicolor Patent Acquisition (refer to Note 5, “Business Combinations and Other
Transactions,” within the Notes to the Consolidated Financial Statements included in Part II, Item 8 of this Form
10-K for further information). 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 1.50% Senior
Convertible Notes due 2020 (the “2020 Notes”) and our 2.00% Senior Convertible Notes due 2024 (the
“2024 Notes” and, together with the 2020 Notes, the “Convertible Notes”);

2019 Annual Report

28

• 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 Convertible Notes.

Our ability to meet our payment and other obligations under the Convertible 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 Convertible 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 2020 Notes and/or the 20204 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 2020 Notes and/or the 2024 Notes,
and this default could cause us to be in default on any other currently existing or future outstanding indebtedness.

The convertible note hedge transactions and warrant transactions that we entered into in connection with the
offering of the 2020 Notes and the 2024 Notes may affect the value of the 2020 Notes and/or the 2024 Notes,
respectively, and the market price of our common stock.

In connection with each offering of the Convertible Notes, we entered into convertible note hedge
transactions with certain financial institutions (the “option counterparties”) and sold warrants to the respective
option counterparties. These transactions will be accounted for as an adjustment to our shareholders’ equity. The
convertible note hedge transactions are expected to reduce the potential equity dilution upon any conversion of
the Convertible 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 addition, the respective 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 2020 Notes
and/or the 2024 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.

Provisions of the Convertible Notes could discourage an acquisition of us by a third party.

Certain provisions of the Convertible 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 under the respective
Convertible Notes, holders of the 2020 Notes and/or the 2024 Notes will have the right, at their option, to require
us to repurchase all of their applicable Convertible Notes or any portion of the principal amount of such
Convertible Notes at a price of 100% of the principal amount of the Convertible Notes being repurchased, plus
accrued and unpaid interest. We may also be required to issue additional shares upon conversion in the event of

29

2019 Annual Report

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 respective option counterparties are financial institutions or affiliates of financial institutions, and we
will be subject to the risk that such 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. 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 applicable 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 Convertible 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 Convertible 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 2020 Notes and the 2024 Notes be reported as a
component of shareholders’ equity and included in the additional paid-in-capital on our consolidated balance
sheet. The value of the conversion option of the 2020 Notes and the 2024 Notes will be reported as discount to
the 2020 Notes and the 2024 Notes, respectively. 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 2020 Notes and/or the 2024
Notes.

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 shareholders that
own significant blocks of our common stock. If one or more of these shareholders 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 2020
Notes and/or the 2024 Notes, which would dilute the ownership interest of our existing shareholders. 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 shareholders and could depress the market price of our common stock and
impair our ability to raise capital through the sale of additional equity securities.

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.

2019 Annual Report

30

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 Berlin, Germany; Conshohocken, Pennsylvania, USA; London,
United Kingdom; Montreal, Canada; New York, New York, USA; Palo Alto, California, USA; Rennes, France;
and San Diego, California, USA.

The following table sets forth information with respect to our principal properties:

Location

Melville, New York . . . . . . . . . . .
Wilmington, Delaware . . . . . . . . .
Conshohocken, Pennsylvania . . . .
Montreal, Quebec . . . . . . . . . . . . .
New York, New York . . . . . . . . . .
Palo Alto, California . . . . . . . . . . .
San Diego, California . . . . . . . . . .
Rennes, France . . . . . . . . . . . . . . .
Princeton, New Jersey . . . . . . . . . .

Approximate
Square Feet

Principal Use

Lease Expiration Date

44,800
36,200
30,300
17,300
19,400
4,900
10,600
50,000
16,900

Office and research space
Corporate headquarters
Office and research space
Office and research space
Office and research space
Office and research space
Office and research space
Office and research space
Office space

February 2020
November 2022
September 2026
June 2021
May 2030+
June 2027†
September 2025
June 2019*
February 2025

+ Based on an estimated commencement date in June 2020. This office space will replace our Melville, New

York location.

† Based on an estimated commencement date in April 2020.
* We sublease our facility in Rennes from Thomson Licensing SAS.

We are also a party to leases for several smaller research and/or office spaces, including in Brussels,
Belgium; Buffalo, New York, USA; Indianapolis, Indiana, USA; Paris, France; San Francisco, California, USA;
and Shanghai, China. 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.

See Note 12, “Litigation and Legal Proceedings,” to the Notes to Consolidated Financial Statements
included below in Part II, Item 8 of this Form 10-K for a description of our material legal proceedings, which is
incorporated herein by reference.

Item 4. MINE SAFETY DISCLOSURES.

Not applicable.

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2019 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.”

Holders

As of February 18, 2020, there were 510 holders of record of our common stock.

Dividends

Cash dividends on outstanding common stock declared in 2019 and 2018 were as follows (in thousands,

except per share data):

2019

2018

First quarter
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Second quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Third quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fourth quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

First quarter
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Second quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Third quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fourth quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Per Share

Total

Cumulative by
Fiscal Year

$0.35
0.35
0.35
0.35

$1.40

$0.35
0.35
0.35
0.35

$1.40

$11,180
10,895
10,897
10,746

$43,718

$12,124
12,192
11,996
11,610

$47,922

$11,180
22,075
32,972
43,718

$12,124
24,316
36,312
47,922

In September 2017, we announced that our Board of Directors had approved an increase in the Company’s
quarterly cash dividend to $0.35 per share. We currently expect to continue to pay dividends comparable to our
quarterly $0.35 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.

2019 Annual Report

32

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, 2014 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 Telecommunication Index

250

200

150

100

50

S
R
A
L
L
O
D

0
12/14

12/15

12/16

12/17

12/18

12/19

InterDigital, Inc.

NASDAQ Composite

NASDAQ Telecommunications

*$100 invested on 12/31/14 in stock or index, including reinvestment of dividends. Fiscal year ending December 31.

InterDigital, Inc.

NASDAQ Composite

NASDAQ Telecommunications

12/14

12/15

12/16

12/17

12/18

12/19

100.00

94.14 178.08 150.75 133.84

100.00 106.96 116.45 150.96 146.67

100.00

97.52 102.36 127.62 127.16

112.28

200.49

142.60

The above performance graph shall not be deemed “filed” for purposes of Section 18 of 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.

33

2019 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 2019.

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, 2019 — October 31, 2019 . . . . . . . . . . . .
November 1, 2019 — November 30, 2019 . . . . . . . .
December 1, 2019 — December 31, 2019 . . . . . . . . .

432,849

— $ —
$57.74
— $ —

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

432,849

$57.74

—
432,849
—

432,849

$96,813,533
$71,813,695
$71,813,695

$71,813,695

(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 the Company’s $700 million share repurchase program (the “2014
Repurchase Program”), $300 million of which was authorized by the Company’s Board of Directors in June
2014, with an additional $100 million authorized by the Company’s Board of Directors in each of June
2015, September 2017, December 2018, and May 2019, respectively. 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.

2019 Annual Report

34

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. We adopted new revenue guidance, ASC 606,
effective January 1, 2018 using the modified retrospective method. As such, revenue and other related accounts
are presented in accordance with ASC 606 for the years ended December 31, 2019 and 2018, and in accordance
with ASC 605 for all prior periods presented. Refer to Note 3, “Revenue Recognition,” within the Notes to the
Consolidated Financial Statements included in Part II, Item 8 of this Form 10-K for further information regarding
our adoption of ASC 606. Additionally, effective January 1, 2019, we adopted ASU 2016-02, “Leases (Topic
842)” or (“ASC 842”), which outlines a comprehensive change to the lease accounting model and supersedes
prior lease guidance. Refer to Note 17, “Leases,” within the Notes to the Consolidated Financial Statements
included in Part II, Item 8 of this Form 10-K for further information regarding our adoption of ASC 842.

2019

2018

2017

2016

2015

(in thousands except per share data)

Consolidated statements of operations data:
Revenues (a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 318,924 $ 307,404 $ 532,938 $ 665,854 $ 441,435
62,595 $ 301,495 $ 437,306 $ 208,549
Income from operations . . . . . . . . . . . . . . . . . . . $
27,417 $ (121,676) $ (116,791) $ (64,621)
Income tax benefit (provision) (b)
Net income applicable to InterDigital, Inc.

37,835 $
. . . . . . . . . . . $ (10,991) $

common shareholders (c)

. . . . . . . . . . . . . . . . $
Net income per common share — basic (c) . . . . $
Net income per common share — diluted (c) . . . $
Weighted average number of common shares

20,928 $
0.66 $
0.66 $

65,031 $ 176,220 $ 310,741 $ 120,803
3.35
3.31

9.00 $
8.83 $

5.09 $
4.93 $

1.89 $
1.84 $

outstanding — basic . . . . . . . . . . . . . . . . . . . .

31,546

34,491

34,605

34,526

36,048

Weighted average number of common shares

outstanding — diluted . . . . . . . . . . . . . . . . . . .
Cash dividends declared per common share (d) . . . $
Consolidated balance sheets data:
Cash, cash equivalents and restricted cash (e)
Short-term investments . . . . . . . . . . . . . . . . . . . .
Working capital . . . . . . . . . . . . . . . . . . . . . . . . . .
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total InterDigital, Inc. shareholders’

31,785

35,307

35,779

35,189

1.40 $

1.40 $

1.30 $

1.00 $

36,463
0.80

. . $ 757,098 $ 488,733 $ 433,014 $ 404,074 $ 510,207
423,501
610,994
1,474,485
486,769

724,981
1,019,353
1,854,420
285,126

470,724
844,855
1,626,558
317,377

548,687
795,639
1,727,853
272,021

179,204
710,774
1,612,082
444,758

equity (c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
515,393
6,502
Noncontrolling interest (c) . . . . . . . . . . . . . . . . .
Total shareholders’ equity . . . . . . . . . . . . . . . . . . $ 786,281 $ 938,013 $ 873,148 $ 754,368 $ 521,895

863,808
9,340

761,557
24,724

746,323
8,045

936,729
1,284

(a)

(b)

In 2019, 2018, 2017, 2016, and 2015, our revenues included $19.8 million, $26.3 million, $162.9 million,
$309.7 million, and $65.8 million of non-current patent royalties, respectively.

In 2018, our income tax benefit includes an $18.0 million tax benefit due to our income qualifying as
foreign derived intangible income (“FDII”), as well as a $14.7 million benefit as a result of anticipated
filings of amended tax returns in connection with the Korea Competent Authority Proceeding defined and
discussed below. In 2017, our income tax provision was impacted by the U.S. Tax Cuts and Jobs Act (the
“TCJA”) as discussed in our results of operations. For more information, refer to Note 14, “Taxes” in the
Notes to the Consolidated Financial Statements included in Part II, Item 8, of this Form 10-K. In 2016, our
income tax provision included the impact of a $23.6 million net tax benefit primarily related to domestic
activity production deductions for prior years.

(c) As discussed in Note 1 within the Notes to the Consolidated Financial Statements included in Part II, Item 8
of this Form 10-K, “Background and Basis of Presentation,” we revised our prior period presentation of
noncontrolling interest.

35

2019 Annual Report

(d)

In September 2017, we announced that our Board of Directors had approved an increase in the Company’s
quarterly cash dividend to $0.35 per share. In September 2016, we announced that our Board of Directors
had approved an increase in the Company’s quarterly cash dividend to $0.30 per share.

(e)

Includes restricted cash which is included within “Prepaid and other current assets” or “Other non-current
assets” in the consolidated balance sheets.

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.

Effective January 1, 2018, we adopted FASB Accounting Standards Codification 606, Revenue from
Contracts with Customers (“ASC 606”), which affected our recognition of revenue from both our fixed-fee and
per-unit license agreements beginning in first quarter 2018. All periods prior to January 1, 2018 are presented in
accordance with ASC Topic 605, Revenue Recognition (“ASC 605”). Refer to Note 3, “Revenue Recognition,”
within the Notes to the Consolidated Financial Statements included in Part II, Item 8 of this Form 10-K for
further information.

Throughout the following discussion and elsewhere in this Form 10-K, we refer to “recurring revenues” and
“non-current patent royalties.” For all periods presented, recurring revenues are comprised of “current patent
royalties” and “current technology solutions revenue.” For 2019 and 2018, non-current patent royalties are
comprised of “past patent royalties” and “static fixed-fee” agreement royalties. For periods prior to 2018,
non-current patent royalties are comprised of just past patent royalties, whereas static fixed-fee agreement
royalties are included as part of recurring revenues.

Business

InterDigital, Inc. (“InterDigital”) is a research and development company that licenses its innovations to the
global wireless and consumer electronics industries. We design and develop advanced technologies that enable
connected, immersive experiences in a broad range of communications and entertainment products and services.
Since our founding in 1972, our engineers have designed and developed a wide range of innovations that are used
in wireless products and networks, from the earliest digital cellular systems to 5G and, today, solutions that we
believe will shape the world beyond 5G. With the acquisition of the patent licensing business of visual
technology industry leader Technicolor SA (“Technicolor”) in 2018 (the “Technicolor Patent Acquisition”),
followed by the acquisition of their Research & Innovation unit in 2019 (the “R&I Acquisition” and, together
the “Technicolor Acquisitions”), we are now a leader in video
with the Technicolor Patent Acquisition,
processing, encoding/decoding, and display technology, with a significant Artificial Intelligence (“AI”) research
effort that intersects with both wireless and visual technologies.

InterDigital is one of the largest pure research & development and licensing companies in the world, with
one of the most significant patent portfolios in the technology industry. As of December 31, 2019, InterDigital’s
wholly owned subsidiaries held a portfolio of approximately 32,000 patents and patent applications related to
wireless communications, video coding, display technology, and other areas relevant to the wireless and
consumer electronics industries. Our portfolio includes numerous patents and patent applications that we believe
are or may be essential or may become essential to standards established by many Standards Development
Organizations (“SDOs”), including cellular and other wireless communications and video technology standards.
Those wireless standards include 3G, 4G and the IEEE 802 suite of standards, as well as patents and patent
applications that we believe are or may become essential to 5G standards that currently exist and as they continue
to develop. Our video technology portfolio includes patents and applications relating to standards established by

2019 Annual Report

36

ISO/IEC Moving Picture Expert Group (MPEG), the ITU-T Video Coding Expert Group (VCEG), the Joint
Collaborative Team on Video Coding (JCT-VC) and the Joint Video Expert Team (JVET), among others.

Our wireless portfolio has largely been built

through internal development, supplemented by joint
development projects with other companies, as well as select acquisitions of patents and companies. Products
incorporating our patented inventions in wireless include: mobile devices, such as cellular phones, tablets,
notebook computers and wireless personal digital assistants; wireless infrastructure equipment, such as base
stations; components, dongles and modules for wireless devices; and Internet of Things (“IoT”) devices and
software platforms. Our video technology portfolio largely represents patents and applications that came to
InterDigital as a result of the Technicolor Patent Acquisition, supplemented by internal development. Our
patented inventions in video are incorporated in a range of products and services, including cellular phones,
notebook computers,
televisions, gaming consoles, set-top boxes, streaming devices and other consumer
electronics.

Acquisition of Technicolor’s Research & Innovation Unit

On May 31, 2019, we completed the acquisition of the R&I unit of Technicolor SA, which we refer to as the
R&I Acquisition. R&I is a premier research lab that conducts fundamental research into video coding, IoT and
smart home, imaging sciences, augmented reality and virtual reality, and artificial intelligence and machine
learning technologies.

As consideration for the R&I Acquisition,

the parties agreed to terminate the jointly funded R&D
collaboration agreement that was entered into as part of the Technicolor Patent Acquisition. In addition,
InterDigital assumed certain employment-related obligations and Technicolor agreed to reduce its rights to a
revenue-sharing arrangement announced as part of the Technicolor Patent Acquisition. There was no cash
consideration. The R&I Acquisition resulted in a net gain of approximately $14.2 million, inclusive of a $20.5
million gain from the derecognition of a contingent consideration liability, all of which is included within “Other
Income (Expense), Net” within the consolidated statement of income for the year ended December 31, 2019.

Refer to Note 5, “Business Combinations and Other Transactions” within the Notes to the Consolidated
Financial Statements included in Part II, Item 8 of this Form 10-K for further discussion of both the Technicolor
Patent Acquisition and the R&I Acquisition.

Revenue

As previously discussed, we adopted new revenue guidance, ASC 606, effective January 1, 2018 using the
modified retrospective method. Consistent with the modified retrospective adoption method, our results of
operations for periods prior to our adoption of ASC 606 remain unchanged. As such, revenue is presented in
accordance with ASC 606 for the years ended December 31, 2019 and 2018 and in accordance with ASC 605 for
all prior periods presented. Refer to Note 3, “Revenue Recognition,” within the Notes to the Consolidated
Financial Statements included in Part II, Item 8 of this Form 10-K for further information regarding our adoption
of ASC 606.

In 2019, 2018, and 2017, our total revenues were $318.9 million, $307.4 million and $532.9 million,
respectively. Our recurring revenues in 2019, 2018 and 2017 were $298.2 million, $280.3 million and
$370.0 million, respectively. In each of the years presented, we recognized between $19.8 million and
$162.9 million of non-current patent royalties as more fully discussed below. In 2019, fixed-fee royalties
accounted for approximately 86% 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 was variable in nature due to the per-unit structure of the related license agreements.

37

2019 Annual Report

New Agreements

Direct Licenses

During fourth quarter 2019, we entered into a multi-year, worldwide, non-exclusive, royalty-bearing patent
license and settlement agreement with ZTE. The agreement covers the sale of ZTE’s 3G, 4G and 5G handset and
tablet products, as well as 802.11 and HEVC technologies incorporated into such products.

Also during fourth quarter 2019, we entered into a multi-year, worldwide, non-exclusive, royalty-bearing
patent license agreement with u-blox AG (“u-blox”). The agreement covers the sale of u-blox’s 3G and 4G
machine to machine modules and certain consumer modules.

During second quarter 2019, we entered into a multi-year, worldwide, non-exclusive, royalty-bearing patent
license agreement with Teltronic S.A.U. (“Teltronic”). The agreement covers the sale of Teltronic’s 4G terminal
units as well as 3G and 4G infrastructure equipment.

Also during second quarter 2019, we entered into a Settlement Agreement and First Amendment to the
Patent License Agreement with Asustek Computer Incorporated (“Asus”). The agreement provides for, among
other things, a multi-year amendment to our 2008 patent license agreement with Asus (the “2008 Asus PLA”)
that adds coverage for 4G technologies and amends certain other terms of the 2008 Asus PLA.

Licenses Through Platforms

During fourth quarter 2019, Google was granted a multi-year, worldwide, non-exclusive, royalty-bearing
patent license covering the sale of certain of its 3G and 4G mobile communication devices. We entered into this
agreement through a licensing platform.

Also during fourth quarter 2019, as part of the Madison Arrangement, we entered into a multi-year,
non-exclusive, royalty-bearing patent license agreement with Funai Electric Co., Ltd. (“Funai”). The agreement
covers the U.S. sales of Funai’s DTVs.

During 2019, Avanci announced that it entered into several patent license agreements with new licensees,

including Audi and Porsche, the Volkswagen Group Companies and Volvo Cars.

Refer to the “Critical Accounting Policies and Estimates — Revenue Recognition” section below for details
of our revenue recognition accounting policies and additional
information on agreements with multiple
performance obligations, as well as the estimates and methods used to determine the fair value of patents
acquired, when applicable.

Expiration of License Agreements

Our patent license agreements with two licensees expired during 2019. No revenue was recognized under

either agreement in 2019.

Our patent

license agreement with LG is scheduled to expire at

the end of 2020. LG contributed

$31.8 million, or approximately 11%, of our recurring revenue in 2019.

Our patent license agreements with seven other licensees are scheduled to expire during 2020. Collectively
with LG, all eight agreements expiring in 2020 accounted for $35.1 million, or approximately 12%, of our
recurring revenue in 2019.

Intellectual Property Rights Enforcement

If we believe a 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 typically offer such party to have royalty rates, or other terms, set by
third party adjudicators (such as arbitrators). If the party refuses that offer and we believe they are unwilling to

2019 Annual Report

38

agree to a patent license on a fair, reasonable and non-discriminatory basis, we may have no other viable recourse
but to institute legal action against them to enforce our patent rights. This legal action has typically taken 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 as to the rights and obligations of the parties
under the applicable license agreement through arbitration or litigation.

During 2019, we filed patent infringement actions in the United Kingdom against Lenovo and Huawei as
more fully discussed in Note 12, “Litigation and Legal Proceedings,” to the Notes to Consolidated Financial
Statements included below in Part II, Item 8 of this Form 10-K. We filed each of these actions after lengthy
periods of negotiation and after the refusal by both Lenovo and Huawei to accept our various proposals to each of
them, including our proposal to have a third party adjudicator set a royalty rate and resolve certain other terms
that we could not mutually agree upon with Lenovo and Huawei, respectively.

In 2019, our intellectual property enforcement costs increased to $25.4 million from $17.6 million and
$15.2 million in 2018 and 2017, respectively. These costs represented 16% of our total patent administration and
licensing costs of $154.9 million in 2019. 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.

Hillcrest Sale

On July 19, 2019, we completed the sale of our Hillcrest product business to a subsidiary of CEVA, Inc. In
connection with the sale, we received initial proceeds of $10.0 million, with a customary portion of the purchase
price placed in escrow to secure potential indemnification claims. As part of the transaction, we retained
substantially all of the Hillcrest patent assets that we acquired in 2016. As a result of this transaction, we
recorded an $8.5 million gain on sale which is included within “Other Income (Expense), Net” in the
consolidated statement of income for the year ended December 31, 2019.

2024 Senior Convertible Notes

On June 3, 2019, we issued the $400.0 million aggregate principal 2024 Notes. The net proceeds from the
offering of the 2024 Notes were approximately $391.6 million after deducting the initial purchasers’ fees and
estimated offering expenses. Additionally, on May 29 and May 31, 2019, in connection with the offering of the
2024 Notes, we entered into the 2024 Call Spread Transactions.

The net proceeds from the issuance of the 2024 Notes, after deducting fees and offering expenses, were used
for the following: (i) $232.7 million was used to repurchase $221.1 million in aggregate principal amount of the
2020 Notes in privately negotiated transactions concurrently with the offering of the 2024 Notes (ii)
$19.6 million was used to repurchase shares of common stock at $62.53 per share, the closing price of the stock
on May 29, 2019; and (iii) $24.4 million, in addition to the proceeds from the 2024 Warrant Transactions, was
used to fund the cost of the 2024 Call Spread Transactions.

The 2024 Notes will be convertible into cash, shares of our common stock or a combination thereof, at our
election, at an initial conversion rate of 12.3018 shares of common stock per $1,000 principal amount of 2024
Notes (which is equivalent to an initial conversion price of approximately $81.29 per share), as adjusted pursuant
to the terms of the Indenture.

Refer to Note 10, “Obligations” within the Notes to the Consolidated Financial Statements included in
Part II, Item 8 of this Form 10-K for defined terms and further discussion of the 2024 Notes and related 2024
Call Spread Transactions.

Cash and Short-Term Investments

As of December 31, 2019, we had $0.9 billion of cash, restricted cash and short-term investments and up to an
additional $404.7 million of payments due under signed agreements, including $28.3 million recorded in accounts

39

2019 Annual Report

receivable which includes estimates related to our fourth quarter 2019 variable patent royalty revenue. A portion of our
cash and short-term investments include fixed royalty payments we have received related to revenue we will record in
the future. As a result, our future cash receipts from existing licenses subject to fixed patent royalties will be lower than
if the royalty payments were structured to coincide with the underlying sales. During 2019, we recorded $295.2 million
of cash receipts related to patent licensing and technology solutions agreements as follows (in thousands):

Patent royalties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Technology solutions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Cash In

$288,123
7,053
$295,176

As of December 31, 2019, approximately $267.6 million of our $270.3 million deferred revenue balance as
of December 31, 2019 related to dynamic fixed-fee royalty payments that were scheduled to amortize as follows
(in thousands):

2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2022 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2023 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2024 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$143,652
76,534
47,430
—
—
—

$267,616

Refer to “New Accounting Guidance” below for a discussion regarding our adoption of ASC 606 effective

January 1, 2018.

Repurchase of Common Stock

In June 2014, our Board of Directors authorized a $300 million share repurchase program (the “2014
Repurchase Program”). In June 2015, September 2017, December 2018, and May 2019, our Board of Directors
authorized four $100 million increases to the program, respectively, bringing the total amount of the 2014
Repurchase Program to $700 million. The Company 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 the total number of shares repurchased and the dollar value of shares repurchased
under the 2014 Repurchase Program (in thousands). As of December 31, 2019, there was approximately
$71.8 million remaining under the stock repurchase authorization.

2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

2014 Repurchase
Program

# of
Shares

2,962
1,478
107
1,304
1,836
3,554

Value

$196,269
110,505
7,693
64,685
96,410
152,625

Total

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

11,241

$628,187

2019 Annual Report

40

Comparability of Financial Results

When comparing our 2019 financial results against the financial results of other periods, the following items

should be taken into consideration:

• the Technicolor Patent Acquisition and the R&I Acquisition, which closed on July 30, 2018 and May 31,
2019, respectively, contributed $32.0 million to our 2019 revenue and $63.0 million to our 2019 operating
expenses. The $63.0 million of operating expenses is comprised of $48.3 million of recurring costs, of
which $16.6 million relates to patent amortization, $8.4 million relates to one-time transaction-related and
integration costs, and $6.3 million relates to revenue sharing from the Madison Arrangement;

• the R&I Acquisition resulted in a net gain of approximately $14.2 million,

inclusive of a $20.5
million gain from the derecognition of a contingent consideration liability, all of which is included within
“Other Income (Expense), Net” within our consolidated statement of income;

• in connection with the offering of the 2024 Notes, we repurchased approximately $221.1 million in
aggregate principal amount of our 2020 Notes, which resulted in the recognition of a $5.5 million loss on
extinguishment of debt that is included in “Other Income (Expense), Net” within our consolidated
statement of income;

• 2019 “Other Income (Expense), Net” also includes an $8.5 million gain on sale of our Hillcrest product
business, as well as a net loss of $2.6 million resulting from the partial impairment of one of our strategic
investments partially offset by a gain on sale of a separate strategic investment;

• our 2019 results include a $5.5 million net charge as contra non-recurring revenue related to a recently

restructured licensing arrangement with a long-term customer; and

• our 2019 income tax provision includes a $2.2 million tax benefit as a result of filing amended tax returns

in connection with the Korea Competent Authority Proceeding, as defined and discussed below.

Critical Accounting Policies and Estimates

Our consolidated financial statements are based on the selection and application of 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 within 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, business combinations
and goodwill, and income taxes. If different assumptions were made or different conditions existed, our financial
results could have been materially different.

Revenue Recognition

On January 1, 2018, we adopted ASU No. 2014-09, “Revenue from Contracts with Customers (Topic 606)”
(ASC 606) using the modified retrospective method. Refer to Note 3, “Revenue Recognition,” within the Notes to
the Consolidated Financial Statements included in Part II, Item 8 of this Form 10-K for further information
regarding our adoption of this guidance. The discussion that follows below is a description of our revenue
recognition practices in effect beginning January 1, 2018 under ASC 606.

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
performance obligations. These agreements can include, without limitation, performance obligations related to

41

2019 Annual Report

the settlement of past patent infringement liabilities, patent and/or know-how licensing royalties on covered
products sold by licensees, access to a portfolio of technology as it exists at a point in time, and access to a
portfolio of technology at a point in time along with a promises to provide any technology updates to the
portfolio during the term.

In accordance with US GAAP, we use a five-step model to achieve the core underlying principle that an
entity should 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. These steps include (1) identifying the
contract with the customer, (2) identifying the performance obligations, (3) determining the transaction price,
(4) allocating the transaction price to the performance obligations, and (5) recognizing revenue as the entity
satisfies the performance obligation(s). Additionally, we have elected to utilize certain practical expedients in the
application of ASC 606. In evaluating the presence of a significant financing component in our agreements, we
utilize the practical expedient to exclude any contracts wherein the gap between payment by our customers and
the delivery of our performance obligation is less than one year. We have also elected to utilize the practical
expedient related to costs of obtaining a contract where an entity may recognize the incremental costs of
obtaining a contract as an expense when incurred if the amortization period of the asset that the entity otherwise
would have recognized is one year or less. Timing of revenue recognition may differ significantly from the
timing of invoicing to customers. Contract assets are included in accounts receivable and represent unbilled
amounts expected to be received from customers in future periods, where the revenue recognized to date exceeds
the amount billed, and right to payment is subject to the underlying contractual terms. Contract assets are
classified as long-term assets if the payments are expected to be received more than one year from the reporting
date. Contract assets due within less than twelve months of the balance sheet date are included within accounts
receivable in our consolidated balance sheets. Contract assets due more than twelve months after the balance
sheet date are included within other non-current assets.

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 indicated
above. Certain patent license agreements contain revenue from non-financial sources in the form of patents
received from the customer. 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 as prescribed by the five-step model.

Fixed-Fee Agreements

Fixed-fee license agreements include fixed, 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).

Dynamic fixed-fee license agreements contain a single performance obligation that represents ongoing
access to a portfolio of technology over the license term, since our promise to transfer to the licensee access
to the portfolio as it exists at inception of the license, along with promises to provide any technology

2019 Annual Report

42

updates to the portfolio during the term, are not separately identifiable. Upon entering a new agreement, we
allocate the transaction price to the performance obligations delivered at signing (e.g. our existing patent
portfolio) and future performance obligations (e.g. the technology updates). We use a time-based input
method of progress to determine the timing of revenue recognition, and as such we recognize the future
deliverables on a straight-line basis over the term of the agreement. We utilize the straight-line method as
we believe that it best depicts efforts expended to develop and transfer updates to the customer evenly
throughout the term of the agreement.

Static fixed-fee license agreements are fixed-price contracts that generally do not include updates to
technology we create after the inception of the license agreement or in which the customer does not stand to
substantively benefit from those updates during the term. Although we have few static fixed-fee license
agreements, we generally satisfy our performance obligations under such agreements at contract signing,
and as such revenue is recognized at that time.

Variable Agreements

Upon entering a new variable patent license agreement, the licensee typically agrees to pay royalties or
license fees on licensed products sold during the term of the agreement. We utilize the sales- or usage- based
royalty exception for these agreements and recognize revenues during the contract term when the underlying sale
or usage occurs. Our licensees under variable agreements 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, we are
required to estimate revenues, subject to the constraint on our ability to estimate such amounts.

Technology Solutions

Technology solutions revenue consists of revenue from royalty payments, software licenses, engineering
services and product sales. The nature of these contracts and timing of payments vary. We recognize revenue
from royalty payments and license agreements using the same methods described above under our policy for
recognizing revenue from patent license agreements. We recognize revenue from engineering services using
percentage of completion method.

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 in accordance with the
five-step model, generally upon closing of the patent sale transaction.

Agreements with Multiple Performance Obligations

During 2019, we signed three new agreements that had multiple performance obligations. Consistent with
the revenue recognition policies disclosed above under ASC 606, we (1) identified the contract with the
customer, (2) identified the performance obligations, (3) determined the transaction price, (4) allocated the
transaction price to the performance obligations, and (5) recognized revenue as we satisfy the performance
obligations. We allocated the transaction price to each performance obligation for accounting purposes using our
best estimate of the term and value. The process for determining the value of the standalone selling prices of
identified performance obligations in dynamic fixed-fee license agreements requires the exercise of significant
judgment when evaluating the valuation methods and assumptions, including the assumed royalty rates, projected
sales volumes, discount rate, and comparable market transactions which are not directly observable 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 performance obligation for accounting purposes. These inputs and
assumptions represent management’s best estimates at the time of the transaction.

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2019 Annual Report

The impact that a five percent change in the aggregate amount allocated to past patent royalties under these

agreements would have had on 2019 revenue is summarized in the following table (in thousands):

Allocation to past patent royalties

Change in amount
allocated

+5%

-%5

Change in Revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$1,618

$(1,618)

Revenue from Non-financial Sources

During 2019, 2018 and 2017, our patent licensing royalties were derived from patent license agreements
(“PLAs”) with 69, 66 and 27 independent licensees, respectively. The number of independent licensees largely
increased from 2017 to 2018 due to the Technicolor Patent Acquisition. We recognized revenue from four, three
and five PLAs in 2019, 2018 and 2017, respectively, for which patents generally comprised less than forty-
percent of the total consideration paid or due to us under those agreements. In addition, during 2019, 2018 and
2017, 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 to our licensee under this PPA is approximately 56% of the
total cash due to us under this licensee’s PLA. During 2019, 2018 and 2017, approximately 6%, 3% and 4%,
respectively, of our total revenue was based on the estimated fair value of the patents in the above transactions.

The process for determining the value of revenue from non-financial sources requires estimating the fair
value of patents received. We estimated the fair value of the patents in the above transactions using one of, or a
combination of, an analysis of comparable market transactions (the market approach), a discounted cash flow
analysis (the income approach) and/or by quantifying the amount of money required to replace the future service
capability of the assets (the cost 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. For the cost approach, we utilized
the historical cost of assets of similar technologies to determine the estimated replacement cost, including
research, development, testing and patent application fees. 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 comparable market transactions, assumed royalty rates, projected 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 aggregate value of the patents acquired would have
had on 2019 revenue, patent amortization and pre-tax income is summarized in the following table (in
thousands).

Estimated value of patents acquired in connection with PLAs

Revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less: Patent amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Pre-tax income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Change in estimate

+5%

-%5

$1,070
672

$ 398

$(1,070)
(672)

$ (398)

Compensation Programs

We use a variety of compensation programs to attract, retain and motivate our employees, and to more
closely align employee compensation with company performance. These programs include, but are not limited
to, short-term incentives tied to performance goals, cash awards to inventors for filed patent applications and
patent issuances, and long-term incentives in the form of stock option awards, time-based restricted stock unit

2019 Annual Report

44

(“RSU”) awards, performance-based awards and cash awards, noting equity awards are granted pursuant to the
terms and conditions of our Equity Plans (as defined within the Notes to the Consolidated Financial Statements
included in Part II, Item 8 of this Form 10-K). Our long-term incentives, including equity awards, typically
include annual equity and cash award grants with three- to five-year vesting periods; as a result, in any one year,
we are typically accounting for at least three active cycles.

The aggregate amount of performance compensation expense we record in a period, under both short-term
and long-term incentive compensation programs, requires the input of subjective assumptions and is a function of
our estimated progress toward performance compensation goals at both the beginning and 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 2019 on the assumption that all plans and
active cycles thereunder would be paid out at 100%, we would have recorded approximately $12.5 million more
in compensation expense in 2019 than we actually recorded.

We account for compensation costs associated with share-based compensation based on the fair value of the
instruments issued. The estimated value of stock options includes assumptions around expected life, stock
volatility and dividends. The expected life of our stock option awards is 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 the event of canceled awards, we adjust compensation expense recognized to date as they occur. Tax
windfalls and shortfalls related to the tax effects of employee share-based compensation are included in our tax
provision. On the consolidated statements of cash flows, tax windfalls and shortfalls related to employee share-
based compensation awards are included within operating activities and cash paid to tax authorities for shares
withheld are included within financing activities. The inclusion of windfalls and shortfalls in the tax provision
could increase our earnings volatility between periods. Tax windfalls related to share-based compensation for the
years ended 2019, 2018 and 2017 were $0.2 million, $1.8 million and $12.1 million, respectively.

The below table summarizes our supplemental compensation expense for 2019, 2018 and 2017,

in

thousands:

Short-term incentive compensation . . . . . . . . . . . . . . . . . . . . . . . .
Time-based awards (a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Performance-based awards (a) (b) . . . . . . . . . . . . . . . . . . . . . . . . .
Other share-based compensation . . . . . . . . . . . . . . . . . . . . . . . . . .

$14,129
6,327
299
1,307

$13,045
5,985
1,415
1,768

$13,994
6,958
6,883
4,999

Total supplemental compensation expense . . . . . . . . . . . . . . . . . . . .

$22,062

$22,213

$32,834

2019

2018

2017

(a) For 2019, 2018 and 2017, approximately 5%, 28%, and 6%, respectively, of the aggregate expense
associated with time-based and performance-based awards related to cash awards. The increase in cash
awards in 2018 is primarily related to certain cash-based executive retirement awards.

(b)

Includes a charge of $0.4 million in 2017 to increase the accrual rates under our long-term incentive
programs driven by the Company’s success toward achieving goals for the related cycles. There were no
changes to the accrual rates under our long-term incentive programs during 2019 or 2018.

45

2019 Annual Report

Business Combinations and Goodwill

Acquisitions that qualify as a business combination are accounted for using the acquisition method of
accounting. The fair value of consideration transferred for an acquisition is allocated to the assets acquired and
liabilities assumed based on their fair value as of the acquisition date. Goodwill is recorded as the difference, if
any, between the aggregate consideration paid for an acquisition and the fair value of the net tangible and
identified intangible assets acquired under a business combination.

Under the acquisition method of accounting,

the Company completes valuation procedures for an
acquisition to determine the fair value of the assets acquired and liabilities assumed. These valuation procedures
require management to make assumptions and apply significant judgment to estimate the fair value of the assets
acquired and liabilities assumed. If the estimates or assumptions used should significantly change, the resulting
differences could materially affect the fair value of net assets. We estimate the fair value of the intangible assets
acquired generally through 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, we base the inputs
and assumptions used to develop these estimates on a market participant perspective which includes estimates of
projected revenues, discount rates, economic lives and income tax rates, among others, all of which require
significant management judgment. For the market approach, we apply judgment to identify the most comparable
market transactions to the transaction. Definite-lived intangible assets, which are primarily comprised of patents,
are amortized over their estimated useful lives using the straight-line method and are assessed for impairment
whenever events or changes in circumstances indicate the carrying value of the asset may not be recoverable.

Goodwill is not amortized but is reviewed for impairment annually on the first day of the fourth quarter, or
when events or changes in the business environment indicate that the carrying value of a reporting unit may
exceed its fair value. We first assess qualitative factors to determine whether it is more likely than not that the
fair value of a reporting unit is less than its carrying amount as a basis for determining whether a quantitative
goodwill impairment test is necessary. If we conclude it is more likely than not that the fair value of a reporting
unit exceeds its carrying amount, we need not perform the quantitative assessment. If based on the qualitative
assessment we believe it is more likely than not that the fair value of a reporting unit is less than its carrying
value, a quantitative assessment test is required to be performed. This assessment requires us to compare the fair
value of each reporting unit to its carrying value including allocated goodwill. We determine the fair value of our
reporting units generally using a combination of the income and market approaches. If the carrying value of a
reporting unit exceeds the reporting unit’s fair value, a goodwill impairment charge will be recorded for the
difference up to the carrying value of goodwill.

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 in which the change was enacted. 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 U.S. 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.

2019 Annual Report

46

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 2019, we paid approximately $177.4 million in foreign taxes to foreign governments that
have tax treaties with the U.S., for which we have claimed foreign tax credits against our U.S. tax obligations,
and for which the tax treaty procedures are still open. 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 foreign currency fluctuations, any
such agreement could result in foreign currency gain or loss.

On November 8, 2019, the Company received notification that its request for competent authority pertaining
to Article 25 (Mutual Agreement Procedure) of the United States-Republic of Finland Income Tax Convention
had been reviewed by the IRS and an agreement has been reached (the “Finland Competent Authority
Proceeding”). As a result of this agreement, the Company does not anticipate any tax consequences.

On July 24, 2018, the Company received notification that its request for competent authority pertaining to
Article 27 (Mutual Agreement 14 Table of Contents Procedure) of the United States-Republic of Korea Income
Tax Convention had been reviewed by the IRS and an agreement had been reached (the “Korea Competent
Authority Proceeding”). As a result of this agreement, the Company received refunds of $97.4 million, inclusive
of interest. In addition, we have recorded a net tax benefit of $14.7 million in our full year 2018. In September
2019 the amended tax returns for tax years covered by this agreement were filed and an additional benefit of
$2.2 million was recorded related to the final refund the Company expects to receive.

New Accounting Guidance

Refer to Note 2, “Summary of Significant Accounting Policies and New Accounting Guidance” within the
Notes to the Consolidated Financial Statements included in Part II, Item 8 of this Form 10-K for a discussion of
recently issued accounting guidance.

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 Note 12, “Litigation and Legal Proceedings,” to the Notes to Consolidated Financial Statements
included below in Part II, Item 8 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, debt obligations (including the repayment of the
remaining $94.9 million of our 2020 Notes), existing stock repurchase program and dividend program for the
next twelve months.

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2019 Annual Report

Cash, cash equivalents, restricted cash and short-term investments

As of December 31, 2019 and December 31, 2018, we had the following amounts of cash, cash equivalents,

restricted cash and short-term investments (in thousands):

December 31,
2019

December 31,
2018

Increase /
(Decrease)

Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $745,491
Restricted cash included within prepaid and other current

assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restricted cash included within other non-current assets . . . . . .
Short-term investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

10,526
1,081
179,204

$475,056

$ 270,435

13,677
—
470,724

(3,151)
1,081
(291,520)

Total cash, cash equivalents, restricted cash and short-term

investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $936,302

$959,457

$ (23,155)

The net decrease in cash, cash equivalents, restricted cash and short-term investments was attributable to
cash used in financing activities of $89.3 million and cash used in investing activities, excluding sales and
purchases of short-term investments, of $28.3 million. These uses were partially offset by cash provided by
operating activities of $89.4 million. Cash used in financing activities primarily related to share repurchases,
dividend payments and cash payments for payroll taxes upon vesting of restricted stock units, partially offset by
net proceeds from the debt refinancing and related expenses and proceeds received from non-controlling
interests. Cash used in investing activities, excluding sales and purchases of short-term investments, primarily
related to capital investments for patents and fixed assets, partially offset by proceeds received from the sale of
our Hillcrest product business. Refer to the sections below for further discussion of these items.

Cash flows from operations

We generated the following cash flows from our operating activities in 2019 and 2018 (in thousands):

For the Year Ended December 31,

2019

2018

Increase /
(Decrease)

Cash flows provided by operating activities . . . . . . . . . . . . . . . . . .

$89,433

$146,792

$(57,359)

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 $57.4 million was due to both a decrease in cash
receipts primarily attributable to the timing of cash receipts from our dynamic fixed-fee royalty agreements for

2019 Annual Report

48

existing licensees and higher cash operating expenses driven by the Technicolor Acquisitions. The table below
provides the significant items comprising our cash flows provided by operating activities during the years ended
December 31, 2019 and 2018 (in thousands).

For the Year Ended December 31,

2019

2018

Increase /
(Decrease)

Cash Receipts:

Patent royalties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Technology solutions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 288,123
7,053

$ 322,835
2,537

$(34,712)
4,516

Total cash receipts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 295,176

$ 325,372

$(30,196)

Cash Outflows:

Cash operating expenses (a) . . . . . . . . . . . . . . . . . . . . . . . . . .
Income taxes paid, net of refunds (b) . . . . . . . . . . . . . . . . . . .

(195,682)
(24,229)

(167,728)
(16,426)

(27,954)
(7,803)

Total cash outflows . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(219,911)

(184,154)

(35,757)

Other working capital adjustments . . . . . . . . . . . . . . . . . . . .

14,168

5,574

8,594

Cash flows provided by operating activities . . . . . . . . . . . . .

$ 89,433

$ 146,792

$(57,359)

(a) Cash operating expenses include operating expenses less depreciation of fixed assets, amortization of

patents, non-cash compensation and non-cash changes in fair value.

(b)

Income taxes paid include foreign withholding taxes. For the year ended December 31, 2018, this amount
includes a net cash benefit of $17.5 million related to the Korea Competent Authority Proceeding discussed
further above and within Note 14, “Income Taxes,” in the consolidated financial statements.

Cash provided by or used in investing and financing activities

Net cash provided by investing activities in 2019 was $268.3 million, a $198.3 million change from
$70.0 million net cash provided by investing activities in 2018. During 2019, we sold $296.6 million of short-
term marketable securities, net of purchases. We also received initial proceeds of $10.0 million related to the sale
of our Hillcrest product business, with a customary portion of the purchase price placed in escrow to secure
potential indemnification claims. During 2018, we sold $256.6 million of short-term marketable securities, net of
purchases, and applied a substantial portion of the proceeds from our sale of short-term marketable securities
toward the $143.0 million, net of cash acquired, paid for the Technicolor Patent Acquisition. Long-term
investments decreased by $6.3 million due to a decrease in strategic investment activity.

Net cash used in financing activities for 2019 was $89.3 million, a $71.7 million decrease from net cash
used in financing activities of $161.1 million in 2018. This change was attributable to several offsetting factors.
The second quarter 2019 debt refinancing, including the repayment of approximately 70% of our 2020 Notes,
and related expenses resulted in net proceeds of $140.2 million during 2019. Additionally, proceeds from
noncontrolling interests were $15.7 million and there was a $4.4 million decrease in payroll taxes paid upon the
vesting of restricted stock units during 2019 as compared to 2018. Lastly, there was a $3.9 million decrease in
dividends paid attributable to repurchases of common stock. These increases in cash were offset by a
$85.8 million increase in repurchases of common stock and a $6.7 million decrease in proceeds received from the
exercise of stock options.

Other

Our combined short-term and long-term deferred revenue balance at December 31, 2019 was approximately
$270.3 million, an increase of $1.0 million from December 31, 2018. Based on current license agreements, we
expect the amortization of dynamic fixed-fee royalty payments to reduce the December 31, 2019 deferred
revenue balance of $270.3 million by $143.7 million over the next twelve months.

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2019 Annual Report

Convertible Notes

Our Convertible Notes are included in the dilutive earnings per share calculation using the treasury stock
method. Under the treasury stock method, we must calculate the number of shares of common stock issuable
under the terms of the Convertible Notes based on the average market price of our common stock during the
applicable reporting period and include that number in the total diluted shares figure for the period. At the time
we issued the Convertible Notes, we entered into the 2024 Call Spread Transactions and the 2020 Call Spread
Transactions, respectively, (each as defined in the Notes to the Consolidated Financial Statements included in
Part II, Item 8 of this Form 10-K). The 2024 Call Spread Transactions and the 2020 Call Spread Transactions
were designed to have the economic effect of reducing the net number of shares that will be issued in excess of
the principal amount of converted Notes in the event of conversion of the Convertible Notes if the market price
per share of our common stock is greater than the strike price of the 20204 Note Hedge Transactions or 2020
Note Hedge Transactions, as applicable, by, in effect, increasing the conversion price of the Convertible Notes
from our economic standpoint. However, under GAAP, since the impact of the 2024 Note Hedge Transactions
and 2020 Note Hedge Transactions (together, the “Note Hedge Transactions”) is anti-dilutive, we exclude from
the calculation of fully diluted shares the number of shares of our common stock that we would receive from the
counterparties to these agreements upon settlement.

During periods in which the average market price of our common stock is above the applicable conversion
price of the Convertible Notes ($81.29 per share for the 2024 Notes and $70.64 per share for the 2020 Notes as
of December 31, 2019) or above the strike price of the warrants ($109.43 per share for the 2024 Warrant
Transactions and $86.34 per share for the 2020 Warrant Transactions as of December 31, 2019), the impact of
conversion or exercise, as applicable, would be dilutive and such dilutive effect is reflected in diluted earnings
per share. As a result, in periods where the average market price of our common stock is above the conversion
price or strike price, as applicable, under the treasury stock method, we calculate the number of shares issuable
under the terms of the Convertible Notes and the warrants based on the average market price of the stock during
the period, and includes that number in the total diluted shares outstanding for the period.

Under the treasury stock method, changes in the price per share of our common stock can have a significant
impact on the number of shares that we must include in the fully diluted earnings per share calculation. As
described in Note 10, “Obligations,” it is our current intent and policy to settle all conversions of the Convertible
Notes through a combination settlement of cash and shares of common stock, with a specified dollar amount of
$1,000 per $1,000 principal amount of the Convertible Notes and any remaining amounts in shares (“net share
settlement”). Assuming net share settlement upon conversion, the following table illustrates how, based on the
$400.0 million aggregate principal amount of the 2024 Notes and the $94.9 million remaining aggregate
principal amount of the 2020 Notes as of December 31, 2019, and the approximately 4.9 million warrants related
to the 2024 Notes and the 1.3 million remaining warrants related to the 2020 Notes, outstanding as of the same
date, changes in our stock price would affect (i) the number of shares issuable upon conversion of the
Convertible Notes, (ii) the number of shares issuable upon exercise of the warrants subject to the 2024 Warrant
the “Warrant Transactions”), (iii) the number of
Transactions and 2020 Warrant Transactions (together,
additional shares deemed outstanding with respect to the Convertible Notes, after applying the treasury stock
method, for purposes of calculating diluted earnings per share (“Total Treasury Stock Method Incremental
Shares”), (iv) the number of shares of common stock deliverable to us upon settlement of the Note Hedge

2019 Annual Report

50

Transactions, and (v) the number of shares issuable upon concurrent conversion of the Convertible Notes,
exercise of the warrants subject to the Warrant Transactions, and settlement of the Note Hedge Transactions:

2024 Notes

Market Price Per
Share

Shares Issuable
Upon
Conversion of
the 2024 Notes

Shares Issuable
Upon Exercise of
the 2024 Warrant
Transactions

Total Treasury
Stock Method
Incremental
Shares

(Shares in thousands)

Shares Deliverable
to InterDigital
upon Settlement of
the 2024
Note Hedge
Transactions

Incremental
Shares Issuable (a)

$ 85
$ 90
$ 95
$100
$105
$110
$115
$120
$125
$130

215
476
710
921
1,111
1,284
1,442
1,587
1,721
1,844

—
—
—
—
—
25
238
433
613
779

2020 Notes

215
476
710
921
1,111
1,309
1,680
2,020
2,334
2,623

(215)
(476)
(710)
(921)
(1,111)
(1,284)
(1,442)
(1,587)
(1,721)
(1,844)

—
—
—
—
—
25
238
433
613
779

Market Price Per
Share

Shares Issuable
Upon
Conversion of
2020 Notes

Shares Issuable
Upon Exercise of
Warrants

Total Treasury
Stock Method
Incremental
Shares

(Shares in thousands)

Shares Deliverable
to InterDigital
upon Settlement of
the Hedge
Agreements

Incremental
Shares Issuable (a)

$ 75
$ 80
$ 85
$ 90
$ 95
$100
$105
$110
$115
$120

78
157
227
289
344
394
440
481
518
553

—
—
—
55
122
184
239
289
335
377

78
157
227
344
466
578
679
770
853
930

(78)
(157)
(227)
(289)
(344)
(394)
(440)
(481)
(518)
(553)

—
—
—
55
122
184
239
289
335
377

(a) Represents incremental shares issuable upon concurrent conversion of convertible notes, exercise of

warrants and settlement of the hedge agreements.

Contractual Obligations

As discussed above, on June 3, 2019 we issued $400.0 million in aggregate principal amount of 2.00%
Senior Convertible Notes due 2024, or the 2024 Notes. The 2024 Notes bear interest at a rate of 2.00% per year,
payable in cash on June 1 and December 1 of each year, commencing on December 1, 2019, and mature on
June 1, 2024, unless earlier converted or repurchased.

On March 11, 2015, we issued $316.0 million in aggregate principal amount of 1.50% Senior Convertible
Notes due 2020, or 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. We used a portion of the proceeds from the issuance of the 2024 Notes to
repurchase $221.1 million in aggregate principal amount of the 2020 Notes. As a result, $94.9 million in
aggregate principal amount of the 2020 Notes remains outstanding as of December 31, 2019.

51

2019 Annual Report

For more information on the 2024 Notes and 2020 Notes, see Note 10, “Obligations,” within the Notes to

the 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, 2019 (in thousands):

2020 Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Contractual interest payments on the 2020 Notes . . . . .
2024 Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Contractual interest payments on the 2024 Notes . . . . .
Operating lease obligations . . . . . . . . . . . . . . . . . . . . . .
Defined benefit plan obligations (a) . . . . . . . . . . . . . . . .
Purchase obligations (b) . . . . . . . . . . . . . . . . . . . . . . . . .

Payments Due by Period

Total

$ 94,909
712
400,000
35,356
36,556
3,261
16,074

Less Than
1 year

$ 94,909
712
—
8,000
5,535
94
16,074

1-3 Years

3-5 Years

Thereafter

— $ —
$ — $
—
—
—
—
— 400,000
—
11,356
11,355
9,014
1,935
816
—
—

16,000
10,652
416
—

Total contractual obligations . . . . . . . . . . . . . . . . . . . . .

$586,868

$125,324

$27,068

$421,186

$13,290

(a) Refer to Note 5, “Business Combinations and Other Transactions,” within the Notes to the Consolidated
Financial Statements included in Part II, Item 8 of this Form 10-K for details of our defined benefit plan
obligations. Estimated future benefit payments included above are through 2029.

(b) 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 as of December 31, 2019 includes a $4.5 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.

As of December 31, 2019, we have recorded long-term debt of $21.1 million related to the Technicolor
Patent Acquisition. Additionally, as part of the Technicolor Patent Acquisition, we committed to contributing
cash, subject to certain requirements, of up to a maximum of $25.0 million to fund a collaborative arrangement
related to the transaction. Lastly, we are subject to a revenue-sharing arrangement with Technicolor resulting
from the Technicolor Acquisitions.

Refer to Note 5, “Business Combinations and Other Transactions,” within the Notes to the Consolidated
Financial Statements included in Part II, Item 8 of this Form 10-K for further information. Due to the uncertainty
regarding the timing and amount of future payments related to these items, the amounts are excluded from the
contractual obligations table above.

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements as defined by Item 303(a)(4) of Regulation S-K.

2019 Annual Report

52

RESULTS OF OPERATIONS

2019 Compared with 2018

Revenues

The following table compares 2019 revenues to 2018 revenues (in thousands). Amounts below for the years

ended December 31, 2019 and 2018 are presented in accordance with ASC 606.

For the Year Ended
December 31,

2019

2018

Total
Increase/(Decrease)

Variable patent royalty revenue . . . . . . . . . . . . . . . . . . . . .
Fixed-fee royalty revenue . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 30,428
257,221

$ 36,384
239,347

Current patent royalties a . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-current patent royalties b . . . . . . . . . . . . . . . . . . . . . .

Total patent royalties . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Current technology solutions revenue a . . . . . . . . . . . . . . .
Patent sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

287,649
19,782

307,431
10,518
975

275,731
26,329

302,060
4,594
750

$ (5,956)
17,874

11,918
(6,547)

5,371
5,924
225

Total revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$318,924

$307,404

$11,520

(16)%
7%

4%
(25)%

2%
129%
30%

4%

(a) Recurring revenues are comprised of current patent royalties, inclusive of Dynamic Fixed-Fee Agreement

royalties, and current technology solutions revenue.

(b) Non-recurring revenues are comprised of non-current patent royalties, which primarily include past patent

royalties and royalties from static agreements, as well as patent sales.

The $11.5 million increase in total revenue was driven by an increase in recurring revenue of $17.8 million,
primarily attributable to fixed-fee royalties and current technology solutions revenue. Fixed-fee royalty revenue
increased by $17.9 million, primarily resulting from a dynamic fixed-fee agreement signed in each of the fourth
quarters of 2018 and 2019. The increase in current technology solutions revenue related to the inclusion of
engineering services revenue attributable to our on-going relationship with Technicolor. These increases were
partially offset by a decrease variable patent royalties, which was primarily due to a restructured licensing
arrangement with a long-term customer in first quarter 2019 whose revenues are now classified as fixed-fee
royalty revenue and have declined as compared to prior year. This decrease in variable patent royalties was
partially negated by the inclusion of variable patent royalties assumed as part of the Technicolor Patent
Acquisition. Additionally, non-current patent royalties decreased by $6.5 million primarily due to a $5.5 million
net charge recorded as contra non-recurring revenue during first quarter 2019 related to a restructured licensing
arrangement with a long-term customer.

In 2019 and 2018, 70% and 71% of our total revenues, respectively, were attributable to companies that
individually accounted for 10% or more of our total revenues. In 2019 and 2018, the following licensees or
customers accounted for 10% or more of our total revenues:

Apple . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Samsung . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
LG . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

35%
25%
10%

36%
25%
10%

For the Year Ended
December 31,

2019

2018

53

2019 Annual Report

Operating Expenses

The following table summarizes the change in operating expenses by category (in thousands):

For the Year Ended
December 31,

2019

2018

Increase/(Decrease)

Patent administration and licensing . . . . . . . . . . . . . . . .
Development
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Selling, general and administrative . . . . . . . . . . . . . . . .

$154,940
74,860
51,289

$124,081
69,698
51,030

$30,859
5,162
259

Total operating expenses . . . . . . . . . . . . . . . . . . . . . . . .

$281,089

$244,809

$36,280

25%
7%
1%

15%

Operating expenses increased 15% to $281.1 million in 2019 from $244.8 million in 2018. The
$36.3 million increase in total operating expenses was primarily due to increases/(decreases) in the following
items (in thousands):

Recurring operations of the Technicolor Acquisitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
One-time costs related to the Technicolor Acquisitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Revenue sharing for Madison Arrangement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Intellectual property enforcement and non-patent litigation . . . . . . . . . . . . . . . . . . . . . . . . .
Personnel-related costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Increase/
(Decrease)

$32,137
(9,325)
6,260
7,089
1,203
(1,084)

Total increase in operating expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$36,280

The $36.3 million increase in operating expenses was primarily driven by the Technicolor Acquisitions,
which contributed $63.0 million to 2019 operating expenses following our May 2019 R&I Acquisition. This
compares to $34.0 million of operating expenses in 2018 following our July 2018 Technicolor Patent
Acquisition. The $63.0 million of operating expenses in 2019 resulting from the Technicolor Acquisitions is
comprised of $48.3 million of recurring costs, of which $16.6 million relates to patent amortization, $8.4
million relates to transaction and integration costs during 2019, and the remaining $6.3 million relates to revenue
sharing for the Madison Arrangement. The $34.0 million of operating expenses in 2018 resulting from the
Technicolor Patent Acquisition was comprised of $16.2 million for five months of recurring costs, of which
$6.8 million related to patent amortization, and the remaining $17.8 million related to transaction and integration
costs. The $7.1 million increase in intellectual property enforcement and non-patent litigation was primarily due
to the enforcement proceedings we initiated against Lenovo and Huawei in second half 2019. The increase in
personnel-related costs was primarily related to severance and related expenses associated with ongoing efforts to
optimize our cost structure, as well as one-time costs associated with the sale of our Hillcrest product business.

Patent administration and licensing expense: The $30.9 million increase in patent administration and
licensing expense primarily resulted from the above-noted increases related to the Technicolor Acquisitions and
intellectual property enforcement costs.

Development expense: The $5.2 million increase in development expense primarily resulted from the
above-noted increases related to the Technicolor Acquisitions, as discussed above, partially offset by reduced
spending on development of commercial solutions driven by the sale our Hillcrest product business.

Selling, general and administrative expense: The $0.3 million increase in selling, general and
administrative expense primarily resulted from the above-noted increases related to the Technicolor Acquisitions
and increased personnel-related costs, discussed above.

2019 Annual Report

54

Non-Operating Income (Expense)

The following table compares 2019 non-operating income (expense) to 2018 non-operating income

(expense) (in thousands):

For the Year Ended
December 31,

2019

2018

Increase / (Decrease)

Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest and investment income . . . . . . . . . . . . . . . . . . . .
Gain on asset acquisition and sale of business . . . . . . . . .
Loss on extinguishment of long-term debt . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . .
Other income (expense), net

$(40,955)
14,991
22,690
(5,488)
(3,131)

$(35,956)
14,590
—
—
(9,171)

$ (4,999)
401
22,690
(5,488)
6,040

Total non-operating income (expense) . . . . . . . . . . . . . . .

$(11,893)

$(30,537)

$18,644

(14)%
3%
—%
—%
(66)%

61%

The change in non-operating income (expense) between periods was primarily driven by the recognition of
an aggregate $22.7 million gain on asset acquisition and sale of business during the year ended December 31,
2019, of which $14.2 million relates to the R&I Acquisition in second quarter 2019 and $8.5 million relates to
the gain on sale of our Hillcrest product business in third quarter 2019. These gains were partially offset by the
recognition of a $5.5 million loss on extinguishment of debt recognized in connection with the settlement of a
portion of our 2020 Notes in second quarter 2019.

Additionally, during the year ended December 31, 2019, we recognized a net loss of $2.6 million resulting
from the partial impairment of one of our strategic investments partially offset by a gain on sale of a separate
strategic investment. During the year ended December 31, 2018, we recognized an aggregate $8.4 million loss
resulting from the sale of our entire ownership interest in one of our strategic investments and the impairment of
a separate strategic investment. These items are included in the “Other income (expense), net” caption in the
table above. Higher interest expense relates to interest on the 2024 Notes and interest incurred on long-term debt
resulting from the Technicolor Patent Acquisition.

Income Taxes

In 2019, based on the statutory federal tax rate net of discrete federal and state taxes, our effective tax rate
was a provision of 42.4%. The effective tax rate for 2019 was unfavorably impacted by an $8.0 million provision
associated with valuation allowances on the Company’s losses in jurisdictions for which the Company receives
no benefit. As a result of the difference in timing between US GAAP revenue and tax revenue, the Company’s
estimate of current taxable income is zero. The Company was unable to benefit from favorable rates associated
with Foreign Derived Intangible Income (“FDII”) as a result of having zero taxable income.

This is compared to an effective tax rate benefit of 85.5% in 2018, based on the statutory federal tax rate net
of discrete federal and state taxes. The effective tax rate for 2018 was impacted by an $18.0 million benefit
associated with the FDII deduction provisions contained within the Tax Cuts and Jobs Act, or TCJA, and a
$14.7 million benefit from expected amended returns related to the Korea Competent Authority Proceeding
settlement discussed above.

On March 6, 2019, the IRS issued proposed regulations for FDII. We are currently evaluating the impact of

the proposed regulations and will record the impact, if any, as applicable when the regulations become finalized.

55

2019 Annual Report

2018 Compared with 2017

Revenues

The following table compares 2018 revenues to 2017 revenues (in thousands). Amounts below for the year
ended December 31, 2018 are presented in accordance with ASC 606 and amounts below for the year ended
December 31, 2017 are presented in accordance with ASC 605.

For the Year Ended
December 31,

Components of
Increase/(Decrease)

2018

2017

Total
Increase/(Decrease)

Due to
ASC 606

Operational

Total

Variable patent royalty

revenue . . . . . . . . . . . . . . . . .
Fixed-fee royalty revenue . . . . .

$ 36,384
239,347

$ 47,840
301,628

$ (11,456)
(62,281)

(24)% $
(21)% (79,341)

(461) $ (10,995) $ (11,456)
(62,281)

17,060

Current patent royalties a
Non-current patent

. . . . .

275,731

349,468

(73,737)

(21)% (79,802)

6,065

(73,737)

royalties b . . . . . . . . . . . . . . .

26,329

162,890

(136,561)

(84)%

10,000

(146,561)

(136,561)

Total patent royalties . . . . . . . .
Current technology solutions

revenue a . . . . . . . . . . . . . . . .
Patent sales . . . . . . . . . . . . . . . .

302,060

512,358

(210,298)

(41)% (69,802)

(140,496)

(210,298)

4,594
750

20,580
—

(15,986)

(78)%
750 —%

(4,907)
—

(11,079)
750

(15,986)
750

Total revenue . . . . . . . . . . . . . .

$307,404

$532,938

$(225,534)

(42)% $(74,709) $(150,825) $(225,534)

(a) Recurring revenues are comprised of current patent royalties, inclusive of Dynamic Fixed-Fee Agreement

royalties, and current technology solutions revenue.

(b) For the year ended December 31, 2018, non-recurring revenues are comprised of non-current patent
royalties, which primarily include past patent royalties and royalties from static agreements, as well as
patent sales. For the year ended December 31, 2017, non-current royalties consist of past patent royalties.

As discussed above, we adopted new revenue guidance, ASC 606, effective January 1, 2018. Consistent
with the modified retrospective adoption method, our results of operations for periods prior to our adoption of
ASC 606 remain unchanged. As a result, the difference in accounting principles attributable to the adoption of
ASC 606 accounted for $74.7 million of the decrease in net revenue. This decrease was primarily related to
pre-existing static fixed-fee license agreements.

The $150.8 million “Operational” decrease in total revenue was primarily driven by a decrease in
non-current patent royalties. In 2017, non-current patent royalties were primarily attributable to the LG
agreement, the recognition of a prepayment balance remaining under a patent license agreement that expired in
fourth quarter 2017 and our second quarter 2017 settlement agreement with Microsoft Corporation. The
decreases in current technology solutions revenue and variable patent royalties primarily related to the expiration
at the end of 2017 of certain royalty obligations under a technology solutions agreement and decreased shipments
by certain of our variable licensees, respectively. These decreases were partially offset by the LG dynamic
fixed-fee agreement signed in fourth quarter 2017 and new dynamic fixed-fee agreements signed during 2018.

2019 Annual Report

56

In 2018 and 2017, 71% and 61% of our total revenues, respectively, were attributable to companies that
individually accounted for 10% or more of our total revenues. In 2018 and 2017, the following licensees or
customers accounted for 10% or more of our total revenues:

Apple . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Samsung . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
LG . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Huawei a . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
BlackBerry b . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(a) 2017 revenues included $8.4 million of non-current patent royalties.

(b) 2017 revenues included $70.7 million of non-current patent royalties.

For the Year Ended
December 31,

2018

36%
25%
10%
—%
—%

2017

21%
13%
<10%
14%
13%

Operating Expenses

The following table summarizes the change in operating expenses by category (in thousands):

For the Year Ended
December 31,

2018

2017

Increase/(Decrease)

Patent administration and licensing . . . . . . . . . . . . . . . . .
Development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Selling, general and administrative . . . . . . . . . . . . . . . . .

$124,081
69,698
51,030

$102,651
75,724
53,068

$21,430
(6,026)
(2,038)

Total operating expenses . . . . . . . . . . . . . . . . . . . . . . . . .

$244,809

$231,443

$13,366

21%
(8)%
(4)%

6%

Operating expenses increased 6% to $244.8 million in 2018 from $231.4 million in 2017. The $13.4
million increase in total operating expenses was primarily due to increases/(decreases) in the following items (in
thousands):

Recurring operations of the Technicolor Patent Acquisition . . . . . . . . . . . . . . . . . . . . . . . . .
One-time costs related to the Technicolor Patent Acquisition . . . . . . . . . . . . . . . . . . . . . . . .
Intellectual property enforcement and non-patent litigation . . . . . . . . . . . . . . . . . . . . . . . . .
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Performance-based incentive compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consulting services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commercial initiatives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Personnel-related costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Patent maintenance and evaluation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Increase/
(Decrease)

$16,242
15,804
2,605
2,072
(7,921)
(7,127)
(3,738)
(2,912)
(2,067)
408

Total increase in operating expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$13,366

The $13.4 million increase in operating expenses was primarily driven by the Technicolor Patent
Acquisition, which increased 2018 operating expenses by $32.0 million. One-time transaction-related costs
associated with the Technicolor Patent Acquisition increased $15.8 million. Additionally, the Technicolor Patent
Acquisition contributed an additional $16.2 million for five months of operating expenses for the acquired
Technicolor business, of which $6.8 million relates to patent amortization. The $2.6 million increase in

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2019 Annual Report

intellectual property enforcement and non-patent litigation was primarily due to increased activity related to
existing licensee disputes. The $2.1 million increase of depreciation and amortization, which does not include the
previously mentioned amortization from the Technicolor Patent Acquisition, was primarily related to the growth
in our patent portfolio driven by both internal patent generation and patent acquisitions. The $7.9
million decrease in performance-based incentive compensation was primarily driven by higher accrual rates in
the prior year. Consulting services decreased by $7.1 million, primarily related to spending on corporate
initiatives, including the implementation of a new enterprise resource planning system in 2017. The $2.9 million
decrease in personnel-related costs and the $3.7 million decrease in commercial initiatives were due to a
reduction in headcount and reduced spending on the development of commercial solutions in an ongoing effort to
optimize our cost structure. The $2.1 million decrease in patent maintenance and evaluation costs was a result of
our initiatives to more efficiently prosecute and maintain our patent portfolio.

Patent administration and licensing expense: The $21.4 million increase in patent administration and
licensing expense primarily resulted from the above-noted increases related to the Technicolor Patent
Acquisition, intellectual property enforcement costs and patent amortization expense. These increases were
partially offset by a decrease in performance-based compensation and patent maintenance costs.

Development expense: The $6.0 million decrease in development expense primarily resulted from the
above-noted decreases in performance-based incentive compensation, personnel-related costs, commercial
initiatives, as well as consulting services related to development projects.

Selling, general and administrative expense: The $2.0 million decrease in selling, general and
administrative expense primarily resulted from the above-noted decreases in performance-based incentive
compensation, consulting services, and personnel-related costs. These decreases were partially offset by the
above-noted increases related to the Technicolor Patent Acquisition.

Non-Operating Income (Expense)

The following table compares 2018 non-operating income (expense) to 2017 non-operating income

(expense) (in thousands):

For the Year Ended
December 31,

2018

2017

Increase / (Decrease)

Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . .
Other income (expense), net
Interest and investment income . . . . . . . . . . . . . . . . . . .

$(35,956)
(9,171)
14,590

$(17,845)
252
8,488

$(18,111)
(9,423)
6,102

(101)%
(3,739)%
72%

Total non-operating income (expense)

. . . . . . . . . . . . .

$(30,537)

$ (9,105)

$(21,432)

(235)%

In 2018, non-operating expense was $30.5 million as compared to $9.1 million in 2017. The year ended
December 31, 2018 includes $16.7 million of interest expense related to significant financing components of
patent
license agreements resulting from the adoption of ASC 606. Interest expense also increased by
$0.7 million due to interest incurred on long-term debt resulting from the Technicolor Patent Acquisition.
Non-operating expense for 2018 also includes an aggregate $8.4 million loss related to the sale of one of our
strategic long-term investments and the impairment of a separate strategic long-term investment during the year,
which is included in the “Other income (expense), net” caption in the table above. The remaining change between
periods was primarily due to an increase in interest and investment income of $6.1 million primarily due to
higher average investment balances and higher returns during 2018 as compared to 2017.

Income Taxes

In 2018, based on the statutory federal tax rate net of discrete federal and state taxes, our effective tax rate
was a benefit of 85.5%. The effective tax rate for 2018 was favorably impacted by an $18.0 million benefit

2019 Annual Report

58

associated with the FDII deduction provisions contained within the Tax Cuts and Jobs Act (“TCJA”) and a
$14.7 million benefit from expected amended returns related to the Korea Competent Authority Proceeding
settlement discussed above.

This is compared to an effective tax rate provision of 41.6% in 2017, based on the statutory federal tax rate net of
discrete federal and state taxes. The effective tax rate for 2017 was impacted by a $42.6 million tax charge for the
revaluation of our net deferred tax assets at the new statutory tax rate of 21% due to the TCJA signed into law in
December 2017. The revaluation of our net deferred tax assets contributed approximately 14.6% to the rate increase,
which was partially offset by a contribution of approximately 4.0% due to our adoption of ASU 2016-09,
“Improvements to Employee Share-Based Payment Accounting”, as well as by a contribution of 2.7% as a result of the
release of unrecognized tax benefits related to the conclusion of the IRS audits for tax years 2011 through 2015.

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,
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
innovation for the mobile, video and consumer electronics industries and to monetize those solutions and
innovations 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 and video, 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, other wireless and video standards, including 3G, 4G, 5G and
the IEEE 802 suite of standards, as well as patents and patent applications that we believe may become
essential to 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 licenses 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 commercial initiatives are potential revenue opportunities;

(viii) 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;

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2019 Annual Report

(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 expectations and estimations regarding the income tax effects, and the impact on the
Company, of the Tax Cuts and Jobs Act, or TCJA, and our belief that we currently expect a significant
portion of our income to qualify as FDII and thus be subject to the 13.1% tax rate;

(xiii) our expectation that we will continue to pay a quarterly cash dividend on our common stock

comparable to our quarterly $0.35 per share cash dividend in the future;

(xiv) our belief that intellectual property enforcement costs, including litigation costs, will likely

continue to be a significant expense for us in the future;

(xv) our belief that we have the ability to obtain additional liquidity through debt and equity financings;

(xvi) 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;

(xvii) our expectations regarding the potential effects of new accounting standards on our financial

statements or results of operations;

(xviii) our expectation that the amortization of fixed-fee royalty payments will reduce our deferred

revenue balance over the next twelve months;

(xix) our belief in our ability to continue to expand into the consumer electronics market, and the

opportunities that market presents;

(xx) our projections of amounts to be owed to Technicolor under our revenue sharing arrangement;

(xxi) the expected timing, outcome and impact of our various litigation, arbitration and administrative

matters; and

(xxii) our belief that there will be a level of concentration in worldwide shipments of 5G handsets

similar to the current level of concentration in worldwide shipments of 3G and 4G handsets.

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) uncertainty and decline in U.S.-China relations and/or increased economic uncertainty in China;

(ii) unanticipated difficulties or delays related to the further development of our technologies;

(iii) the failure of the markets for our technologies to materialize to the extent or at the rate that we

expect;

(iv) changes in our plans, strategy or initiatives;

(v)

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

(vi) our ability to leverage our strategic relationships and secure new patent license and technology

solutions agreements on acceptable terms;

2019 Annual Report

60

(vii) 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;

(viii) 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;

(ix) 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;

(x) 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;

(xi) the impact of potential patent legislation, USPTO rule changes and international patent rule

changes on our patent prosecution and licensing strategies;

(xii) 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;

(xiii) changes in our interpretations of, and assumptions and calculations with respect to the impact on
the Company of, the Tax Cuts and Jobs Act, or TCJA, as well as further guidance that may be issued
regarding the TCJA;

(xiv) 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;

(xv) the effects of any dispositions, acquisitions or other strategic transactions by the Company;

(xvi) decreased liquidity in the capital markets; and

(xvii) 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, cash equivalents, restricted cash and short-term 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,
cash equivalents, restricted cash 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 $0.9 billion as of December 31, 2019. Our exposure to interest rate
risks is not significant due to the short average maturity, quality and diversification of our holdings. We do not

61

2019 Annual Report

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, 2019. 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)

2020

2021

2022

2023

2024

Thereafter

Total

Money market and demand

accounts . . . . . . . . . . . . . . . .
Short-term investments . . . . . . .
Average Interest rate . . . . . . . . .

$757,098
$163,108

—
$16,096

—
—

1.9%

2.2% —%

—
—
—%

—
—
—%

—
—
—%

$757,098
$179,204

1.9%

Cash and cash equivalents and available-for-sale securities are recorded at fair value.

Bank Liquidity Risk — As of December 31, 2019, we had approximately $757.1 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
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 2019, we paid approximately $177.4 million in foreign taxes to foreign governments that
have tax treaties with the U.S., for which we have claimed foreign tax credits against our U.S. tax obligations,
and for which the tax treaty procedures are still open. 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 foreign currency fluctuations, any
such agreement could result in 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

2019 Annual Report

62

credit markets and prevailing interest rates for such securities. Our marketable securities, consisting of
government obligations, corporate bonds and commercial paper, are primarily classified as available-for-sale
with a fair value of $179.2 million as of December 31, 2019.

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 2024 Notes and the 2020 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
2024 Notes and the 2020 Notes. The warrants along with any shares issuable upon conversion of the 2024 Notes
and the 2020 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 2024 Notes and 2020 Notes, respectively.

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2019 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, 2019 and 2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Income for the years ended December 31, 2019, 2018 and 2017 . . . . . .
Consolidated Statements of Comprehensive Income for the years ended December 31, 2019, 2018

and 2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Shareholders’ Equity for the years ended December 31, 2019, 2018 and
2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Cash Flows for the years ended December 31, 2019, 2018 and 2017 . . .
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

65
68
69

70

71
72
73

SCHEDULES:
Schedule II — Valuation and Qualifying Accounts as of and for the years ended December 31, 2019,

2018 and 2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

124

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.

2019 Annual Report

64

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Shareholders of InterDigital, Inc.

Opinions on the Financial Statements and Internal Control over Financial Reporting

We have audited the accompanying consolidated balance sheets of InterDigital, Inc. and its subsidiaries (the
“Company”) as of December 31, 2019 and 2018, and the related consolidated statements of income,
comprehensive income, shareholders’ equity, and cash flows for each of the three years in the period ended
December 31, 2019, including the related notes and financial statements schedule listed in the accompanying
index (collectively referred to as the “consolidated financial statements”). We also have audited the Company’s
internal control over financial reporting as of December 31, 2019, based on criteria established in Internal
Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO).

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects,
the financial position of the Company as of December 31, 2019 and 2018, and the results of its operations and its
cash flows for each of the three years in the period ended December 31, 2019 in conformity with accounting
principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in
all material respects, effective internal control over financial reporting as of December 31, 2019, based on criteria
established in Internal Control — Integrated Framework (2013) issued by the COSO.

Changes in Accounting Principles

As discussed in Note 2 to the consolidated financial statements, the Company changed the manner in which

it accounts for leases in 2019 and the manner in which it accounts for revenue in 2018.

Basis for Opinions

The Company’s management is responsible for these consolidated financial statements, 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 the Company’s consolidated financial
statements and on the Company’s internal control over financial reporting based on our audits. We are a public
accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and
are required to be independent with respect to the Company in accordance with the U.S. federal securities laws
and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we
plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements
are free of material misstatement, whether due to error or fraud, and whether effective internal control over
financial reporting was maintained in all material respects.

Our audits of the consolidated financial statements included performing procedures to assess the risks of
material misstatement of the consolidated financial statements, whether due to error or fraud, and performing
procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding
the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the
accounting principles used and significant estimates made by management, as well as evaluating the overall
presentation of the consolidated financial statements. 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.

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2019 Annual Report

Definition and Limitations of Internal Control over Financial Reporting

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.

Critical Audit Matters

The critical audit matter communicated below is a matter arising from the current period audit of the
consolidated financial statements that was communicated or required to be communicated to the audit committee
and that (i) relates to accounts or disclosures that are material to the consolidated financial statements and
(ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit
matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we
are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit
matter or on the accounts or disclosures to which it relates.

Revenue Recognition — Determination of the Value of Revenue from Non-Financial Sources and of Standalone
Selling Prices of Identified Performance Obligations in Dynamic Fixed-Fee License Agreements

As described in Notes 2 and 3 to the consolidated financial statements, dynamic fixed-fee license
agreements include fixed, non-refundable royalty payments that fulfill the licensee’s obligations to the Company
under a patent license agreement for a specified time period or for the term of the agreement. Additionally,
certain patent license agreements contain revenue from non-financial sources in the form of patents received
from the customer. Total fixed-fee royalty revenue and non-current patent royalties were $257.2 million and
$19.8 million, respectively, for the year ended December 31, 2019, of which a significant portion relates to
dynamic fixed-fee agreements. As disclosed by management, management’s process for determining the value of
the standalone selling prices of identified performance obligations in dynamic fixed-fee license agreements
requires the exercise of significant judgment when evaluating the valuation methods and assumptions, including
the assumed royalty rates, projected sales volumes, discount rate and comparable market transactions which are
not directly observable and other relevant factors. Management’s process for determining the value of revenue
from non-financial sources requires estimating the fair value of patents received using one, or a combination of,
an analysis of comparable market transactions (the market approach), a discounted cash flow analysis (the
income approach), and/or by quantifying the amount of money required to replace the future service capability of
the assets (the cost approach). 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 comparable
market transactions, assumed royalty rates, projected sales volumes, economic lives of the patents and other
relevant factors.

The principal considerations for our determination that performing procedures relating to the determination
of the value of revenue from non-financial sources and of standalone selling prices of identified performance

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66

obligations in dynamic fixed-fee license agreements is a critical audit matter are there was significant judgment
by management in determining the value of the revenue from non-financial sources and standalone selling prices.
This in turn led to a high degree of auditor judgment, subjectivity and effort in performing procedures and in
evaluating evidence related to the significant assumptions made by management to establish the value of revenue
from non-financial sources and standalone selling prices, including the assumed royalty rates, projected sales
volumes, discount rate and comparable market transactions. In addition, the audit effort involved the use of
professionals with specialized skill and knowledge to assist in performing these procedures and evaluating the
audit evidence obtained.

Addressing the matter involved performing procedures and evaluating audit evidence in connection with
forming our overall opinion on the consolidated financial statements. These procedures included testing the
effectiveness of controls relating to the revenue recognition process, including controls over the determination of
the value of revenue from non-financial sources and standalone selling prices of identified performance
obligations in dynamic fixed-fee license agreements. These procedures also included, among others (i) obtaining
and reading a selection of new dynamic fixed-fee license agreements entered into during the year and testing
management’s process for determining the value of revenue from non-financial sources and standalone selling
prices of identified performance obligations in dynamic fixed-fee license agreements and (ii) evaluating the
appropriateness of the valuation methods and reasonableness of significant assumptions used in determining the
value of revenue from non-financial sources and developing the standalone selling prices, including assumed
royalty rates, projected sales volumes, discount rate and comparable market
transactions. Evaluating the
reasonableness of management’s significant assumptions related to assumed royalty rates, discount rate and
comparable market transactions involved considering prospective third-party market data and previous license
agreements entered into by the Company and the consistency of the projected sales volume with historical sales
data. Professionals with specialized skill and knowledge were used to assist in the evaluation of the valuation
methods and certain significant assumptions, including comparable market transactions used to estimate the
value of revenue from non-financial sources.

/s/ PricewaterhouseCoopers LLP

Philadelphia, Pennsylvania
February 20, 2020

We have served as the Company’s auditor since 2002.

67

2019 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 $537 and $693 . . . . . . . . . . . . . . . . .
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, 71,268 and

71,134 shares issued and 30,701 and 33,529 shares outstanding . . . . . . . . .
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated other comprehensive loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Treasury stock, 40,567 and 37,605 shares of common held at cost . . . . . . . . .
Total InterDigital, Inc. shareholders’ equity . . . . . . . . . . . . . . . . . . . . . . . .
Noncontrolling interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY . . . . . . . . . . . . . . .

DECEMBER 31,
2019

DECEMBER 31,
2018

$ 745,491
179,204
28,272
63,365
1,016,332
10,217
436,339
73,168
76,026
595,750
$1,612,082

$

94,170
13,393
29,162
146,654
51
10,746
11,382
305,558
350,588
123,653
46,002
825,801

$ 475,056
470,724
35,032
43,438
1,024,250
10,051
454,567
77,225
60,465
602,308
$1,626,558

$

—
19,367
26,838
111,672
1,508
11,627
8,383
179,395
317,377
157,634
34,139
688,545

—

—

712
727,402
1,412,779
(74)
2,140,819
1,379,262
761,557
24,724
786,281
$1,612,082

711
685,512
1,435,970
(2,471)
2,119,722
1,182,993
936,729
1,284
938,013
$1,626,558

The accompanying notes are an integral part of these statements.

2019 Annual Report

68

INTERDIGITAL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share data)

FOR THE YEAR ENDED DECEMBER 31,

2019

2018

2017

REVENUES:

Patent licensing royalties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $307,431
975
Patent sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
10,518
Technology solutions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$302,060
750
4,594

$ 512,358
—
20,580

Total Revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

318,924

307,404

532,938

OPERATING EXPENSES:

Patent administration and licensing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Development
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Selling, general and administrative . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

154,940
74,860
51,289

124,081
69,698
51,030

102,651
75,724
53,068

Total Operating Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

281,089

244,809

231,443

Income from operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
OTHER INCOME (EXPENSE), NET . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Income before income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . .

INCOME TAX BENEFIT (PROVISION)

37,835
(40,955)
29,062

25,942
(10,991)

62,595
(35,956)
5,419

301,495
(17,845)
8,740

32,058
27,417

292,390
(121,676)

NET INCOME . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 14,951

$ 59,475

$ 170,714

Net loss attributable to noncontrolling interest

. . . . . . . . . . . . . . . . . . . . .

(5,977)

(5,556)

(5,506)

NET INCOME ATTRIBUTABLE TO INTERDIGITAL, INC. . . . . . . . . . . $ 20,928

$ 65,031

$ 176,220

NET INCOME PER COMMON SHARE — BASIC . . . . . . . . . . . . . . . . . . $

0.66

$

1.89

$

5.09

WEIGHTED AVERAGE NUMBER OF COMMON SHARES

OUTSTANDING — BASIC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

31,546

34,491

34,605

NET INCOME PER COMMON SHARE — DILUTED . . . . . . . . . . . . . . . $

0.66

$

1.84

$

4.93

WEIGHTED AVERAGE NUMBER OF COMMON SHARES

OUTSTANDING — DILUTED . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

31,785

35,307

35,779

CASH DIVIDENDS DECLARED PER COMMON SHARE . . . . . . . . . . . $

1.40

$

1.40

$

1.30

The accompanying notes are an integral part of these statements.

69

2019 Annual Report

INTERDIGITAL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in thousands)

For the Year Ended December 31,
2018

2017

2019

Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unrealized gain (loss) on investments, net of tax . . . . . . . . . . . . . . . . . . . . . . . . .

$14,951
2,397

$59,475
61

$170,714
(1,569)

Comprehensive income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$17,348

$59,536

$169,145

Comprehensive loss attributable to noncontrolling interest . . . . . . . . . . . . . . . . . .

(5,977)

(5,556)

(5,506)

Total comprehensive income attributable to InterDigital, Inc.

. . . . . . . . . . . . . . .

$23,325

$65,092

$174,651

The accompanying notes are an integral part of these statements.

2019 Annual Report

70

INTERDIGITAL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(in thousands, except per share data)

Common Stock Additional
Paid-In
Capital
Shares Amount

Retained
Earnings

Accumulated
Other
Comprehensive
Income (Loss)

Treasury Stock

Shares Amount

Non-
Controlling
Interest

Total
Shareholders’
Equity

BALANCE, DECEMBER 31, 2016 . . 70,318

$703

$683,549 $1,127,380

$ (514)

36,020 $(1,064,795) $ 8,045

$ 754,368

BALANCE, DECEMBER 31, 2017 . . 70,749

$707

$680,040 $1,257,632

$(2,083)

36,127 $(1,072,488) $ 9,340

$ 873,148

—
—

—
—

—
107

—
(7,693)

Net income attributable to InterDigital,

Inc.

. . . . . . . . . . . . . . . . . . . . . . . . . . .

Proceeds from noncontrolling

interests . . . . . . . . . . . . . . . . . . . . . . . .

Net (loss) income attributable to

noncontrolling interest . . . . . . . . . . . .

Net change in unrealized gain (loss) on

short-term investments . . . . . . . . . . . .
Dividends Declared ($1.30 per share) . .
Exercise of Common Stock options . . . .
Issuance of Common Stock, net . . . . . . .
Amortization of unearned

compensation . . . . . . . . . . . . . . . . . . .
Repurchase of Common Stock . . . . . . . .

—

—

—

—
—
9
422

—
—

—

—

—

—
—
1
3

—
—

—

—

—

176,220

—

—

—

—

—

—
(45,968)
—
—

(1,569)
—
—
—

—
846
381
(22,798)

18,062
—

161,701

(449)

Cumulative effect of change in

accounting principle . . . . . . . . . . . . . .

Net income attributable to InterDigital,

Inc.

. . . . . . . . . . . . . . . . . . . . . . . . . . .
Distribution preference . . . . . . . . . . . . . .
Net (loss) income attributable to

noncontrolling interest . . . . . . . . . . . .

Net change in unrealized gain (loss) on

short-term investments . . . . . . . . . . . .
Dividends Declared ($1.40 per share) . .
Exercise of Common Stock options and
warrants . . . . . . . . . . . . . . . . . . . . . . .
Issuance of Common Stock, net . . . . . . .
Amortization of unearned

compensation . . . . . . . . . . . . . . . . . . .
Repurchase of Common Stock . . . . . . . .

—

—
—

—

—
—

153
232

—
—

—

—
—

—

—
—

2
2

—
—

—

—
—

—

65,031
—

—

—
472

—
(48,394)

6,721
(8,810)

7,089
—

—
—

—
—

—
—

—

61
—

—
—

—
—

Net income attributable to InterDigital,

Inc.

. . . . . . . . . . . . . . . . . . . . . . . . . . .

Proceeds from and increases in

noncontrolling interests . . . . . . . . . . .

Net (loss) income attributable to

noncontrolling interest . . . . . . . . . . . .

Net change in unrealized gain (loss) on

short-term investments . . . . . . . . . . . .
Dividends Declared ($1.40 per share) . .
Exercise of common stock options . . . .
Issuance of Common Stock, net . . . . . . .
Amortization of unearned

compensation . . . . . . . . . . . . . . . . . . .
Repurchase of Common Stock . . . . . . . .
Equity component of debt, net of tax . . .
Net convertible note hedge transactions,
net of tax . . . . . . . . . . . . . . . . . . . . . . .
Net warrant transactions . . . . . . . . . . . . .
Deferred financing costs allocated to

equity, net of tax . . . . . . . . . . . . . . . . .

Reacquisition of equity component of

debt due to prepayment, net of tax . . .

—

—

—

—
—
—
134

—
—
—

—
—

—

—

—

—

—

—
—
—
1

—
—
—

—
—

—

—

—

—

—

—
401
2
(4,368)

7,603
—
56,917

(49,740)
43,416

(1,692)

(10,649)

20,928

—

—

—
(44,119)
—
—

—
—
—

—
—

—

—

—

—

—

2,397
—
—
—

—
—
—

—
—

—

—

—

—

—

—
—
—
—

—

—
—

—

—
—

—
—

—

—

—

—
—
—
—

—

—

—

176,220

6,801

6,801

— (5,506)

(5,506)

—
—
—
—

—
—

(1,569)
(45,122)
382
(22,795)

18,062
(7,693)

—

—

161,252

—
—
— (2,500)

65,031
(2,500)

— (5,556)

(5,556)

—
—

—
—

—
—

61
(47,922)

6,723
(8,808)

7,089
(110,505)

—

—

— 29,417

20,928

29,417

— (5,977)

(5,977)

—
—
—
—

—
—

—
—

—
—
—
—

—
—
—
—

—
—
—

—
—

—

—

2,397
(43,718)
2
(4,367)

7,603
(196,269)
56,917

(49,740)
43,416

(1,692)

(10,649)

—
1,478

—
(110,505)

—
2,962
—

—
(196,269)
—

—
—

—

—

—
—

—

—

BALANCE, DECEMBER 31, 2018 . . 71,134

$711

$685,512 $1,435,970

$(2,471)

37,605 $(1,182,993) $ 1,284

$ 938,013

BALANCE, DECEMBER 31, 2019 . . 71,268

$712

$727,402 $1,412,779

$

(74)

40,567 $(1,379,262) $24,724

$ 786,281

The accompanying notes are an integral part of these statements

71

2019 Annual Report

INTERDIGITAL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)

CASH FLOWS FROM OPERATING ACTIVITIES:

Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-cash interest expense, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-cash change in fair value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gain on asset acquisition and sale of business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Change in deferred revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Share-based compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Impairment of long-term investment
Loss on extinguishment of debt
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loss (gain) on disposal of assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(Increase) decrease in assets:

Receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred charges and other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Increase (decrease) in liabilities:

Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued compensation and other expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued taxes payable and other tax contingencies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

FOR THE YEAR ENDED
DECEMBER 31,

2019

2018

2017

$ 14,951

$ 59,475

$ 170,714

77,094
18,709
710
(22,690)
(7,749)
4,123
7,603
3,312
5,488
119
623

6,742
(27,206)

(638)
9,699
(1,457)

66,108
13,509
3,884
—
6,966
(45,426)
7,089
200
—
8,323
(625)

31,615
(6,065)

6,203
254
(4,718)

57,053
13,105
—
—
(36,892)
64,950
18,062
—
—
—
(2)

12,171
19,426

(3,789)
(3,218)
4,220

Net cash provided by operating activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

89,433

146,792

315,800

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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Acquisition of business, net of cash acquired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from sale of business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-term investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(142,555)
(92,436)
399,105
389,032
(2,576)
(4,509)
(32,069)
(33,481)
—
(2,250)
— (142,985)
—
(6,686)

10,000
(350)

(930,016)
751,308
(2,071)
(34,933)
—
—
—
(4,585)

Net cash provided by (used in) investing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

268,256

69,984

(220,297)

CASH FLOWS FROM FINANCING ACTIVITIES:

Net proceeds from exercise of stock options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from issuance of senior convertible notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Payments on long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Purchase of convertible bond hedge . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Payment for warrant unwind . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepayment penalty on long term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from hedge unwind . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from issuance of warrants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Payments of debt issuance costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from non-controlling interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dividends paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Shares withheld for taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Repurchase of common stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

2
400,000
(221,091)
(72,000)
(4,184)
(10,763)
9,038
47,600
(8,375)
15,666
(44,580)
(4,368)
(196,269)

6,723
—
—
—
—
—
—
—
—
—
(48,468)
(8,807)
(110,505)

Net cash used in financing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(89,324)

(161,057)

382
—
—
—
—
—
—
—
—
6,801
(43,255)
(22,798)
(7,693)

(66,563)

NET INCREASE (DECREASE) IN CASH, CASH EQUIVALENTS AND RESTRICTED

CASH . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
CASH, CASH EQUIVALENTS AND RESTRICTED CASH, BEGINNING OF PERIOD . . . . . .

268,365
488,733

55,719
433,014

28,940
404,074

CASH, CASH EQUIVALENTS AND RESTRICTED CASH, END OF PERIOD . . . . . . . . . . . . .

$ 757,098

$ 488,733

$ 433,014

Refer to Note 1, “Background and Basis of Presentation,” for additional supplemental cash flow information. Additionally, refer to
Note 6, “Cash, Cash Equivalents, Restricted Cash and Marketable Securities” for a reconciliation to the consolidated balance sheets and
Note 17, “Leases” for information regarding the impact of our adoption of the new leases accounting standard, ASC 842, on January 1,
2019.

The accompanying notes are an integral part of these statements.

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72

INTERDIGITAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2019

1. BACKGROUND AND BASIS OF PRESENTATION

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, as well as video processing, coding and display technology. We are a leading
contributor of innovation to the wireless communications industry, as well as a leading holder of patents in the
video industry.

Principles of Consolidation

The accompanying consolidated financial statements include all of our accounts and all entities in which we
have a controlling interest and/or 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.

Reclassifications

Certain reclassifications have been made to prior year amounts to conform to the current year presentation.

Prior Periods Financial Statement Revision

In connection with the preparation of the condensed consolidated financial statements for first quarter 2019,
it was identified that we incorrectly attributed tax benefit to the net loss attributable to noncontrolling interest in
our presentation of noncontrolling interest.

We assessed the materiality of this misstatement on prior periods’ financial statements in accordance with
ASC Topic 250, Accounting Changes and Error Corrections, (“ASC 250”) and concluded it was not material to
any prior annual or interim periods. In accordance with ASC 250, we have corrected our presentation of
noncontrolling interest for all prior periods presented in this Form 10-K by revising the consolidated financial
statements and other consolidated financial information included herein. We will continue to present the prior
periods on this revised basis to the extent we present such prior periods in future filings. Refer to Note 21,
“Revision to Noncontrolling Interest” for additional information on the revision.

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2019 Annual Report

Supplemental Cash Flow Information

The following table presents additional supplemental cash flow information for

the year ended

December 31, 2019, 2018 and 2017 (in thousands):

SUPPLEMENTAL CASH FLOW INFORMATION:

Interest paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income taxes paid, including foreign withholding taxes . . . . . .
Non-cash investing and financing activities: . . . . . . . . . . . . . . .
Dividend payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Increases in noncontrolling interests . . . . . . . . . . . . . . . . .
Non-cash acquisition of patents . . . . . . . . . . . . . . . . . . . . .
Accrued capitalized patent costs and property and

FOR THE YEAR ENDED
DECEMBER 31,

2019

2018

2017

$ 7,886
24,229

$ 4,740
33,904

$ 4,740
66,793

10,746
13,750
22,500

11,627
—
—

12,156
—
32,500

equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

1,619

(2,789)

1

2.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND NEW ACCOUNTING
GUIDANCE

Foreign Currency Translation

The functional currency of substantially all of the Company’s wholly-owned subsidiaries is the U.S. dollar.
Certain subsidiaries have monetary assets and liabilities that are denominated in a currency that is different than
the functional currency. The gains and losses resulting from this remeasurement and translation of monetary
assets denominated in a currency that is different than the functional currency are reflected in the determination
of net income (loss).

Cash, Cash Equivalents, Restricted Cash and Marketable Securities

We classify all highly liquid investment securities with original maturities of three months or less at date of
purchase as cash equivalents. Cash that is held for a specific purpose and therefore not available to the Company
for immediate or general business use is classified as restricted cash. 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.

As of December 31, 2019 and 2018, the majority of our 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 2 years, and we have both the ability and intent to hold
the investments until maturity.

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 Income (Expense), Net” line of our consolidated
statements of income.

2019 Annual Report

74

Intangible Assets

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 10 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 a 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 is 9.6
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.

Goodwill

Goodwill is recorded as the difference, if any, between the aggregate consideration paid for an acquisition
and the fair value of the net tangible and identified intangible assets acquired under a business combination. We
review impairment of goodwill annually on the first day of the fourth quarter. We first assess qualitative factors
to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying
amount as a basis for determining whether a quantitative goodwill impairment test is necessary. If we conclude it
is more likely than not that the fair value of a reporting unit exceeds its carrying amount, we need not perform the
quantitative assessment.

If based on the qualitative assessment we believe it is more likely than not that the fair value of a reporting
unit is less than its carrying value, a quantitative assessment test is required to be performed. This assessment
requires us to compare the fair value of each reporting unit to its carrying value including allocated goodwill. We
determine the fair value of our reporting units generally using a combination of the income and market
approaches. The income approach is estimated through the discounted cash flow method based on assumptions
about future conditions such as future revenue growth rates, new product and technology introductions, gross
margins, operating expenses, discount rates, future economic and market conditions, and other assumptions. The
market approach estimates the fair value of our equity by utilizing the market comparable method which is based
on revenue multiples from comparable companies in similar lines of business. If the carrying value of a reporting
unit exceeds the reporting unit’s fair value, a goodwill impairment charge will be recorded for the difference up
to the carrying value of goodwill.

The Company acquired goodwill from our acquisition of the patent licensing business of Technicolor (the
“Technicolor Patent Acquisition”) in 2018 and from our acquisition of Hillcrest Laboratories, Inc. (the “Hillcrest
product business”) in 2016. Refer to Note 5, “Business Combinations and Other Transactions,” for more
information regarding these transactions.

The carrying value of goodwill as of December 31, 2019 and 2018 was $22.4 million, respectively, which
was included within “Other Non-Current Assets” in the consolidated balance sheets. No impairments were
recorded during 2019, 2018 or 2017 as a result of our annual goodwill impairment assessment.

Other 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.

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2019 Annual Report

Intangible assets consist of acquired patents, existing technology, and trade names. Refer to the above
Patents section for more information on acquired patents and existing technology. Our intangible assets are
amortized on a straight-line basis over their estimated useful lives, ranging from 9 to 10 years. We make
judgments about the recoverability of purchased finite-lived intangible assets whenever facts and circumstances
indicate that the useful life is shorter than originally estimated or that the carrying amount of assets may not be
recoverable. If such facts and circumstances exist, we assess recoverability by comparing the projected
undiscounted net cash flows associated with the related asset or group of assets over their remaining lives against
their respective carrying amounts. Impairments, if any, are based on the excess of the carrying amount over the
fair value of those assets. If the useful life is shorter than originally estimated, we would accelerate the rate of
amortization and amortize the remaining carrying value over the new shorter useful life.

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. 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.

Leases

In February 2016, the Financial Accounting Standards Board (“FASB”) issued ASU 2016-02, “Leases
(Topic 842)” or (“ASC 842”), which outlines a comprehensive change to the lease accounting model and
lease guidance. The new guidance requires lessees to recognize lease liabilities and
supersedes prior
corresponding right-of-use assets for all leases with lease terms of greater than 12 months, and also changes the
definition of a lease and expands the disclosure requirements of lease arrangements.

The Company adopted this guidance on January 1, 2019 using the modified retrospective transition effective
date method. As part of that adoption, we have elected the package of three practical expedients, which includes
the following: an entity may elect not to reassess whether expired or existing contracts contain a lease under the
revised definition of a lease; an entity may elect not to reassess the lease classification for expired or existing
leases; and an entity may elect not to reassess whether previously capitalized initial direct costs would qualify for
capitalization. The Company has elected not to utilize the hindsight expedient in determining the lease term, and
to not record leases with an initial term of 12 months or less on our balance sheet. Additionally, the Company has
elected to account for lease components and non-lease components as a single lease component for all asset
classes. Lease expense is recognized over the expected term on a straight-line basis.

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.

2019 Annual Report

76

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 did not have any long-lived asset impairments in 2019,
2018 or 2017.

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 made an accounting policy election for a measurement alternative for our
equity investments that do not have readily determinable fair values, specifically related to our strategic
investments in other entities. Under the alternative, our strategic investments in other entities without readily
determinable fair values are measured at cost, less any impairment, plus or minus changes resulting from
observable price changes in orderly transactions for an identical or similar investment of the same issuer, if any.
On a quarterly basis, we monitor items such as our investment’s financial position and liquidity, performance
targets, business plans, and cost trends to assess whether there are any triggering events or indicators present that
would be indicative of an impairment, or any other observable price changes as indicated above. We do not
adjust our investment balance when the investee reports profit or loss.

Additionally, other investments may be accounted for under the equity method of accounting. Under this
method, 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 value of our investments in other entities are included within “Other Non-Current Assets” on
our consolidated balance sheets. During 2019, 2018 and 2017, we made investments in other entities of
0.4 million, 6.7 million and 4.6 million, respectively. The carrying value of our investments in other entities as of
December 31, 2019 and 2018 was $14.2 million and $17.4 million, respectively, the majority of which are
accounted for under the measurement alternative for equity investments described above.

Revenue Recognition

Refer to Note 3, “Revenue Recognition,” for further information regarding our adoption of ASU
No. 2014-09, “Revenue from Contracts with Customers (Topic 606)”, which we refer to as ASC 606, effective
January 1, 2018. The discussion that follows below is a description of our revenue recognition practices which
were in effect beginning January 1, 2018 under ASC 606.

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
performance obligations. These agreements can include, without limitation, performance obligations related to
the settlement of past patent infringement liabilities, patent and/or know-how licensing royalties on covered
products sold by licensees, access to a portfolio of technology as it exists at a point in time, and access to a
portfolio of technology at a point in time along with a promises to provide any technology updates to the
portfolio during the term.

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2019 Annual Report

In accordance with US GAAP, we use a five-step model to achieve the core underlying principle that an
entity should 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. These steps include (1) identifying the
contract with the customer, (2) identifying the performance obligations, (3) determining the transaction price,
(4) allocating the transaction price to the performance obligations, and (5) recognizing revenue as the entity
satisfies the performance obligation(s). Additionally, we have elected to utilize certain practical expedients in the
application of ASC 606. In evaluating the presence of a significant financing component in our agreements, we
utilize the practical expedient to exclude any contracts wherein the gap between payment by our customers and
the delivery of our performance obligation is less than one year. We have also elected to utilize the practical
expedient related to costs of obtaining a contract where an entity may recognize the incremental costs of
obtaining a contract as an expense when incurred if the amortization period of the asset that the entity otherwise
would have recognized is one year or less. Timing of revenue recognition may differ significantly from the
timing of invoicing to customers. Contract assets are included in accounts receivable and represent unbilled
amounts expected to be received from customers in future periods, where the revenue recognized to date exceeds
the amount billed, and right to payment is subject to the underlying contractual terms. Contract assets are
classified as long-term assets if the payments are expected to be received more than one year from the reporting
date. Contract assets due within less than twelve months of the balance sheet date are included within accounts
receivable in our consolidated balance sheets. Contract assets due more than twelve months after the balance
sheet date are included within other non-current assets.

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 indicated
above. Certain patent license agreements contain revenue from non-financial sources in the form of patents
received from the customer. 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 as prescribed by the five-step model.

Fixed-Fee Agreements

Fixed-fee license agreements include fixed, 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).

Dynamic fixed-fee license agreements contain a single performance obligation that represents ongoing
access to a portfolio of technology over the license term, since our promise to transfer to the licensee access
to the portfolio as it exists at inception of the license, along with promises to provide any technology
updates to the portfolio during the term, are not separately identifiable. Upon entering a new agreement, we
allocate the transaction price to the performance obligations delivered at signing (e.g. our existing patent
portfolio) and future performance obligations (e.g. the technology updates). We use a time-based input
method of progress to determine the timing of revenue recognition, and as such we recognize the future

2019 Annual Report

78

deliverables on a straight-line basis over the term of the agreement. We utilize the straight-line method as
we believe that it best depicts efforts expended to develop and transfer updates to the customer evenly
throughout the term of the agreement.

Static fixed-fee license agreements are fixed-price contracts that generally do not include updates to
technology we create after the inception of the license agreement or in which the customer does not stand to
substantively benefit from those updates during the term. Although we have few static fixed-fee license
agreements, we generally satisfy our performance obligations under such agreements at contract signing,
and as such revenue is recognized at that time.

Variable Agreements

Upon entering a new variable patent license agreement, the licensee typically agrees to pay royalties or
license fees on licensed products sold during the term of the agreement. We utilize the sales- or usage- based
royalty exception for these agreements and recognize revenues during the contract term when the underlying sale
or usage occurs. Our licensees under variable agreements 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, we are
required to estimate revenues, subject to the constraint on our ability to estimate such amounts.

Technology Solutions

Technology solutions revenue consists of revenue from royalty payments, software licenses, engineering
services and product sales. The nature of these contracts and timing of payments vary. We recognize revenue
from royalty payments and license agreements using the same methods described above under our policy for
recognizing revenue from patent license agreements. We recognize revenue from engineering services using
percentage of completion method.

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 in accordance with the
five-step model, generally upon closing of the patent sale transaction.

Collaborative Arrangements

We record the elements of our collaboration agreements that represent

joint operating activities in
accordance with ASC 808, Collaborative Arrangements (“ASC 808”). Accordingly,
the elements of our
collaboration agreements that represent activities in which both parties are active participants, and to which both
parties are exposed to the significant risks and rewards that are dependent on the commercial success of the
activities, are recorded as collaborative arrangements. Generally, the classification of a transaction under a
collaborative arrangement is determined based on the nature and contractual terms of the arrangement along with
the nature of the operations of the participants. For transactions that are deemed to be a collaborative
arrangement under ASC 808, costs incurred and revenues generated on sales to third parties will be reported in
our consolidated statement of operations on a gross basis if the Company is deemed to be the principal in the
transaction, or on a net basis if the Company is instead deemed to be the agent in the transaction, consistent with
the guidance in ASC 606-10-55-36, Revenue From Contracts with Customers — Principal Agent Considerations.

Deferred Charges

Direct costs of obtaining a contract or fulfilling a contract in a transaction that results in the deferral of
revenue may be either expensed as incurred or capitalized, depending on certain criteria. In conjunction with our

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2019 Annual Report

adoption of ASC 606 effective January 1, 2018, we made a policy election to utilize the practical expedient
related to costs of obtaining a contract where an entity may recognize the incremental costs of obtaining a
contract as an expense when incurred if the amortization period of the asset that the entity otherwise would have
recognized is one year or less. If the amortization period is greater than one year, we capitalize direct costs
incurred for the acquisition or fulfillment of a contract through the date of signing if they are directly related to a
particular revenue arrangement and are expected to be recovered. The costs are amortized on a straight-line basis
over the life of the patent license agreement.

For example, from time to time, we use sales agents to assist us in our licensing and/or patent sale activities.
to agreement.
In such cases, we may pay a commission. The commission rate varies from 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 and amortize these expenses in proportion
to our recognition of the related revenue. Commission expense is included within the “Patent administration and
licensing” line of our consolidated statements of income and was immaterial for the years presented. There were
no new direct contract costs incurred during 2019, 2018 or 2017.

Incremental direct costs incurred related to a debt financing transaction may be capitalized. In connection
with our offering of the 2024 Notes and 2020 Notes, defined and discussed in detail within Note 10,
“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 over the term of the debt using the effective interest method and are included within the
“Interest expense” line of our consolidated statements of income. The costs allocated to the equity component of
the debt were recorded as a reduction of the equity component of the debt. The balance of unamortized deferred
financing costs as of December 31, 2019 and 2018 was $5.9 million and $1.6 million, respectively. The
Company incurred $6.4 million of new debt issuance costs during 2019 in conjunction with the issuance of the
2024 Notes, noting no new debt issuance costs were incurred in 2018 or 2017. Deferred financing expense was
$1.5 million, $1.4 million and $1.4 million in 2019, 2018 and 2017, respectively.

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 $74.9 million, $69.7 million and $75.7 million in 2019, 2018 and 2017,
respectively.

Compensation Programs

We use a variety of compensation programs to attract, retain and motivate our employees, and to more
closely align employee compensation with company performance. These programs include, but are not limited
to, short-term incentives tied to performance goals, cash awards to inventors for filed patent applications and
patent issuances, and long-term incentives in the form of stock option awards, time-based restricted stock unit
(“RSU”) awards, performance-based awards and cash awards, noting equity awards are granted pursuant to the
terms and conditions of our Equity Plans (as defined in Note 13, “Compensation Plans and Programs”). Our
long-term incentives, including equity awards, typically include annual equity and cash award grants with three-
to five-year vesting periods; as a result, in any one year, we are typically accounting for at least three active
cycles.

We account for compensation costs associated with share-based compensation based on the fair value of the
instruments issued. The estimated value of stock options includes assumptions around expected life, stock

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80

volatility and dividends. The expected life of our stock option awards is 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 the event of canceled awards, we adjust compensation expense recognized to date as they occur. Tax
windfalls and shortfalls related to the tax effects of employee share-based compensation are included in our tax
provision. On the consolidated statements of cash flows, tax windfalls and shortfalls related to employee share-
based compensation awards are included within operating activities and cash paid to tax authorities for shares
withheld are included within financing activities. The inclusion of windfalls and shortfalls in the tax provision
could increase our earnings volatility between periods. Tax windfalls related to share-based compensation for the
years ended 2019, 2018 and 2017 were $0.2 million, $1.8 million and $12.1 million, respectively.

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 in which the change was enacted. 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 U.S. 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.

New Accounting Guidance

Accounting Standards Update: Leases

In February 2016, the FASB issued ASU 2016-02, “Leases (Topic 842)”, or ASC 842, which outlines a
comprehensive change to the lease accounting model and supersedes prior lease guidance. Refer to Note 17,
“Leases,” for information regarding our adoption of this guidance effective January 1, 2019 and a discussion of
the impact to information presented herein, as well as additional required disclosures under the new guidance.

Accounting Standards Update: Improvements to Nonemployee Share-Based Payment Accounting

In June 2018, the FASB issued ASU No. 2018-07, “Stock Compensation (Topic 718): Improvements to
Nonemployee Share-Based Payment Accounting,” which is intended to reduce cost and complexity and to

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2019 Annual Report

improve financial reporting for share-based payments issued to nonemployees. The guidance is effective for
fiscal years beginning after December 15, 2018 and early adoption is permitted. We adopted this guidance in first
quarter 2019 and it did not have a material impact on our consolidated financial statements.

Accounting Standards Update: Financial Instruments — Credit Losses

In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments — Credit Losses”. This ASU
introduces a new accounting model for recognizing credit losses on certain financial instruments and financial
assets, including trade receivables, based upon an estimate of current expected credit losses, otherwise known as
CECL. The new guidance requires the recognition of an allowance that reflects the current estimate of credit
losses expected to be incurred over the life of the financial asset, based not only on historical experience and
current conditions, but also on reasonable forecasts. Additionally, ASU No. 2016-13 made several changes to the
available-for-sale impairment model. The guidance is effective for fiscal years beginning after December 15,
2019, including interim periods within those fiscal years, and early adoption is permitted. We have concluded
that this guidance will not have a material impact on our consolidated financial statements.

Accounting Standards Update: Cloud Computing Arrangements

In August 2018,

the FASB issued ASU No. 2018-15 “Intangibles — Goodwill and Other —
Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud
Computing Arrangement that is a Service Contract”. The amendments in this ASU align the requirements for
capitalizing implementation costs incurred in a hosting arrangement
is a service contract with the
requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. The
guidance is effective for fiscal years beginning after December 15, 2019, including interim periods within those
fiscal years, and early adoption is permitted. While we are still completing our accounting assessment, we do not
expect this guidance to have a material impact on our consolidated financial statements.

that

Accounting Standards Update: Collaborative Arrangements

In November 2018, the FASB issued ASU No. 2018-18, “Collaborative Arrangements (Topic 808):
Clarifying the Interaction Between Topic 808 and Topic 606”. The amendments in this ASU provide guidance on
how to assess whether certain transactions between collaborative arrangement participants should be accounted
for within the revenue recognition standard. The amendments in this update are effective for fiscal years
beginning after December 15, 2019, including interim periods within those fiscal years, and early adoption is
permitted for entities who have previously adopted the new revenue recognition guidance. We have concluded
that this guidance will not have a material impact on our consolidated financial statements.

Accounting Standards Update: Simplifying the Accounting for Income Taxes

In December 2019, the FASB issued ASU No. 2019-12, “Income Taxes (Topic 740): Simplifying the
Accounting for Income Taxes” (“ASU 2019-12”). The amendments in this ASU are intended to simplify various
aspects related to accounting for income taxes. ASU 2019-12 removes certain exceptions to the general
principles in Topic 740 and also clarifies and amends existing guidance to improve consistent application. ASU
2019-12 is effective for fiscal years beginning after December 15, 2020 with early adoption allowed. The
Company is currently evaluating the impact of the adoption of ASU 2019-12 on its consolidated financial
statements.

3. REVENUE RECOGNITION

In May 2014, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2014-09, “Revenue
from Contracts with Customers (Topic 606)” (“ASC 606”) which superseded most prior revenue recognition
guidance, including industry-specific guidance. The underlying principle is that an entity will recognize revenue

2019 Annual Report

82

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 also requires enhanced disclosures regarding the nature,
amount, timing and uncertainty of revenue and cash flows arising from an entity’s contracts with customers. We
adopted the requirements of the new standard as of January 1, 2018 using the modified retrospective transition
method applied to those contracts that were not completed as of January 1, 2018. Accordingly, all periods prior to
January 1, 2018 are presented in accordance with ASC Topic 605, “Revenue Recognition” (“ASC 605”). Periods
beginning January 1, 2018 are presented in accordance with ASC 606. See Note 2 “Summary of Significant
Accounting Policies and New Accounting Guidance” for our revised revenue recognition accounting policy upon
adoption of the new guidance.

For accounting purposes under ASC 606, we separate our fixed-fee license agreements into two categories:
(i) those agreements that provide rights, over the term of the license, to future technologies that are highly
interdependent or highly interrelated to the technologies provided at the inception of the agreement (“Dynamic
Fixed-Fee Agreements”) and (ii) those agreements that do not provide for rights to such future technologies
(“Static Fixed-Fee Agreements”). After the fair value allocation between the past and future components of the
agreement, we recognize the future components of revenue from Dynamic Fixed-Fee Agreements on a straight-
line basis over the term of the related license agreement, while we recognize most or all of the revenue from
Static Fixed-Fee Agreements in the quarter the license agreement is signed. We did not recognize any ongoing
revenue from Static Fixed-Fee Agreements already in existence at
the time the guidance was adopted.
Additionally, in the event a significant financing component is determined to exist in any of our agreements, we
recognize more or less revenue and corresponding interest expense or income, as appropriate.

In addition, we record per-unit royalty revenue in the same period in which the licensee’s underlying sales
occur. Because we generally do not receive the per-unit licensee royalty reports for sales during a given quarter
within the time frame necessary to adequately review the reports and include the actual amounts in our quarterly
results for such quarter, we accrue the related revenue based on estimates of our licensees’ underlying sales,
subject to certain constraints on our ability to estimate such amounts. As a result of accruing revenue for the
quarter based on such estimates, adjustments are required in the following quarter to true-up revenue to the actual
amounts reported by our licensees. In addition, to the extent we receive non-refundable prepayments related to
per-unit license agreements that do not provide rights over the term of the license to future technologies that are
highly interdependent or highly interrelated to the technologies provided at the inception of the agreement, we
recognize such prepayments as revenue in the period in which all remaining revenue recognition criteria have
been met.

Finally, under ASC 606, we recognize a receivable, and any related deferred tax asset for foreign

withholding taxes, for payments as they become due.

Timing of revenue recognition may differ significantly from the timing of invoicing to customers. Contract
assets are included in accounts receivable and represent unbilled amounts expected to be received from
customers in future periods, where the revenue recognized to date exceeds the amount billed, and right to
payment is subject to the underlying contractual terms. Contract assets are classified as long-term assets if the
payments are expected to be received more than one year from the reporting date.

83

2019 Annual Report

Disaggregated Revenue

The following table presents the disaggregation of our revenue for the year ended December 31, 2019 and
2018 under ASC 606. Revenue for the year ended December 31, 2017 is presented in accordance with ASC 605.
Amounts are in thousands.

For the Year Ended December 31,

2019

2018

2017

Variable patent royalty revenue . . . . . . . . . . . . . . . . . . . . . . . . . .
Fixed-fee royalty revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 30,428
257,221

$ 36,384
239,347

$ 47,840
301,628

Current patent royalties a
Non-current patent royalties b

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . .

Total patent royalties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Current technology solutions revenue a . . . . . . . . . . . . . . . . . . . .
Patent sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

287,649
19,782

307,431
10,518
975

275,731
26,329

302,060
4,594
750

349,468
162,890

512,358
20,580
—

Total revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$318,924

$307,404

$532,938

a. Recurring revenues consist of current patent royalties, inclusive of Dynamic Fixed-Fee Agreement royalties,

and current technology solutions revenue.

b. Non-current patent royalties for the year ended December 31, 2019 and 2018 consist of past patent royalties
and royalties from static agreements. For the year ended December 31, 2017, non-current patent royalties
consist of past patent royalties.

During the year ended December 31, 2019, we recognized $214.0 million of revenue that had been included
in deferred revenue as of the beginning of the period. As of December 31, 2019, we had contract assets of $16.2
million and $10.2 million included within “Accounts receivable” and “Other non-current assets” in the
consolidated balance sheet, respectively. As of December 31, 2018, we had contract assets of $19.7 million and
$5.5 million included within “Accounts receivable” and “Other non-current assets” in the consolidated balance
sheet, respectively.

2019 Annual Report

84

Impact of Adoption of ASC 606

In accordance with the new revenue standard requirements, the disclosure of the impact of adoption on our
current period consolidated income statement and balance sheet is presented below. We believe this additional
information is vital to allow readers of our financial statements to compare financial results from the preceding
financial years given the absence of restatement of the prior period. The adoption of ASC 606 did not affect our
reported total amounts of cash flows from operating, investing and financing activities. Amounts contained in the
tables below are in thousands, except per share data.

For the Year Ended December 31,

2019

As
Reported
ASC 606

As
Reported
ASC 606

2018

Adjustment

ASC 605

2017

As
Reported
ASC 605

REVENUES:

Variable patent royalty revenue . . . . . . . . . . . . . . .
Fixed-fee royalty revenue . . . . . . . . . . . . . . . . . . .

$ 30,428
257,221

$ 36,384
239,347

$

461
79,341

$ 36,845
318,688

$ 47,840
301,628

Current patent royalties . . . . . . . . . . . . . . . . . . . . .
Non-current patent royalties . . . . . . . . . . . . . . . . .

Total patent royalties . . . . . . . . . . . . . . . . . . . . . . .
Patent sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Current technology solutions revenue . . . . . . . . . .

287,649
19,782

307,431
975
10,518

275,731
26,329

302,060
750
4,594

79,802
(10,000)

69,802
—
4,907

355,533
16,329

371,862
750
9,501

349,468
162,890

512,358
—
20,580

$318,924

$307,404

$ 74,709

$382,113

$ 532,938

OPERATING EXPENSES: . . . . . . . . . . . . . . . . . . . .

281,089

244,809

— 244,809

231,443

Income from operations . . . . . . . . . . . . . . . . . . . . .
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . .
OTHER INCOME (EXPENSE), NET . . . . . . . . . . .

Income before income taxes . . . . . . . . . . . . . . . . .
INCOME TAX BENEFIT (PROVISION) . . . . . . . .

37,835
(40,955)
29,062

25,942
(10,991)

62,595
(35,956)
5,419

32,058
27,417

74,709
16,655
—

91,364
(6,686)

137,304
(19,301)
5,419

123,422
20,731

301,495
(17,845)
8,740

292,390
(121,676)

NET INCOME . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 14,951

$ 59,475

$ 84,678

$144,153

$ 170,714

Net loss attributable to noncontrolling interest . . .

(5,977)

(5,556)

—

(5,556)

(5,506)

NET INCOME ATTRIBUTABLE TO

INTERDIGITAL, INC.

. . . . . . . . . . . . . . . . . . . . .

$ 20,928

$ 65,031

$ 84,678

$149,709

$ 176,220

NET INCOME PER COMMON SHARE —

BASIC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

NET INCOME PER COMMON SHARE —

DILUTED . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$

$

0.66

0.66

$

$

1.89

1.84

$

$

2.45

2.40

$

$

4.34

4.24

$

$

5.09

4.93

85

2019 Annual Report

Contracted Revenue

Based on contracts signed and committed Dynamic Fixed-Fee Agreement payments as of December 31,

2019, we expect to recognize the following amounts of revenue over the term of such contracts (in thousands):

2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2022 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2023 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2024 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Revenue

$260,813
191,146
86,728
—
—
—

$538,687

4. GEOGRAPHIC / CUSTOMER CONCENTRATION

We have one reportable segment. During 2019, 2018 and 2017, 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
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,

2019

2018

2017

United States . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
South Korea . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Japan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
China . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Sweden . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
France . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other Europe . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Taiwan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other Asia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Finland . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Canada . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$139,162
113,189
35,614
11,103
6,934
5,895
5,810
938
279
—
—

$119,159
112,291
29,525
309
6,933
277
5,116
23,326
468
10,000
—

$194,184
113,059
25,210
77,087
6,935
—
6,305
36,051
—
—
74,107

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$318,924

$307,404

$532,938

During 2019, 2018 and 2017, the following licensees or customers accounted for 10% or more of total

revenues:

Apple . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Samsung . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
LG . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Blackberry (a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . —% —%
Huawei (b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . —% —%

21%
35% 36%
25% 25%
13%
10% 10% < 10%
13%
14%

2019

2018

2017

(a) 2017 revenue include $70.7 million of non-current patent royalties.

(b) 2017 revenue include $8.4 million of non-current patent royalties.

2019 Annual Report

86

As of December 31, 2019, 2018 and 2017, we held $446.6 million, $464.6 million and $336.1 million,
respectively, of our property, equipment and patents, net of accumulated depreciation and amortization, of which
greater than 97% of the total was within the United States in each of the years presented. As of December 31,
2019, we held $1.7 million of property and equipment, net of accumulated depreciation, collectively, in Canada,
Europe and Asia.

5. BUSINESS COMBINATIONS AND OTHER TRANSACTIONS

Acquisition of Technicolor’s Patent Licensing Business

On July 30, 2018, we completed our acquisition of the patent licensing business of Technicolor SA
(“Technicolor”), a worldwide technology leader in the media and entertainment sector, which we refer to as the
Technicolor Patent Acquisition. The Technicolor Patent Acquisition included the acquisition by InterDigital of
approximately 18,000 patents and applications, across a broad range of technologies, including approximately
3,000 worldwide video coding patents and applications. The acquisition of Technicolor’s portfolio greatly
expanded InterDigital’s technology footprint in the mobile industry, and opens new markets in consumer home
electronics, display technology and video. Under the terms of the original agreement, the portfolio was to be
supplemented by a jointly funded R&D collaboration. This jointly funded R&D collaboration was terminated in
conjunction with the acquisition of Technicolor’s Research & Innovation unit (the “R&I Acquisition”), which is
discussed below. Members of Technicolor’s licensing, legal and other support teams in offices in Rennes and
Paris, France; Princeton, New Jersey, USA; and other locations joined InterDigital’s team of more than 300 R&D
and other staff in locations around the world. In addition, we have assumed Technicolor’s rights and obligations
under a joint licensing program with Sony Corporation (“Sony”) relating to digital televisions and standalone
computer display monitors (the “Madison Arrangement”), including Technicolor’s role as sole licensing agent
for the Madison Arrangement. We account for our assumption of Technicolor’s rights and obligations under the
Madison Arrangement as a collaborative arrangement. As part of this transaction, we also granted back to
Technicolor a perpetual license for patents acquired in the transaction.

The Technicolor Patent Acquisition met the definition of a business combination and, as such, was
accounted for using the acquisition method of accounting. Under the terms of the agreement, in third quarter
2018, we paid Technicolor $158.9 million in cash, inclusive of $15.9 million of cash acquired, yielding net cash
consideration of $143.0 million. We funded this payment with cash on hand. Under the terms of the original
agreement, Technicolor was to receive 42.5% of all of InterDigital’s future cash receipts (net of estimated
operating expenses) from InterDigital’s new licensing efforts in the consumer electronics field; there was no
revenue sharing associated with InterDigital’s mobile industry licensing efforts. As such, we accounted for the
portion of the future cash receipts owed to Technicolor relating to patents existing as of the date of the
acquisition as a contingent consideration liability, which was valued at $18.6 million as of the acquisition date.
This revenue-sharing arrangement and associated contingent consideration liability were modified in conjunction
with the R&I Acquisition, which closed during second quarter 2019. Refer to the discussion below. Additionally,
as of the acquisition date, we estimated we would receive payments totaling 20.2 million relating to the
transaction from Technicolor.

We allocated the fair value of consideration transferred to identifiable assets acquired and liabilities
assumed based on their estimated fair values as of the acquisition date. We recorded the excess of the fair value
of consideration transferred over the net values of these assets and liabilities as goodwill. We estimated the fair
value of the intangible assets in this transaction through 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, we based the inputs and assumptions used to develop these estimates on a market participant
perspective and included estimates of projected revenues, discount rates, economic lives and income tax rates,
among others, and all of these estimates require significant management judgment. For the market approach, we
applied judgment to identify the most comparable market transactions to this transaction. Refer to Note 7 for
discussion regarding the valuation methodologies used for the contingent consideration liability.

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2019 Annual Report

The following table summarizes the fair value of consideration transferred and our allocation of that
consideration based on the fair values of the assets acquired and liabilities assumed as of the date of acquisition
(in thousands):

Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Contingent consideration liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Less: Transaction-related receivable . . . . . . . . . . . . . . . . . . . . . . . . . . .

As of
July 30, 2018

$158,898
18,616

$177,514
(20,200)

Net fair value of consideration transferred . . . . . . . . . . . . . . . . . . . .

$157,314

Allocation:

Net tangible assets and liabilities:

Restricted cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other non-current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other long-term liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 15,913
5,600
3,116
(6,219)
(17,717)
(3,767)

Total net tangible assets and liabilities . . . . . . . . . . . . . . . . . . . . . . . . . .

$ (3,074)

`

Estimated useful
life (Years)

Identified intangible assets:

Patents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$154,000
6,388

9 - 10

Total identified intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$160,388

Total fair value of consideration transferred . . . . . . . . . . . . . . . . . . .

$157,314

(1) Goodwill consists of expected synergies resulting from the combination of our and Technicolor’s patent
licensing businesses in the increasingly complementary areas of mobile and video technology. We expect
almost all of the goodwill resulting from the Technicolor Patent Acquisition will be deductible for income
tax purposes.

The amount of revenue and earnings that would have been included in the Company’s consolidated
statements of income for the years ended December 31, 2018 and 2017 had the acquisition date been January 1,
2017 are reflected in the table below. These amounts have been calculated after applying the Company’s
accounting policies and adjusting the results to reflect additional interest expense as well as amortization that
would have been charged assuming the fair value adjustments to amortizable intangible assets had been recorded
as of January 1, 2017. In addition, pro forma adjustments have been made to reflect the impact of the transaction-
related costs discussed below. These unaudited pro forma combined results of operations have been prepared for
comparative purposes only, and they do not purport to be indicative of the results of operations that actually

2019 Annual Report

88

would have resulted had the acquisition occurred on the date indicated, or that may result in the future. The
amounts in the table are unaudited (in thousands, except per share data):

For the Year Ended
December 31,

2018

2017

(Unaudited)

Actual revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Supplemental pro forma revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Actual earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Supplemental pro forma earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Actual diluted earnings per share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Supplemental pro forma diluted earnings per share . . . . . . . . . . . . . . . . . . . . .

$307,404
$314,096
$ 65,031
$ 52,754
1.84
$
1.49
$

$532,938
$541,921
$176,220
$107,531
4.93
$
3.01
$

Acquisition of Technicolor’s Research & Innovation Unit

On May 31, 2019, we completed the acquisition of the Research & Innovation unit of Technicolor SA,
which we refer to as the R&I Acquisition. The R&I Acquisition expanded the Company’s research capabilities in
video coding, Internet of Things (IoT) and smart home, imaging sciences, augmented reality and virtual reality,
and artificial intelligence and machine learning technologies. The Technicolor R&I unit was the driving creative
force behind the patent portfolio that was acquired in the Technicolor Patent Acquisition discussed above.

The R&I Acquisition unit met the definition of an asset acquisition and was accounted for using the cost
accumulation and allocation model. There was no cash consideration for the R&I Acquisition. As consideration
for the R&I Acquisition, the jointly funded R&D collaboration that was entered into as part of the Technicolor
Patent Acquisition was terminated. Technicolor will continue to fund research to be performed by the R&I unit
for certain limited projects for a specified time period, subject to renewal. The Company also assumed certain
employee-related liabilities,
including obligations for certain defined benefit post-retirement plans for the
acquired R&I unit employees, which are further discussed below. Additionally, Technicolor agreed to reduce its
rights under the revenue-sharing arrangement entered into as part of the Technicolor Patent Acquisition, as
further discussed below.

The R&I Acquisition resulted in a net gain of approximately $14.2 million,

the
$20.5 million gain from the derecognition of the contingent consideration liability described below, all of which
is included within “Other Income (Expense), Net” in the consolidated statement of income for the year ended
December 31, 2019.

inclusive of

Contingent Consideration

As discussed above, in conjunction with the initial Technicolor Patent Acquisition, Technicolor was to
receive 42.5% of all of InterDigital’s future cash receipts (net of estimated operating expenses) from
InterDigital’s new licensing efforts in the consumer electronics field; there was no revenue sharing associated
with InterDigital’s mobile industry licensing efforts. The portion of the future cash receipts relating to patents
existing as of the date of the acquisition was originally accounted for as a contingent consideration liability in
accordance with ASC 805-30-25, Business Combinations — Contingent Consideration. There are no minimum
or maximum payments under the revenue sharing arrangement, and, except in certain circumstances, the
arrangement continues through December 31, 2038.

The estimated acquisition date fair value of the contingent consideration liability of $18.6 million was
determined utilizing a Monte Carlo simulation model. This initial fair value measurement was based on the
perspective of a market participant and included significant unobservable inputs that are classified as Level 3
inputs within the fair value hierarchy and are discussed further within Note 7.

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2019 Annual Report

As a result of the R&I Acquisition in second quarter 2019, under the amended revenue-sharing arrangement
described above, Technicolor will now receive 42.5% of future cash receipts from new licensing efforts from the
Madison Arrangement only, subject to certain conditions and hurdles, but will no longer receive revenue-sharing
from other licensing efforts in the consumer electronics field outside of the Madison Arrangement. We
determined that the initial contingent consideration liability from the Technicolor Patent Acquisition was
significantly modified in conjunction with the R&I Acquisition, and, as such, the contingent consideration
liability will now be accounted for under ASC 450 — Contingencies under the asset acquisition framework when
the liability is deemed probable and estimable. Since the contingent consideration liability arising from the
amended revenue-sharing arrangement was not probable and estimable as of the R&I Acquisition date, the
carrying value of the previous contingent consideration liability was derecognized, which resulted in a
$20.5 million gain during the year ended December 31, 2019 and is included within “Other Income (Expense),
Net” in the consolidated statement of income for the period. As of December 31, 2019, the contingent
consideration liability from the amended revenue-sharing arrangement was deemed not probable and estimable
and is therefore not reflected within the consolidated financial statements.

Defined Benefit Plans

In connection with the Technicolor Patent Acquisition and the R&I Acquisition, we assumed certain defined
benefit plans which are accounted for in accordance with ASC 715 — Compensation — Retirement Benefits.
These plans include a retirement lump sum indemnity plan and jubilee plan, both of which provide benefit
payments to employees based upon years of service and compensation levels.

As of December 31, 2019, the combined accumulated projected benefit obligation related to these plans
totaled $6.2 million. Service cost and interest cost for the combined plans totaled less than $0.1 million for
the year ended December 31, 2019. The weighted average discount rate and assumed salary increase rate for
these plans were 0.7% and 3.0%, respectively. These plans are not required to be funded and were not funded as
of December 31, 2019. Expected future benefit payments under these plans as of December 31, 2019 were as
follows (in thousands):

2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2022 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2023 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2024 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2025 — 2029 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$

94
177
239
568
248
1,935

Madison Arrangement

As discussed above, in conjunction with the Technicolor Patent Acquisition, effective July 30, 2018, we
assumed Technicolor’s rights and obligations under the Madison Arrangement, which commenced in 2015. The
Madison Arrangement falls under the scope of ASC 808, Collaborative Arrangements.

Under the Madison Arrangement, Technicolor and Sony combined portions of their respective digital TV
(“DTV”) and computer display monitor (“CDM”) patent portfolios and created a combined licensing opportunity
to DTV and CDM manufacturers. Per an Agency and Management Services Agreement (“AMSA”) entered into
upon the creation of the Madison Arrangement, Technicolor was initially appointed as sole licensing agent of the
arrangement, and InterDigital has now assumed that role. As licensing agent, we are responsible for making
decisions regarding the prosecution and maintenance of the combined patent portfolio and the licensing and
enforcement of the combined patent portfolio in the field of use of DTVs and CDMs on an exclusive basis during
the term of the AMSA in exchange for an agent fee.

We were deemed to be the principal in this collaborative arrangement under ASC 808, and, as such, in
accordance with ASC 606-10-55-36, Revenue From Contracts with Customers — Principal Agent

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90

Considerations, we record revenues generated on sales to third parties and costs incurred on a gross basis in the
consolidated statements of income. Therefore, we recognize all royalties from customers as revenue and
payments to Sony for its royalty share as operating expenses within the consolidated statements of income. Cost
reimbursements for expenses incurred resulting from fulfilling the duties of the licensing agent are recorded as
contra expenses. During the year ended December 31, 2019, gross revenues recorded related to the Madison
Arrangement were $13.5 million and are reflected within “Patent licensing royalties” in the consolidated
statement of income. Net operating expenses related to the Madison Arrangement during the year ended
December 31, 2019 were approximately $12.0 million, including $6.3 million related to revenue sharing, and are
reflected primarily within “Patent administration and licensing” expenses in the consolidated statement of
income.

Long-term debt

An affiliate of CPPIB Credit Investments Inc. (“CPPIB Credit”), a wholly owned subsidiary of Canada
Pension Plan Investment Board, is a third-party investor in the Madison Arrangement. CPPIB Credit has made
certain payments to Technicolor and Sony and has agreed to contribute cash to fund certain capital reserve
obligations under the arrangement
in exchange for a percentage of future revenues, specifically through
September 11, 2030 in regard to the Technicolor patents.

Upon our assumption of Technicolor’s rights and obligations under the Madison Arrangement, our
relationship with CPPIB Credit met the criteria in ASC 470-10-25, Sales of Future Revenues or Various Other
Measures of Income (“ASC 470”), which relates to cash received from an investor in exchange for a specified
percentage or amount of revenue or other measure of income of a particular product line, business segment,
trademark, patent, or contractual right for a defined period. Under this guidance, we recognized the fair value of
our contingent obligation to CPPIB Credit, as of the acquisition date, as long-term debt in our consolidated
balance sheet. This initial fair value measurement was based on the perspective of a market participant and
includes significant unobservable inputs which are classified as Level 3 inputs within the fair value hierarchy.
The fair value of the long-term debt as of December 31, 2019 is disclosed within Note 7. Our repayment
obligations are contingent upon future royalty revenues generated from the Madison Arrangement and there are
no minimum or maximum payments under the arrangement.

Under ASC 470, amounts recorded as debt shall be amortized under the interest method. At each reporting
period, we will review the discounted expected future cash flows over the life of the obligation. The Company
made an accounting policy election to utilize the catch-up method when there is a change in the estimated future
cash flows, whereby we will adjust the carrying amount of the debt to the present value of the revised estimated
future cash flows, discounted at the original effective interest rate, with a corresponding adjustment recognized
as interest expense within “Interest expense” in the consolidated statements of income. The effective interest rate
as of the acquisition date was approximately 14.5%. This rate represents the discount rate that equates the
estimated future cash flows with the fair value of the debt as of the acquisition date, and is used to compute the
amount of interest to be recognized each period based on the estimated life of the future revenue streams. During
the year ended December 31, 2019 and 2018, we recognized $2.7 million and $0.7 million of interest expense
related to this debt which is included within “Interest expense” in the consolidated statements of income. Any
future payments made to CPPIB Credit, or additional proceeds received from CPPIB Credit, will decrease or
increase the long-term debt balance accordingly.

Restricted cash

Under the Madison Arrangement, the parties reserve cash in bank accounts to fund our activities to manage
the portfolios. These accounts are custodial accounts for which the funds are restricted for this purpose. As of
December 31, 2019 and 2018, the Company had $9.5 million and $13.7 million of restricted cash included within
the consolidated balance sheet attributable to the Madison Arrangement. Refer to Note 6 for a reconciliation of
cash, cash equivalents and restricted cash within the consolidated balance sheets.

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2019 Annual Report

Commitments

To receive consent from both Sony and CPPIB Credit

to assume the rights and responsibilities of
Technicolor under the Madison Arrangement, we committed to contributing cash to fund shortfalls in the
Madison Arrangement, up to a maximum of $25.0 million, through 2020. A shortfall funding is only required in
the scenario in which the restricted cash is not sufficient to fund current obligations. In the event that we fund a
shortfall, any surplus cash resulting from subsequent royalty receipts would be used to repay our shortfall
funding plus 25% interest in advance of distributions of royalties to either Sony or CPPIB Credit, assuming they
have not participated in the funding of the shortfall. As of December 31, 2019, we have not contributed any
shortfall funding.

Transaction Costs

Transaction and integration related costs related to the above transactions for the years ended December 31,
2019 and 2018 were $8.4 million and $17.8 million, respectively. The majority of these costs were recorded
within “Patent administration and licensing” and “Selling, general and administrative” expenses in the
consolidated statements of income.

Hillcrest Product Business

On December 20, 2016, we acquired Hillcrest Laboratories, Inc. (“Hillcrest”), a pioneer in sensor processing
technology, for approximately $48.0 million in cash, net of $0.4 million cash acquired. The business combination
transaction was accounted for using the acquisition method of accounting.

On July 19, 2019, we completed the sale of Hillcrest’s product business to a subsidiary of CEVA, Inc. In
connection with the sale, we received initial proceeds of $10.0 million, with a customary portion of the purchase
price placed in escrow to secure potential indemnification claims. As part of the transaction, we retained
substantially all of the Hillcrest patent assets that we acquired in 2016. As a result of this transaction, we
recorded an $8.5 million gain on sale which is included within “Other Income (Expense), Net” in the
consolidated statements of income for the year ended December 31, 2019.

6. CASH, CASH EQUIVALENTS, RESTRICTED CASH AND MARKETABLE SECURITIES

Cash, Cash Equivalents and Restricted Cash

Cash, cash equivalents and restricted cash as of December 31, 2019 and 2018 consisted of the following (in

thousands):

Money market and demand accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commercial paper . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$757,098
—

$488,733
—

$757,098

$488,733

December 31,

2019

2018

2019 Annual Report

92

The following table provides a reconciliation of total cash, cash equivalents and restricted cash as of
December 31, 2019 and 2018 within the consolidated balance sheets (in thousands). The Company had no
restricted cash prior to 2018.

Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restricted cash included within prepaid and other current assets . . . . . . . . . . .
Restricted cash included within other non-current assets . . . . . . . . . . . . . . . . .

$745,491
10,526
1,081

$475,056
13,677
—

Total cash, cash equivalents and restricted cash . . . . . . . . . . . . . . . . . . . . . . . .

$757,098

$488,733

December 31,

2019

2018

Marketable Securities

As of December 31, 2019 and 2018, the majority of our 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 2 years, and we have both the ability and intent to hold
the investments until maturity. We recorded no other-than-temporary impairments recorded during 2019, 2018 or
2017. The gross realized gains and losses on sales of marketable securities were not significant during the years
ended December 31, 2019, 2018 and 2017.

Marketable securities as of December 31, 2019 and 2018 consisted of the following (in thousands):

December 31, 2019

Gross
Unrealized
Gains

Gross
Unrealized
Losses

Cost

Available-for-sale securities

U.S. government securities . . . . . . . . . . . . . . . . .
Corporate bonds, asset backed and other

$105,453

$249

securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

73,276

Total available-for-sale securities . . . . . . . .

$178,729

226

$475

$—

—

$—

Reported in:

Cash and cash equivalents . . . . . . . . . . . . . . . . . .
Short-term investments . . . . . . . . . . . . . . . . . . . .

Total marketable securities . . . . . . . . . . . . .

Fair Value

$105,702

73,502

$179,204

$

—
179,204

$179,204

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2019 Annual Report

Available-for-sale securities

Commercial paper . . . . . . . . . . . . . . . . . . . . . . . .
U.S. government securities . . . . . . . . . . . . . . . . .
Corporate bonds, asset backed and other

Cost

$ 14,548
291,157

securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

167,579

Total available-for-sale securities . . . . . . . .

$473,284

Reported in:

Cash and cash equivalents . . . . . . . . . . . . . . . . . .
Short-term investments . . . . . . . . . . . . . . . . . . . .

Total marketable securities . . . . . . . . . . . . .

December 31, 2018

Gross
Unrealized
Gains

Gross
Unrealized
Losses

Fair Value

$—
—

5

$ 5

$ — $ 14,548
289,576
(1,581)

(984)

166,600

$(2,565)

$470,724

$

—
470,724

$470,724

As of December 31, 2019 and 2018, $163.1 million and $390.9 million, respectively, of our short-term
investments had contractual maturities within one year. The remaining portions of our short-term investments
had contractual maturities within one to two years.

7. CONCENTRATION OF CREDIT RISK AND FAIR VALUE OF FINANCIAL ASSETS AND

FINANCIAL LIABILITIES

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 primarily place our cash equivalents and short-
term investments in highly rated financial instruments and in United States government instruments.

Our accounts receivable are derived principally from patent license and technology solutions agreements.
As of December 31, 2019 and 2018, seven and five licensees comprised 73% and 76%, respectively, of our
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 the 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.

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.

2019 Annual Report

94

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.

Recurring Fair Value Measurements

Our financial assets are included within short-term investments on our consolidated balance sheets, unless
otherwise indicated. Our financial assets and liabilities that are accounted for at fair value on a recurring basis are
presented in the tables below as of December 31, 2019 and December 31, 2018 (in thousands):

Assets:
Money market and demand accounts (a)
. . . . . . . . .
U.S. government securities . . . . . . . . . . . . . . . . . . . .
Corporate bonds, asset backed and other

Fair Value as of December 31, 2019

Level 1

Level 2

Level 3

Total

$757,098
—

$

— $ — $757,098
105,702
—

105,702

securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

—

73,502

—

73,502

$757,098

$179,204

$ — $936,302

Fair Value as of December 31, 2018

Level 1

Level 2

Level 3

Total

$488,733
—
—
—

$

— $ — $488,733
14,548
—
289,576
—
166,600
—

14,548
289,576
166,600

$488,733

$470,724

$ — $959,457

$

$

— $

— $

— $19,800

$ 19,800

— $19,800

$ 19,800

Assets:
. . . . . . . . .
Money market and demand accounts (a)
Commercial paper . . . . . . . . . . . . . . . . . . . . . . . . . . .
U.S. government securities . . . . . . . . . . . . . . . . . . . .
Corporate bonds and asset backed securities . . . . . .

Liabilities:
Contingent consideration resulting from the

Technicolor Patent Acquisition . . . . . . . . . . . . . . .

(a)

Included within cash and cash equivalents.

Level 3 Fair Value Measurements

Contingent Consideration

As discussed further in Note 5, we completed the Technicolor Patent Acquisition during third quarter 2018.
In conjunction with the Technicolor Patent Acquisition, we initially recognized a contingent consideration
liability which was measured at fair value on a recurring basis using significant unobservable inputs classified as

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2019 Annual Report

Level 3 measurements within the fair value hierarchy. We utilized a Monte Carlo simulation model to determine
the estimated fair value of the contingent consideration liability through first quarter 2019. A Monte Carlo
simulation uses random numbers together with volatility assumptions to generate individual paths, or trials, for
variables of interest governed by a Geometric Brownian Motion in a risk-neutral framework.

During second quarter 2019, we completed the R&I Acquisition. The transaction met the definition of an
asset acquisition and was accounted for using the cost accumulation and allocation model. As discussed in Note
5, “Business Combinations and Other Transactions,” as part of this acquisition, Technicolor reduced its rights to
the revenue-sharing arrangement that created the initial contingent consideration liability from the Technicolor
Patent Acquisition. We determined that the initial contingent consideration liability from the Technicolor Patent
Acquisition was significantly modified in conjunction with the R&I Acquisition, and, as such, the contingent
consideration liability will now be accounted for under ASC 450 — Contingencies under the asset acquisition
framework when the liability is deemed probable and estimable. Since the contingent consideration liability
arising from the amended revenue-sharing arrangement was not probable and estimable as of the acquisition date,
the carrying value of the previous contingent consideration liability was derecognized, which resulted in a
$20.5 million gain which is included within “Other Income (Expense), Net” in the consolidated statement of
income for the year ended December 31, 2019. Therefore, effective as of the acquisition date of May 31, 2019,
the contingent consideration liability was no longer a Level 3 fair value recurring measurement. As of
December 31, 2019, the contingent consideration liability from the amended revenue-sharing arrangement was
deemed not probable and estimable and is therefore not reflected within the consolidated financial statements.

Level 3 significant unobservable inputs used in the December 31, 2018 valuation of the contingent

consideration liability included the following:

Significant Unobservable Input

Ranges

Weighted Average

Risk-adjusted discount rate for revenue . . . . . . . . . . . . . . . . . . . . .
Credit risk discount rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Revenue volatility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Projected years of earn out . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

13.5% - 14.2%
6.2% - 8.0%
35.0%
2019 - 2030

13.9%
7.1%
35.0%
N/A

Significant increases or decreases in any of those inputs in isolation could have resulted in a significantly
lower or higher fair value measurement. Adjustments to the fair value of contingent consideration were reflected
in operating expenses within our consolidated statements of income through first quarter 2019.

The following table provides a reconciliation of the beginning and ending balances of our Level 3 fair value
measurements from December 31, 2018 to December 31, 2019, which includes the contingent consideration
liability resulting from the Technicolor Patent Acquisition discussed further above and within Note 5 (in
thousands). The Level 3 contingent consideration liability was historically included within “Other long-term
liabilities” in the consolidated balance sheet prior to its derecognition in second quarter 2019.

Level 3 Fair Value Measurements

Balance as of December 31, 2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Changes in fair value recognized in the consolidated statements of income . . . . . . . . . .
Derecognition of contingent consideration liability as a Level 3 fair value

Contingent
Consideration
Liability

$ 19,800
710

measurement

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(20,510)

Balance as of December 31, 2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$

—

2019 Annual Report

96

Fair Value of Long-Term Debt

2024 and 2020 Senior Convertible Notes

The principal amount, carrying value and related estimated fair value of the Company’s senior convertible
debt reported in the consolidated balance sheets as of December 31, 2019 and December 31, 2018 was as follows
(in thousands). The aggregate fair value of the principal amount of the senior convertible long-term debt is a
Level 2 fair value measurement.

Senior Convertible Long-Term Debt

. . . .

$494,909

$423,657

$492,969

$316,000

$298,951

$331,595

December 31, 2019

December 31, 2018

Principal
Amount

Carrying
Value

Fair
Value

Principal
Amount

Carrying
Value

Fair
Value

Technicolor Patent Acquisition Long-term Debt

As more fully disclosed in Note 5, we recognized long-term debt in conjunction with the Technicolor Patent
Acquisition. The carrying value and related estimated fair value of the Technicolor Patent Acquisition long-term
debt reported in the consolidated balance sheet as of December 31, 2019 and December 31, 2018 was as follows
(in thousands). The aggregate fair value of the Technicolor Patent Acquisition long-term debt is a Level 3 fair
value measurement.

Technicolor Patent Acquisition Long-Term Debt . . . . . .

$21,101

$23,305

$18,428

$19,100

December 31, 2019

December 31, 2018

Carrying
Value

Fair
Value

Carrying
Value

Fair
Value

Non-Recurring Fair Value Measurements

Investments in Other Entities

As disclosed in Note 2, we made an accounting policy election to utilize a measurement alternative for
equity investments that do not have readily determinable fair values, which applies to our long-term strategic
investments in other entities. Under the alternative, our long-term strategic investments in other entities that do
not have readily determinable fair values are measured at cost, less any impairment, plus or minus changes
resulting from observable price changes in orderly transactions for an identical or similar investment of the same
issuer. Any adjustments to the carrying value of those investments are considered non-recurring fair value
measurements.

During the year ended December 31, 2019, we recognized a net loss of $2.6 million resulting from the
partial impairment of one of our strategic investments partially offset by a gain on sale of a separate strategic
investment, which is included within “Other Income (Expense), Net” in the consolidated statement of income.
During the year ended December 31, 2018, we recognized an aggregate $8.4 million loss resulting from the sale
of our entire ownership interest in one of our strategic investments and the impairment of a separate strategic
investment. Certain of our investments in other entities may be seeking additional financing in the next twelve
months or potential exit strategies. We will continue to review and monitor our investments in other entities for
any indications of an increase in fair value or impairment.

Patents

During fourth quarter 2019, we entered into a multi-year, worldwide, non-exclusive, royalty-bearing patent
license and settlement agreement with ZTE Corporation. A portion of the future consideration for the agreement
was in the form of patents. We have yet to record these patents on our balance sheet as of December 31, 2019 as

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2019 Annual Report

they have not yet been transferred. However, we have determined the estimated fair value of the patents for
determining the transaction price for revenue recognition purposes, which was estimated to be $14.0 million
utilizing the market approach. The value will be amortized as a non-cash expense over the patents’ estimated
useful lives once transferred. Additionally, as previously disclosed, during 2018 and 2017, we entered into patent
license agreements with Sony and LG, respectively, for which a portion of the consideration was patents. The
estimated fair value of the Sony patents was $22.5 million, and the estimated fair value of the LG patents was
$19.7 million, which are being amortized as a non-cash expense over their estimated useful lives. We estimated
the fair value of the patents in the Sony and LG transactions through a combination of the income approach, the
market approach, and the cost approach.

As noted above, we estimated the fair value of the patents in these transactions using one of, or a
combination of, an analysis of comparable market transactions (the market approach), a discounted cash flow
analysis (the income approach) and/or by quantifying the amount of money required to replace the future service
capability of the assets (the cost 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. For the cost approach, we utilized
the historical cost of assets of similar technologies to determine the estimated replacement cost, including
research, development, testing and patent application fees.

8.

PROPERTY AND EQUIPMENT

Property and equipment, net is comprised of the following (in thousands):

December 31,

2019

2018

Computer equipment and software . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Engineering and test equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Building and improvements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Leasehold improvements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Furniture and fixtures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 11,320
1,333
3,702
11,315
1,121

$ 20,876
4,168
3,711
11,364
1,549

Property and equipment, gross . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less: accumulated depreciation

28,791
(18,574)

41,668
(31,617)

Property and equipment, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 10,217

$ 10,051

Depreciation expense was $3.9 million, $3.7 million and $3.9 million in 2019, 2018 and 2017, respectively.
Depreciation expense included depreciation of computer software costs of $0.2 million, $0.3 million and
$0.5 million in 2019, 2018 and 2017, respectively. Accumulated depreciation related to computer software costs
was $1.1 million and $9.2 million as of December 31, 2019 and 2018, respectively. The net book value of our
computer software was $0.2 million and $0.3 million as of December 31, 2019 and 2018, respectively.

2019 Annual Report

98

9.

PATENTS, GOODWILL AND OTHER INTANGIBLE ASSETS

Patents

As of December 31, 2019 and 2018, patents consisted of the following (in thousands, except for useful life

data):

Weighted average estimated useful life (years) . . . . . . . . . . . . . . . . . . . . . . .
Gross patents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

9.9
$ 905,814
(469,475)

10
$ 851,846
(397,279)

Patents, net

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 436,339

$ 454,567

December 31,

2019

2018

Amortization expense related to capitalized patent costs was $72.3 million, $61.8 million and $52.9 million
in 2019, 2018 and 2017, 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, 2019 is as follows (in thousands):

2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2022 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2023 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2024 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$71,572
66,962
62,673
56,748
48,135

Goodwill

The following table shows the change in the carrying amount of our goodwill balance from December 31,

2017 to December 31, 2019, all of which is allocated to our one reportable segment (in thousands):

Goodwill balance as of December 31, 2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Technicolor Patent Acquisition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Goodwill balance as of December 31, 2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Activity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$16,033
6,388

$22,421
—

Goodwill balance as of December 31, 2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$22,421

Other Intangible Assets

During the year ended December 31, 2019, our other intangible assets were sold in conjunction with the sale
of our Hillcrest product business which is discussed further in Note 5, “Business Combinations and Other
intangible assets excluding patents were included in “Other
Transactions”. As of December 31, 2018,
Non-Current Assets” on the consolidated balance sheet and consisted of the following (in thousands):

Trade Names . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Customer Relationships . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

9
10

Average
Life
(Years)

December 31, 2018

Gross
Assets

Accumulated
Amortization

$ 600
1,700

$2,300

$(133)
(340)

$(473)

Net

$ 467
1,360

$1,827

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2019 Annual Report

10. OBLIGATIONS

Refer to Note 5, “Business Combinations and Other Transactions,” and Note 7, “Concentration of Credit
Risk and Fair Value of Financial Assets and Financial Liabilities,” for information regarding the long-term debt
initially recognized during 2018 resulting from the Technicolor Patent Acquisition.

Long-term debt obligations, excluding the long-term debt resulting from the Technicolor Patent Acquisition,

are comprised of the following (in thousands):

2.00% Senior Convertible Notes due 2024 . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1.50% Senior Convertible Notes due 2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less:

Unamortized interest discount . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred financing costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Total net carrying amount of Senior Convertible Notes . . . . . . . . . . . . . . . . . .
Less: Current portion of long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . .

December 31,

2019

2018

$400,000
94,909

$

—
316,000

(65,393)
(5,859)

423,657
94,170

(15,428)
(1,621)

298,951
—

Long-term net carrying amount of Senior Convertible Notes . . . . . . . . . . . . .

$329,487

$298,951

There were no finance leases as of December 31, 2019 or December 31, 2018.

Maturities of principal of the long-term debt obligations of the Company as of December 31, 2019,

excluding the long-term debt resulting from the Technicolor Patent Acquisition, are as follows (in thousands):

2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2022 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2023 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2024 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 94,909
—
—
—
400,000
—

$494,909

2024 Senior Convertible Notes, and Related Note Hedge and Warrant Transactions

On June 3, 2019 we issued $400.0 million in aggregate principal amount of 2.00% Senior Convertible Notes
due 2024 (the “2024 Notes”). The net proceeds from the issuance of the 2024 Notes, after deducting the initial
purchasers’ transaction fees and offering expenses, were approximately $391.6 million. The 2024 Notes bear
interest at a rate of 2.00% per year, payable in cash on June 1 and December 1 of each year, commencing on
December 1, 2019, and mature on June 1, 2024, unless earlier converted or repurchased.

The 2024 Notes will be convertible into cash, shares of our common stock or a combination thereof, at our
election, at an initial conversion rate of 12.3018 shares of common stock per $1,000 principal amount of 2024
Notes (which is equivalent to an initial conversion price of approximately $81.29 per share), as adjusted pursuant
to the terms of the indenture governing the 2024 Notes (the “Indenture”). The conversion rate of the 2024 Notes,
and thus the conversion price, may be adjusted in certain circumstances, including in connection with a
conversion of the 2024 Notes made following certain fundamental changes and under other circumstances set
forth in the Indenture. It is our current intent and policy to settle all conversions of the 2024 Notes through
combination settlements of cash and shares of common stock, with a specified dollar amount of $1,000 per
$1,000 principal amount of 2024 Notes and any remaining amounts in shares of common stock.

2019 Annual Report

100

Prior to 5:00 p.m., New York City time, on the business day immediately preceding March 1, 2024, the
2024 Notes will be convertible only under certain circumstances as set forth in the Indenture, including on any
date during any calendar quarter (and only during such calendar quarter) beginning after September 30, 2019 if
the closing sale price of the common stock was more than 130% of the applicable conversion price
(approximately $105.68 based on the current conversion price of the 2024 Notes) on each applicable trading day
for at least 20 trading days (whether or not consecutive) in the period of the 30 consecutive trading days ending
on the last trading day of the immediately preceding calendar quarter.

Commencing on March 1, 2024, the 2024 Notes will be convertible 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 2024 Notes.

The Company may not redeem the 2024 Notes prior to their maturity date.

If a fundamental change (as defined in the Indenture) occurs, holders may require the Company to purchase
all or a portion of their 2024 Notes for cash at a repurchase price equal to 100% of the principal amount of the
2024 Notes to be repurchased, plus any accrued and unpaid interest to, but excluding, the fundamental change
repurchase date. The 2024 Notes are our senior unsecured obligations and rank equally in right of payment with
any of our current and any future senior unsecured indebtedness, including our 1.50% senior convertible notes
due 2020 (the “2020 Notes”) discussed below. The 2024 Notes are effectively subordinated to all of our future
secured indebtedness to the extent of the value of the related collateral, and the 2024 Notes are structurally
subordinated to indebtedness and other liabilities, including trade payables, of our subsidiaries.

On May 29 and May 31, 2019, in connection with the offering of the 2024 Notes, we entered into
convertible note hedge transactions (collectively, the “2024 Note Hedge Transactions”) that cover, subject to
customary anti-dilution adjustments, approximately 4.9 million shares of common stock, in the aggregate, at a
strike price that initially corresponds to the initial conversion price of the 2024 Notes, subject to adjustment, and
are exercisable upon any conversion of the 2024 Notes. The aggregate cost of the 2024 Note Hedge Transactions
was $72.0 million.

On May 29 and May 31, 2019, we also entered into privately negotiated warrant transactions (collectively,
the “2024 Warrant Transactions” and, together with the 2024 Note Hedge Transactions, the “2024 Call Spread
Transactions”), whereby we sold warrants to acquire, subject
to customary anti-dilution adjustments,
approximately 4.9 million shares of common stock at an initial strike price of approximately $109.43 per share,
subject to adjustment. As consideration for the 2024 Warrant Transactions, we received aggregate proceeds of
$47.6 million. The net cost of the 2024 Call Spread Transactions was $24.4 million.

The net proceeds from the issuance of the 2024 Notes, after deducting fees and offering expenses, were used
for the following: (i) $232.7 million was used to repurchase $221.1 million in aggregate principal amount of the
2020 Notes (as defined below) in privately negotiated transactions concurrently with the offering of the 2024
Notes (ii) $19.6 million was used to repurchase shares of common stock at $62.53 per share, the closing price of
the stock on May 29, 2019; and (iii) $24.4 million, in addition to the proceeds from the 2024 Warrant
Transactions discussed above, was used to fund the cost of the 2024 Call Spread Transactions.

Accounting Treatment of the 2024 Notes and Related Convertible Note Hedge and Warrant Transactions

The 2024 Call Spread Transactions were classified as equity. The Company bifurcated the proceeds from
the offering of the 2024 Notes between liability and equity components. On the date of issuance, the liability and
equity components were calculated to be approximately $328.0 million and $72.0 million, respectively. The
initial $328.0 million liability component was determined based on the fair value of similar debt instruments
excluding the conversion feature. The initial $72.0 million ($56.9 million net of tax) equity component represents
the difference between the fair value of the initial $328.0 million in debt and the $400.0 million gross proceeds.
The related initial debt discount of $72.0 million is being amortized over the life of the 2024 Notes using the

101

2019 Annual Report

effective interest method. An effective interest rate of 6.25% was used to calculate the debt discount on the 2024
Notes.

In connection with the above-noted transactions, the Company incurred approximately $8.4 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 $6.4 million of debt issuance costs to the liability component, which
were capitalized as deferred financing costs. These costs are being amortized as interest expense over the term of
the debt using the effective interest method. The remaining $1.9 million of costs ($1.7 million net of tax)
allocated to the equity component were recorded as a reduction of the equity component.

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. In connection with the initial offering of the 2020 Notes, on March 5 and
March 9, 2015, we entered into convertible note hedge transactions (the “2020 Note Hedge Transactions”) that
initially covered approximately 4.4 million shares of common stock at a strike price that initially corresponded to
the initial conversion price of the 2020 Notes and are exercisable upon any conversion of the 2020 Notes. On
March 5 and March 9, 2015, we also entered into warrant transactions (collectively, the “2020 Warrant
Transactions” and, together with the 2020 Note Hedge Transactions, the “2020 Call Spread Transactions”) to
initially acquire, subject to customary anti-dilution adjustments, approximately 4.4 million shares of common
stock. The warrants become exercisable and expire in daily tranches over a three and a half month period starting
in June 2020.

As noted above, during second quarter 2019, the Company used $232.7 million from the offering of the
2024 Notes to repurchase $221.1 million in aggregate principal amount of the 2020 Notes in privately negotiated
transactions concurrently with the offering of the 2024 Notes. As a result of the partial repurchase of the 2020
Notes, $94.9 million in aggregate principal amount of the 2020 Notes remain outstanding as of December 31,
2019. Additionally, on May 29, 2019, in connection with the partial repurchase of the 2020 Notes, the Company
entered into partial unwind agreements that amend the terms of the 2020 Note Hedge Transactions to reduce the
number of options corresponding to the principal amount of the repurchased 2020 Notes. The unwind agreements
also reduce the number of warrants exercisable under the 2020 Warrant Transactions. As a result of the partial
unwind transactions, approximately 1.3 million shares of common stock in the aggregate were covered under
each of the 2020 Note Hedge Transactions and the 2020 Warrant Transactions as of December 31, 2019. As of
December 31, 2019, the warrants under the 2020 Warrant Transactions had a strike price of approximately
$86.34 per share, as adjusted. Proceeds received from the unwind of the 2020 Note Hedge Transactions were
$9.0 million, and consideration paid for the unwind of the 2020 Warrant Transactions was $4.2 million, resulting
in net proceeds received of $4.9 million for the combined unwind transactions which was recorded to equity
during the year ended December 31, 2019.

We recognized a $5.5 million loss on extinguishment of debt during the year ended December 31, 2019 in
connection with this repurchase, which was included within “Other Income (Expense), Net” in the consolidated
statement of income for the period. The loss on extinguishment represents the difference between the calculated
fair value of the debt immediately prior to its derecognition and the carrying amount of the debt component,
including any unamortized debt discount and issuance costs. The remaining consideration paid for the partial
repurchase of the 2020 Notes was allocated to the reacquisition of the equity component, which equaled
$13.0 million ($10.6 million net of tax) and was recorded as a reduction of equity during the year ended
December 31, 2019. The remaining unamortized debt discount and issuance costs of $3.3 million will continue to
be amortized throughout the remaining life of the 2020 Notes, which are set to mature in March 2020.

2019 Annual Report

102

The remaining 2020 Notes will be convertible into cash, shares of our common stock or a combination
thereof, at our election, at a current conversion rate of 14.1559 shares of common stock per $1,000 principal
amount of 2020 Notes as of December 31, 2019 (which is equivalent to a conversion price of approximately
$70.64 per share), as adjusted pursuant to the terms of the indenture governing the 2020 Notes (the “2020 Notes
Indenture”). The conversion rate of the 2020 Notes, and thus the conversion price, may be adjusted in certain
circumstances, including in connection with a conversion of the 2020 Notes made following certain fundamental
changes and under other circumstances set forth in the 2020 Notes Indenture. It is our current intent and policy to
settle all conversions of the 2020 Notes through combination settlements 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 of common stock.

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 2020 Notes Indenture,
including on any date during any calendar quarter (and only during such calendar quarter) if the closing sale price
of our common stock was more than 130% of the applicable conversion price (approximately $91.83 based on
the current conversion price of the 2020 Notes) on each applicable trading day for at least 20 trading days in the
period of the 30 consecutive trading days ending on the last trading day of the immediately preceding calendar
quarter.

Commencing on December 1, 2019, the 2020 Notes will be convertible 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.

The Company may not redeem the 2020 Notes prior to their maturity date.

On April 3, 2018, in connection with the reorganization of the Company’s holding company structure, the
predecessor company (now known as InterDigital Wireless, Inc., the “Predecessor Company”) and the successor
company (now known as InterDigital, Inc., the “Successor Company”) entered into a First Supplemental
Indenture (the “2020 Notes Supplemental Indenture”) to the 2020 Notes Indenture with the trustee. The 2020
Notes Supplemental Indenture effected certain amendments to the 2020 Notes Indenture in connection with the
Reorganization, which, among other things, amended the conversion right of the 2020 Notes so that at the
effective time of the Reorganization, the holder of each Note outstanding as of the effective time of the
Reorganization will have the right
the 2020 Notes Indenture,
each $1,000 principal amount of such 2020 Note into the number of shares of the Successor Company’s common
stock that a holder of a number of shares of the Predecessor Company’s common stock equal to the conversion
rate immediately prior to the effective time of the Reorganization would have been entitled to receive upon the
Reorganization. In addition, pursuant to the 2020 Notes Supplemental Indenture, the Successor Company
guaranteed the Predecessor Company’s obligations under the 2020 Notes and the 2020 Notes Indenture.

to convert, subject

to the terms of

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. The Company 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
($38.6 million net of tax), respectively. 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. Directly related costs are being amortized to interest expense over
the term of the debt using the effective interest method.

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The following table presents the amount of interest cost recognized for the years ended December 31, 2019,
2018 and 2017 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 . . . . . . . . . .

For the Year Ended December 31,
2018
2019

2024
Notes

$ 4,600
7,322
654

2020
Notes

$ 2,824
7,743
821

Total

$ 7,424
15,065
1,475

2020
Notes

$ 4,740
12,434
1,390

2017

2020
Notes

$ 4,740
11,715
1,390

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$12,576

$11,388

$23,964

$18,564

$17,845

11. COMMITMENTS

Minimum future payments for accounts payable and other purchase commitments, excluding long-term

operating leases for office space, as of December 31, 2019 were as follows (in thousands):

2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2022 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2023 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2024 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$16,664
—
—
—
—
—

As part of the Technicolor Patent Acquisition, we committed to contributing cash, subject to certain
requirements, of up to a maximum of $25.0 million to fund a collaborative arrangement related to the transaction.
Additionally, we are subject to a revenue-sharing arrangement with Technicolor resulting from the Technicolor
Patent Acquisition and the R&I Acquisition. We also assumed certain defined benefit plan liabilities in
conjunction with these transactions. Refer to Note 5, “Business Combinations and Other Transactions,” for
further information.

Refer to Note 10, “Obligations,” for details of the Company’s long-term debt obligations. Refer to Note 17,

“Leases,” for maturities of the Company’s operating lease liabilities as of December 31, 2019.

12. LITIGATION AND LEGAL PROCEEDINGS

COURT PROCEEDINGS

Huawei

China Proceedings

On January 3, 2019, InterDigital was notified that a civil complaint was filed on January 2, 2019 by Huawei
Technologies Co., Ltd. and certain of its subsidiaries against InterDigital, Inc. and certain of its subsidiaries in
the Shenzhen Intermediate People’s Court (the “Shenzhen Court”). The complaint seeks a ruling that the
InterDigital defendants have violated an obligation to license their patents that are essential to 3G, 4G and 5G
wireless telecommunication standards on fair, reasonable and non-discriminatory (“FRAND”) terms and
conditions. The complaint also seeks a determination of the terms for licensing all of the InterDigital defendants’
Chinese patents that are essential to 3G, 4G and 5G wireless telecommunication standards to the Huawei
plaintiffs for the plaintiffs’ wireless terminal unit products made and/or sold in China from 2019 to 2023. On
September 17, 2019, InterDigital filed a petition challenging the jurisdiction of the Shenzhen Court to hear the

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action. On December 25, 2019, InterDigital was notified that
the Shenzhen Court rejected InterDigital’s
jurisdictional challenge. On January 23, 2020, InterDigital filed an appeal of the Shenzhen Court’s decision to
deny InterDigital’s jurisdictional challenge with the IP Tribunal of the China Supreme People’s Court.
InterDigital’s appeal is pending.

U.K. Proceedings

On December 3, 2019, InterDigital, Inc. and certain of its subsidiaries filed a claim in the High Court of
Justice, Business and Property Courts of England and Wales, Intellectual Property List (Chancery Division),
Patents Court (the “High Court”) against Huawei Technologies Co., Ltd. and Huawei Technologies (UK) Co.,
Ltd. (“Huawei UK”). The claim alleges infringement of five of InterDigital’s patents relating to 3G, 4G/LTE and/
or 5G standards: European Patent (U.K.) Nos. 2,363,008; 2,421,318; 2,485,558; 2,557,714; and 3,355,537.

In these proceedings, InterDigital is seeking a declaration that the terms offered by InterDigital to Huawei
for a worldwide license are consistent with InterDigital’s FRAND commitments, or, alternatively, a
determination of FRAND terms for a license to the litigated patents. InterDigital is also seeking a ‘FRAND
injunction’ of the type previously awarded by the High Court in Unwired Planet v. Huawei (such injunction, a
“FRAND Injunction”), preventing further infringement of the litigated patents where the court has settled the
terms of a worldwide FRAND license and the defendant does not enter into a license on those terms, along with
other relief concerning declarations, damages and costs.

On December 20, 2019, Huawei UK filed an application seeking an extension of time to challenge the
jurisdiction of the High Court to hear the action against it until the later of January 17, 2020 or fourteen days
following the Supreme Court of the United Kingdom’s (the “U.K. Supreme Court”) decision in Unwired Planet
v. Huawei and Conversant v. Huawei and ZTE (together, the “Unwired Planet and Conversant Cases”). On
January 17, 2020, the parties filed a consent order directing that Huawei UK’s challenge to the jurisdiction of the
High Court be heard before July 31, 2020, and setting the deadline for Huawei UK to file its application
challenging jurisdiction to be fourteen days following the Supreme Court’s decision in the Unwired Planet and
Conversant Cases, which the court entered into with minor amendments. On January 24, 2020, the High Court
listed Huawei UK’s application challenging jurisdiction to be heard between July 1 and July 3, 2020.

Lenovo

U.K. Proceedings

On August 27, 2019, InterDigital, Inc. and certain of its subsidiaries filed a claim in the High Court against
Lenovo Group Limited and certain of its subsidiaries. The claim, as amended, alleges infringement of five of
InterDigital’s patents relating to 3G and/or 4G/LTE standards: European Patent (U.K.) Nos. 2,363,008 (the “‘008
Patent”); 2,421,318; 2,485,558; 2,557,714; and 3,355,537.

In these proceedings, InterDigital is seeking a FRAND Injunction, preventing further infringement of the
litigated patents where the court has settled the terms of a worldwide FRAND license and the defendant does not
enter into a license on those terms, along with other relief concerning declarations, damages and costs.

On October 3, 2019, Lenovo filed an application challenging the jurisdiction of the High Court to hear the
action, as well as the order which permitted service outside of the United Kingdom with respect to the U.S. and
Hong Kong defendants (the “Lenovo Jurisdiction Challenge”). The High Court listed the Lenovo Jurisdiction
Challenge to be heard over two days between February 24 and February 27, 2020. On February 11, 2020, Lenovo
filed an application seeking to adjourn the Lenovo Jurisdiction Challenge to allow time for the U.K. Supreme
Court to issue its ruling in the Unwired Planet and Conversant Cases. On February 17, 2020, the parties filed a
consent order adjourning the hearing of the Lenovo Jurisdiction Challenge until between May 5, 2020 and
July 30, 2020.

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2019 Annual Report

Also on February 11, 2020, the High Court listed a five-day trial in relation to the ‘008 Patent to begin
between March 1, 2021 and March 5, 2021. On February 17, 2020, the High Court listed a second five-day trial
to begin on June 21, 2021. The patent in suit to be addressed at such trial, if not previously agreed, will be
determined at a case management conference scheduled to take place in late May, 2020, with the exact date to be
determined. Also at the case management conference, the parties will ask the High Court to determine directions
for the remaining trials in the proceedings if they cannot be agreed.

District of Delaware Proceedings

On August 28, 2019, InterDigital, Inc. and certain of its subsidiaries filed a complaint in the United States
District Court for the District of Delaware (the “Delaware District Court”) against Lenovo Holding Company,
Inc. and certain of its subsidiaries alleging that Lenovo infringes eight of InterDigital’s U.S. patents — U.S.
Patent Nos. 8,085,665 (the “‘665 Patent”); 8,199,726 (the “‘726 Patent”); 8,427,954 (the “‘954 Patent”);
8,619,747; 8,675,612 (the “‘612 Patent”); 8,797,873 (the “‘873 Patent”); 9,203,580; and 9,456,449 (the “‘449
Patent”) — by making, using, offering for sale, and/or selling Lenovo wireless devices with 3G and/or 4G LTE
capabilities. As relief, InterDigital is seeking: (a) a declaration that InterDigital is not in breach of its relevant
FRAND commitments with respect to Lenovo; (b) to the extent Lenovo does not agree to negotiate a worldwide
patent license, does not agree to enter into binding international arbitration to set the terms of a FRAND license,
and does not agree to be bound by the FRAND terms to be set by the High Court in the separately filed U.K.
Proceedings described above, an injunction prohibiting Lenovo from continued infringement; (c) damages,
including enhanced damages for willful infringement and supplemental damages; and (d) attorneys’ fees and
costs.

On November 4, 2019, Lenovo filed a motion to dismiss InterDigital’s patent infringement claims for six of
the eight litigated patents — the ‘873, ‘665, ‘954, ‘726, ‘449 and ‘612 Patents — on the basis that such patents
allegedly are not directed to patent-eligible subject matter. On December 9, 2019, InterDigital amended its
complaint and on January 10, 2020, Lenovo filed a renewed motion to dismiss the same claims from
InterDigital’s amended complaint as they moved to dismiss from the original complaint. On February 7, 2020,
InterDigital filed its opposition to Lenovo’s renewed motion to dismiss InterDigital’s amended complaint.
Lenovo’s response to InterDigital’s opposition is due on February 21, 2020.

Asustek

Information regarding the legal proceeding that Asustek Computer Incorporated (“Asus”) filed against
InterDigital, Inc. and certain of its subsidiaries in the U.S. District Court for the Northern District of California
(the “CA Northern District Court”) on April 15, 2015 can be found in the description of legal proceedings
contained in InterDigital’s Annual Report on Form 10-K for the fiscal year ended December 31, 2018 as filed
with the SEC on February 21, 2019 (the “2018 Form 10-K”).

On March 11, 2019, as a result of the CA Northern District Court’s ruling on December 20, 2018 that Asus
was judicially estopped from arguing that the parties’ April 2008 patent license agreement was not entered into
on FRAND terms and conditions, Asus revised its damages calculations downward, and updated the calculations
to include sales through 2018. Asus was seeking damages for what it called “4G capable products” in the amount
of $58.3 million for sales through 2018. Any damages attributable to a violation Section 2 of the Sherman Act
would have been subject to mandatory trebling, as well as an award of reasonable attorneys’ fees.

On April 4, 2019, Asus informed the court that it would not be proceeding to trial on its waiver and
Delaware Consumer Fraud Act claims. A jury trial on Asus’ remaining claims — violation of Section 2 of the
Sherman Act and breach of contract resulting from ongoing negotiations — was scheduled to commence on
May 6, 2019 in the CA Northern District Court.

On April 9, 2019, the parties participated in another court-mandated settlement conference. On April 12,
2019, certain subsidiaries of InterDigital entered into a Settlement Agreement and First Amendment to the Patent

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106

License Agreement with Asus (the “Asus Settlement Agreement”), pursuant to which, among other things, the
parties agreed to a multi-year amendment to the 2008 Asus PLA that added coverage for 4G technologies and
amended certain other terms. The parties also agreed to dismiss all outstanding litigation and other proceedings
among the parties. Accordingly, the action in the CA Northern District Court described herein was dismissed on
April 15, 2019, and there are no further proceedings in this matter.

ZTE USITC Proceedings and Related Delaware District Court Proceedings

Information regarding legal proceedings that InterDigital filed against ZTE Corporation and ZTE (USA)
Inc. (collectively, “ZTE”) with the United States International Trade Commission (“USITC”) and the Delaware
District Court can be found in the description of legal proceedings contained in InterDigital’s 2018 Form 10-K.
With respect to the Delaware District Court proceeding related to the 2013 USITC Proceeding (337-TA-868), on
January 23, 2019, InterDigital and ZTE filed a joint status report that informed the Delaware District Court of the
Federal Circuit’s decision regarding the ‘966 and ‘847 patents and that the PTAB proceedings regarding the ‘244
patent remained pending. The parties jointly requested that the case remain stayed so that the portion of the case
related to damages potentially owed by ZTE as to the three patents-in-suit could be coordinated. The court
granted that request on January 25, 2019.

On October 18, 2019, InterDigital and ZTE entered into a Patent License Agreement (the “ZTE PLA”)
pursuant to which the parties agreed that, upon the performance of certain obligations by ZTE, the parties would
end all legal proceedings initiated by either party or otherwise pending between them. Pursuant to the ZTE PLA,
on October 25, 2019, ZTE filed an unopposed motion with the Federal Circuit to withdraw from the appeal of the
PTAB’s remand ruling that claim 8 of the ’244 patent is invalid. On November 22, 2019, the Federal Circuit
reversed and vacated the PTAB’s remand decision. The court’s mandate issued on December 30, 2019.

Also on December 30, 2019, InterDigital and ZTE filed a stipulation and proposed order to dismiss the
Delaware District Court proceedings related to the 2011 USITC Proceeding (337-TA-800) and 2013 USITC
Proceeding (337-TA-868), which was granted by the court on January 2, 2020. There are no further proceedings
in either of these matters.

REGULATORY PROCEEDING

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.

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2019 Annual Report

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 InterDigital’s wireless standards-essential patents. If 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.

The commitments contained in item 3 above expired on May 22, 2019. With the consolidation of China’s
antimonopoly enforcement authorities into the State Administration for Market Regulation (“SAMR”) in April
2018, SAMR is now responsible for overseeing InterDigital’s commitments.

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 preceding
matters have met the requirements for accrual or disclosure of a potential range as of December 31, 2019.

13. COMPENSATION PLANS AND PROGRAMS

Compensation Programs

We use a variety of compensation programs to attract, retain and motivate our 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, cash awards to inventors for filed patent applications
and patent issuances, and long-term incentives in the form of stock option awards, time-based RSU awards,
performance-based awards and cash awards.

Our long-term incentives typically include annual time-based RSU grants or cash awards with a three-year
vesting period, as well as annual performance-based RSU grants or cash awards with a three to five-year
performance period; as a result, in any one year, we are typically accounting for at least three active cycles. We
issue new shares of our common stock to satisfy our obligations under the share-based components of these
programs. However, our Board of Directors has the right to authorize the issuance of treasury shares to satisfy
such obligations in the future.

Equity Incentive Plans

On June 14, 2017, our shareholders adopted and approved the 2017 Equity Incentive Plan (the “2017 Plan”),
under which officers, employees, non-employee directors and consultants can receive share-based awards such as
RSUs, restricted stock and stock options as well as other stock or cash awards. From June 2009 through June 14,
2017, we granted such awards pursuant to our 2009 Stock Incentive Plan (the “2009 Plan,” and, together with the
2017 Plan, the “Equity Plans”), which was adopted and approved by our shareholders on June 4, 2009, and the
material terms of which were re-approved on June 12, 2014. Upon the adoption of the 2017 Plan in June 2017,
the 2009 Plan was terminated and all shares remaining available for grant under the 2009 Plan were canceled.
The number of shares available for issuance under the 2017 Plan is equal to 2,400,000 shares plus any shares
subject to awards granted under the 2009 Plan that, on or after June 14, 2017, expire or otherwise terminate
without having been exercised in full, or that are forfeited to or repurchased by us.

RSUs and Restricted Stock

We may issue RSUs and/or shares of restricted stock to officers, employees, non-employee directors and
consultants. Any cancellations of unvested RSUs granted under the Equity Plans will increase the number of

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108

shares remaining available for grant under the 2017 Plan. Time-based RSUs vest over periods generally ranging
from 1 to 3 years from the date of the grant. Performance-based RSUs generally have a vesting period of between
3 and 5 years.

As of December 31, 2019, we had unrecognized compensation cost related to share-based awards of
$10.2 million, at current performance accrual rates. For grants made that cliff vest, we expect to amortize the
associated unrecognized compensation cost as of December 31, 2019, on a straight-line basis generally over a
three to five-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 achievement against these
goals, the number of shares that vest can be anywhere from 0 to 2 times the target number of shares.

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, 2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Granted* . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Forfeited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Vested . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Balance at December 31, 2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

915
512
(274)
(198)

955

$63.70
66.19
76.44
58.84

$62.40

*

These numbers include less than 0.1 million RSUs credited on unvested RSU awards as dividend
equivalents. Dividend equivalents accrue with respect to unvested RSUs 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%.

During 2019, 2018 and 2017, we granted approximately 0.3 million, 0.3 million and 0.2 million RSUs under
the Equity Plans, respectively, with weighted-average grant date fair values of $66.19, $73.75 and $58.63,
respectively. The total vest date fair value of the RSUs that vested in 2019, 2018 and 2017 was $12.7 million,
$25.2 million and $56.0 million, respectively. The weighted average per share grant date fair value of the awards
that vested in 2019, 2018 and 2017 was $58.84, $54.75 and $35.14, respectively.

Other Equity Grants

We may also grant equity awards to non-management Board members and certain consultants.

Stock Options

The 2009 Plan allowed, and the 2017 Plan allows, for the granting of incentive and non-qualified stock
options, as well as other securities. The administrator of the Equity Plans, the Compensation Committee of the
Board of Directors, determines the number of options to be granted, subject to certain limitations set forth in the
2017 Plan. Annually, since 2013, both incentive and non-qualified stock options have been granted as part of our
three years. During the year ended
long-term incentive programs, which have generally vested over
December 31, 2018, performance-based options were granted for the first time. The number of options which
cliff vest, if at all, is anywhere from 0 to 2 times the target number of options subject to the attainment of
performance goals measured at the end of the performance period. These performance-based options have a
vesting period between three and five years.

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2019 Annual Report

Under the terms of the Equity Plans, 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. Options granted under the Equity Plans 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, over a period of time and/or dependent upon the attainment of specified performance goals. We
also have approximately 0.1 million options outstanding under a prior stock plan that have an indefinite
contractual life.

The fair value for option awards is computed using the Black-Scholes pricing model, whose inputs and
assumptions are determined as of the date of grant and which require considerable judgment. Expected volatility
was based upon a combination of implied and historic volatilities. The weighted-average grant date fair value per
option award granted during the years ended December 31, 2019, 2018 and 2017 was $13.68, $24.56, and
$19.90, respectively, based upon the assumptions included in the table below:

Expected term (in years) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expected volatility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Risk-free interest rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dividend yield . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

For the Year Ended December 31,

2019

4.5
25.8%
2.4%
2.0%

2018

7.7
30.1%
3.0%
1.8%

2017

4.5
28.5%
1.9%
1.4%

Information with respect to current year stock option activity is summarized as follows (in thousands, except

per share amounts):

Balance at December 31, 2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Granted* . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Forfeited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Balance at December 31, 2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

695
130
—
—

825

$57.21
67.61
—
8.25

$58.83

Outstanding
Options

Weighted
Average Exercise
Price

The weighted average remaining contractual

life of our outstanding options was 8.3 years as of
December 31, 2019. 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 $9.00 and $11.63.

The total intrinsic value of our outstanding options as of December 31, 2019 was $7.2 million. Of the
0.8 million outstanding options as of December 31, 2019, 0.4 million were exercisable with a weighted-average
exercise price of $35.81. Options exercisable as of December 31, 2019 had total intrinsic value of $7.2 million
and a weighted average remaining contractual life of 8.6 years. The total intrinsic value of stock options
exercised during the years ended December 31, 2019, 2018 and 2017 was less than $0.1 million, $5.6 million and
$0.3 million, respectively. In 2019, we recorded cash received from the exercise of options of less than
$0.1 million. Upon option exercise, we issued new shares of stock.

As of December 31, 2019, we had unrecognized compensation cost on our unvested stock options of
$0.9 million, at current performance accrual rates. As of December 31, 2019 and 2018, we had approximately
0.3 million and 0.3 million options outstanding, respectively, that had exercise prices less than the fair market
value of our stock at the respective balance sheet date. These options would have generated cash proceeds to the
Company of $7.6 million and $11.2 million, respectively, if they had been fully exercised on those dates.

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110

Defined Contribution Plans

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 401(k) contribution expense was approximately $1.1 million,
$1.3 million and $1.4 million for 2019, 2018 and 2017, respectively. At our discretion, we may also make a profit-
sharing contribution to our employees’ 401(k) accounts. Additionally, the company contributed $0.2 million,
$0.2 million and $0.3 million in 2019, 2018 and 2017, respectively, to other defined contribution plans.

14. TAXES

Our income tax provision (benefit) consists of the following components for 2019, 2018 and 2017 (in

thousands):

Current
Federal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
State . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign source withholding tax . . . . . . . . . . . . . . . . . . . . . . . . . . .

Deferred
Federal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
State . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign source withholding tax . . . . . . . . . . . . . . . . . . . . . . . . . . .

2019

2018

2017

$(11,436)
207
19,850

$ (3,148)
239
25,187

8,621

22,278

$

3,656
(1)
47,592

51,247

(21,735)
2,457
21,648

(63,030)
(1,554)
14,889

21,671
(1,074)
49,832

2,370

(49,695)

70,429

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 10,991

$(27,417)

$121,676

The deferred tax assets and liabilities were comprised of the following components at December 31, 2019

and 2018 (in thousands):

Net operating losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred revenue, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tax credit carryforward . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stock compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Patent amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other-than-temporary impairment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other accrued liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other employee benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Right of use asset
Lease liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Less: valuation allowance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

2019

Total

$ 131,501
33,131
11,744
3,307
18,522
443
(1,933)
1,138
785
7,520
(4,913)
5,760

2018

Total

$ 126,946
39,711
—
5,037
18,520
246
—
490
2,981
6,405
—
—

207,005
(133,797)

200,336
(125,158)

Net deferred tax asset . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 73,208

$ 75,178

Note: Included within the balance sheet, but not reflected in the tables are deferred tax assets primarily
related to foreign withholding taxes that are expected to be paid within the next twelve months of
$0.1 million and $1.5 million as of December 31, 2019 and December 31, 2018, respectively.

111

2019 Annual Report

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, 2019, 2018 and 2017:

Tax at U.S. statutory rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
State tax provision (a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Effects of rates different than statutory . . . . . . . . . . . . . . . . . . . . . . .
Change in valuation allowance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Research and development tax credits . . . . . . . . . . . . . . . . . . . . . . . .
Uncertain tax positions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Permanent differences . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Domestic production activities deduction . . . . . . . . . . . . . . . . . . . . .
Stock compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Rate change (b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign derived intangible income deduction (c) . . . . . . . . . . . . . . . .
Amended return benefit
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

2019

2018

2017

21.0%
10.2%
(2.8)%
23.3%
(4.5)%
(0.8)%
2.3%
—%
(0.6)%
—%
—%

21.0%
(8.9)%
(1.4)%
8.5%
(4.3)%
3.9%
4.9%
—%
(5.0)%
—%
(56.3)%
(8.4)% (49.4)%
1.5%
2.7%

35.0%
—%
—%
0.5%
(0.8)%
(2.4)%
1.0%
(2.0)%
(4.0)%
14.6%
—%
—%
(0.3)%

Total tax provision (benefit) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

42.4%

(85.5)% 41.6%

(a)

(b)

(c)

In 2019, we determined that we would not be able to utilize our state deferred tax assets for our parent
company in Delaware and Pennsylvania, therefore we put a full valuation allowance on these assets.

In 2017, the inclusion of the revaluation of the deferred tax assets attributable to the TCJA signed into law
in December 2017 increased the tax provision by 14.6%.

In 2018, the new Foreign Derived Intangible Income (“FDII”) deduction that was enacted as part of the
TCJA decreased the tax provision by 56.3%.

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 net operating losses and net operating losses in certain
subsidiaries in France and the United Kingdom will not be utilized; therefore we have maintained a near full
valuation allowance against our state, French and United Kingdom net operating losses as of December 31, 2019.
All other deferred tax assets are fully benefited.

Uncertain Income Tax Positions

As of December 31, 2019, 2018 and 2017, we had 4.5 million, 4.4 million and 3.3 million, respectively, of
unrecognized tax benefits that, if recognized, would impact the Company’s effective tax rate. 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 2019, we established a reserve of $0.3 million related to an additional deduction related to the

issuance cost of the convertible debt that is recorded through equity.

During 2018, we established a reserve of 1.1 million related to the recognition of the 2006 to 2010 research

and development credits and manufacturing deduction credits.

During 2017, we released a reserve of $6.5 million as a result of the IRS Joint Committee issuing a letter
ruling in acceptance of the refund claims associated with the domestic production activities deduction and

2019 Annual Report

112

research and development credit. Additionally, we reduced the previously established reserve for the 2016
domestic production activities deduction and research and development credit by 1.6 million. These reductions in
reserves were partially offset by the establishment of a 1.0 million reserve related to the 2017 research and
development and manufacturing deduction credit, as well an increase for interest and penalty on previously
recognized reserves.

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 2017 through 2019 (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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

2019

2018

2017

$4,352

$3,252

$10,397

402
—

34
—
—
(332)

73
—

1,009
—

1,054
(27)
—
—

—
(1,610)
(6,544)
—

Balance as of December 31 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$4,456

$4,352

$ 3,252

Our policy is to recognize interest and/or penalties related to income tax matters in income tax expense. For
certain positions that related to years prior to 2019, we have recorded approximately $0.1 million of accrued
interest during 2019 and 2018.

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 2006 to
the present, with the exception of 2011 and 2012, 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 2021. Excluding the
Korea Competent Authority Proceeding and the Finland Competent Authority Proceeding described in the
section below, specific tax treaty procedures remain open for certain jurisdictions for 2014 to the present. 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
$1.6 billion. In November 2018, the Company received notice that its 2016 U.S. Federal income tax return will
be subject to audit. In February 2020, the Company received a no change letter from the IRS indicating the audit
is closed. In December 2018, the Company received a notice of proposed assessment related to an ongoing audit
of its California tax returns for 2013 through 2015. The Company filed a protest to the California assessment in
February 2019.

Foreign Taxes

We pay foreign source withholding taxes on patent license royalties 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 2019, 2018 and 2017, we paid $18.8 million, $25.1 million and
$46.7 million in foreign source withholding taxes, respectively, and applied these payments as credits against our
United States federal tax obligation.

113

2019 Annual Report

Between 2006 and 2019, we paid approximately $177.4 million in foreign taxes to foreign governments that
have tax treaties with the U.S., for which we have claimed foreign tax credits against our U.S. tax obligations,
and for which the tax treaty procedures are still open. 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 foreign currency fluctuations, any
such agreement could result in foreign currency gain or loss.

On November 8, 2019, the Company received notification that its request for competent authority pertaining
to Article 25 (Mutual Agreement Procedure) of the United States-Republic of Finland Income Tax Convention
had been reviewed by the IRS and an agreement has been reached (the “Finland Competent Authority
Proceeding”). As a result of this agreement, the Company does not anticipate any tax consequences.

On July 24, 2018, the Company received notification that its request for competent authority pertaining to
Article 27 (Mutual Agreement 14 Table of Contents Procedure) of the United States-Republic of Korea Income
Tax Convention had been reviewed by the IRS and an agreement had been reached (the “Korea Competent
Authority Proceeding”). As a result of this agreement, the Company received refunds of $97.4 million, inclusive
of interest. In addition, we have recorded a net tax benefit of $14.7 million in our full year 2018. In September
2019 the amended tax returns for tax years covered by this agreement were filed and an additional benefit of
$2.2 million was recorded related to the final refund the Company expects to receive.

15. NET INCOME PER 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,

2019

2018

2017

Basic

Diluted

Basic

Diluted

Basic

Diluted

Numerator:
Net income applicable to common

shareholders . . . . . . . . . . . . . . . . . . . . . . . . . .

$20,928

$20,928

$65,031

$65,031

$176,220

$176,220

Denominator:

Weighted-average shares outstanding:

Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

31,546

31,546

34,491

34,491

34,605

34,605

Dilutive effect of stock options, RSUs and

convertible securities . . . . . . . . . . . . . . . . . . .

Weighted-average shares outstanding:

239

816

Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

31,785

35,307

1,174

35,779

Earnings Per Share:

Net income: Basic . . . . . . . . . . . . . . . . . . . . . . .

$

0.66

0.66

$

1.89

1.89

$

5.09

5.09

Dilutive effect of stock options, RSUs and

convertible securities . . . . . . . . . . . . . . . . . . .

Net income: Diluted . . . . . . . . . . . . . . . . . . . . .

—

$

0.66

(0.05)

$

1.84

(0.16)

$

4.93

2019 Annual Report

114

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 greater than the average market price of our common stock for the years ended December 31,
2019, 2018 and 2017, 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
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

2019

128
5,495
5,495

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

11,118

2018

25
—
4,404

4,429

2017

19
—
—

19

For the Year Ended December 31,

16. EQUITY TRANSACTIONS

Repurchase of Common Stock

In June 2014, our Board of Directors authorized a $300 million share repurchase program (the “2014
Repurchase Program”). In June 2015, September 2017, December 2018, and May 2019, our Board of Directors
authorized four $100 million increases to the program, respectively, bringing the total amount of the 2014
Repurchase Program to $700 million. The Company 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 the total number of shares repurchased and the dollar value of shares repurchased
under the 2014 Repurchase Program (in thousands). As of December 31, 2019, there was approximately
$71.8 million remaining under the stock repurchase authorization.

2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

2014 Repurchase
Program

# of
Shares

2,962
1,478
107
1,304
1,836
3,554

Value

$196,269
110,505
7,693
64,685
96,410
152,625

Total

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

11,241

$628,187

115

2019 Annual Report

Dividends

Cash dividends on outstanding common stock declared in 2019 and 2018 were as follows (in thousands,

except per share data):

2019
First quarter
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Second quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Third quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fourth quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

2018
First quarter
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Second quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Third quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fourth quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Per Share

Total

Cumulative by
Fiscal Year

$0.35
0.35
0.35
0.35

$1.40

$0.35
0.35
0.35
0.35

$1.40

$11,180
10,895
10,897
10,746

$43,718

$12,124
12,192
11,996
11,610

$47,922

$11,180
22,075
32,972
43,718

$12,124
24,316
36,312
47,922

In September 2017, we announced that our Board of Directors had approved an increase in the Company’s
quarterly cash dividend to $0.35 per share. We currently expect to continue to pay dividends comparable to our
quarterly $0.35 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.

17. LEASES

In February 2016, the FASB issued ASC 842, which outlines a comprehensive change to the lease
accounting model and supersedes prior lease guidance (“ASC 840”). The new guidance requires lessees to
recognize lease liabilities and corresponding right-of-use assets for all leases with lease terms of greater than 12
months, and also changes the definition of a lease and expands the disclosure requirements of lease
arrangements.

The Company adopted this guidance on January 1, 2019 using the modified retrospective transition effective
date method. As part of that adoption, we have elected the package of three practical expedients, which includes
the following: an entity may elect not to reassess whether expired or existing contracts contain a lease under the
revised definition of a lease; an entity may elect not to reassess the lease classification for expired or existing
leases; and an entity may elect not to reassess whether previously capitalized initial direct costs would qualify for
capitalization. The Company has elected not to utilize the hindsight expedient in determining the lease term, and
to not record leases with an initial term of 12 months or less on our balance sheet. Additionally, the Company has
elected to account for lease components and non-lease components as a single lease component for all asset
classes. Lease expense is recognized over the expected term on a straight-line basis. The adoption did not have a
material impact on the Company’s condensed consolidated statements of income or cash flows.

The Company enters into operating leases primarily for real estate to support research and development
(“R&D”) sites and general office space in North America, with additional locations in Europe and Asia. The
Company does not currently have any finance leases. Certain of our leases include options to extend the lease at
our discretion at the end of the lease term, or terminate the lease early subject to certain conditions and penalties.
We do not include any renewal options in our lease terms for calculating our lease liabilities, as the renewal

2019 Annual Report

116

options allow us to maintain operational flexibility and we are not reasonably certain we will exercise these
options.

At the inception of an arrangement, the Company determines whether the arrangement is or contains a lease
based on the specific facts and circumstances present. Operating lease liabilities and their corresponding
right-of-use assets are recorded based on the present value of lease payments over the expected lease term. The
interest rate implicit in lease contracts is typically not readily determinable, and, as such, the Company utilizes its
incremental borrowing rate as the discount rate based on information available on the lease commencement date.
Our incremental borrowing rate represents the rate we would incur to borrow on a collateralized basis over a
similar term for an amount equal to the lease payments in a similar economic environment. We utilized the
incremental borrowing rate as of January 1, 2019, our adoption date, for operating leases that commenced prior
to that date. Upon our adoption of ASU 2016-02,
the Company recorded the following operating lease
right-of-use assets and operating lease liabilities as of January 1, 2019. Additionally, the table below includes the
balances of operating lease right-of-use assets and operating lease liabilities as of December 31, 2019 (in
thousands):

Balance Sheet Classification

January 1,
2019

December 31,
2019

Assets
Operating lease right-of-use assets, net . . . . . . . . . . . . . . Other Non-current Assets

Total Lease Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Liabilities
Operating lease liabilities — Current . . . . . . . . . . . . . . . . Other Accrued Expenses
Operating lease liabilities — Noncurrent . . . . . . . . . . . . . Other Long-Term Liabilities

Total Lease Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . .

$13,634

$24,513

$13,634

$24,513

$ 3,519
13,652

$ 3,437
24,142

$17,171

$27,579

The components of lease costs which were included within operating expenses in our consolidated statement

of income were as follows (in thousands):

For the Year
Ended
December 31,
2019

Operating lease cost
Short-term lease cost
Variable lease cost

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$4,776
925
1,502

For the year ended December 31, 2019, sublease income was insignificant. Cash paid for amounts included
in the measurement of operating lease liabilities for the year ended December 31, 2019 was $5.2 million and was
included in net cash provided by operating activities in our consolidated statement of cash flows. Operating lease
right-of-use assets obtained in exchange for operating lease obligations totaled $14.4 million during the year
ended December 31, 2019. As of December 31, 2019, the weighted average remaining operating lease term was
7.1 years and the weighted average discount rate used to determine the operating lease liabilities was 5.8%.

117

2019 Annual Report

The maturities of our operating lease liabilities as of December 31, 2019 under ASC 842, excluding short-

term leases with terms less than 12 months, were as follows (in thousands):

Maturity of Operating Lease Liabilities

December 31, 2019

2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2022 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2023 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2024 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Thereafter

Total lease payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less: Imputed interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Present value of lease liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 3,296
5,311
5,341
4,605
4,409
11,355

$34,317
(6,738)

$27,579

The undiscounted maturities of our operating leases as of December 31, 2018 under ASC 840, including

short-term leases with terms less than 12 months, were as follows (in thousands):

Maturity of Operating Leases

December 31, 2018

2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2022 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2023 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Thereafter

$5,362
3,386
2,883
2,920
2,184
5,582

18. OTHER INCOME (EXPENSE), NET

The amounts included in “Other Income (Expense), Net” in the consolidated statements of income for the

year ended December 31, 2019, 2018 and 2017 were as follows (in thousands):

Interest and investment income . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gain on asset acquisition and sale of business . . . . . . . . . . . . . . . . . .
Loss on extinguishment of long-term debt . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

For the Year Ended December 31,

2019

2018

14,991
22,690
(5,488)
(3,131)

14,590
—
—
(9,171)

2017

8,488
—
—
252

Other income (expense), net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$29,062

$ 5,419

$8,740

Refer to Note 5, “Business Combinations and Other Transactions,” for further information regarding the
$14.2 million gain resulting from the R&I Acquisition and the $8.5 million gain on sale of our Hillcrest product
business. Refer to Note 10, “Obligations,” for further information on the $5.5 million loss on extinguishment of
long-term debt recognized during the year ended December 31, 2019.

During the year ended December 31, 2019, we recognized a net loss of $2.6 million resulting from the
partial impairment of one of our strategic investments partially offset by a gain on sale of a separate strategic
investment. During the year ended December 31, 2018, we recognized an aggregate $8.4 million loss resulting
from the sale of our entire ownership interest in one of our strategic investments and the impairment of a separate
strategic investment. These items are included in the “Other” caption in the table above.

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118

19. SELECTED QUARTERLY RESULTS (UNAUDITED)

The table below presents quarterly data for the years ended December 31, 2019 and 2018.

2019
Revenues (a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income applicable to InterDigital, Inc.’s common

shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income per common share — basic . . . . . . . . . . . . . . .
Net income per common share — diluted . . . . . . . . . . . . .

First

Second

Third

Fourth

(In thousands, except per share amounts, unaudited)

$68,631

$75,609

$72,523

$102,161

$ (2,803)
$ (0.09)
$ (0.09)

First

$ 7,743
0.25
$
0.24
$

Second

$ 2,234
0.07
$
0.07
$

$ 13,754
0.44
$
0.44
$

Third

Fourth(c)

2018
Revenues (b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income applicable to InterDigital, Inc.’s common

shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income per common share — basic . . . . . . . . . . . . . . .
Net income per common share — diluted . . . . . . . . . . . . .

$87,444

$69,555

$75,079

$ 75,326

$30,230
0.87
$
0.85
$

$10,966
0.32
$
0.31
$

$21,752
0.63
$
0.61
$

$ 2,083
0.06
$
0.06
$

(a)

In 2019, we recognized $19.8 million of non-current patent royalties primarily attributable to the Funai,
ZTE Corporation, and Innovius LLC patent license agreements, all of which were signed in fourth quarter
2019.

(b)

In 2018, we recognized $26.3 million of non-current patent royalties primarily attributable to the Kyocera
and Signal Trust for Wireless Innovation patent license agreements, both signed in first quarter 2018.

(c) Fourth quarter 2018 amounts have been revised due to the revision to noncontrolling interest that is
discussed further in Note 21, “Revision to Noncontrolling Interest.” As reported amounts for net income
applicable to InterDigital, Inc’s common shareholders, net income per common share — basic, and net
income per common share — diluted for fourth quarter 2018 were $1,830, $0.05, and $0.05, respectively.

20. VARIABLE INTEREST ENTITIES

As further discussed below, we are the primary beneficiary of three variable interest entities. As of
December 31, 2019, the combined book values of the assets and liabilities associated with these variable interest
entities included in our consolidated balance sheet were $60.6 million and $5.4 million, respectively. Assets
included $18.5 million of cash and cash equivalents, $1.7 million of accounts receivable and prepaid assets,
$39.3 million of patents, net, and $1.3 million of other non-current assets. As of December 31, 2018, the
combined book values of the assets and liabilities associated with these variable interest entities included in our
consolidated balance sheet were $29.9 million and $6.1 million, respectively. Assets included $11.7 million of
cash and cash equivalents, $1.3 million of accounts receivable, $14.4 million of patents, net, and $2.5 million of
other non-current assets.

Chordant

On January 31, 2019, we launched the Company’s Chordant™ business as a standalone company. The
spinout of the unit, which now includes an affiliate of Sony as an investor along with the Company, gives
Chordant added independence and flexibility in driving into its core operator and smart city markets. Chordant is
a variable interest entity and we have determined that we are the primary beneficiary for accounting purposes and
will consolidate Chordant. For the year ended December 31, 2019, we have allocated approximately $1.5 million
of Chordant’s net loss to noncontrolling interests held by other parties.

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2019 Annual Report

Convida Wireless

Convida Wireless was launched in 2013 and most recently renewed in 2018 to combine Sony’s consumer
electronics expertise with our pioneering IoT expertise to drive IoT communications and connectivity. Based on
the terms of the agreement, the parties will contribute funding and resources for additional research and platform
development, which we will perform. SCP IP Investment LLC, an affiliate of Stephens Inc., is a minority
investor in Convida Wireless.

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 are the primary beneficiary for accounting purposes
and will continue to consolidate Convida Wireless. For the years ended December 31, 2019, 2018 and 2017, we
have allocated approximately $4.5 million, $5.6 million and $5.5 million, respectively, of Convida Wireless’ net
loss to noncontrolling interests held by other parties.

Signal Trust for Wireless Innovation

During 2013, we announced the establishment of the Signal Trust for Wireless Innovation (the “Signal

Trust”), the goal of which is to monetize a large InterDigital 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 contributing 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 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.

2019 Annual Report

120

21. REVISION TO NONCONTROLLING INTEREST

As discussed in Note 1, “Background and Basis of Presentation,” we revised our prior period presentation
of noncontrolling interest. The following tables present the effect of the revision on the consolidated statements
of income, statements of comprehensive income, balance sheets and statements of shareholders’ equity (in
thousands, except per share data). The correction of this error has no impact to the previously reported
consolidated statements of cash flows for any periods.

Statements of Income and Statements of
Comprehensive Income Impact

Year Ended

December 31,
2017

December 31,
2018

Net loss attributable to noncontrolling interest — As Reported . . . . . . .
Net loss attributable to noncontrolling interest — As Revised . . . . . . . .
Net income attributable to InterDigital, Inc. — As Reported . . . . . . . . .
Net income attributable to InterDigital, Inc. — As Revised . . . . . . . . . .
Net income per common share, Basic — As Reported . . . . . . . . . . . . . .
Net income per common share, Basic — As Revised . . . . . . . . . . . . . . .
Net income per common share, Diluted — As Reported . . . . . . . . . . . .
Net income per common share, Diluted — As Revised . . . . . . . . . . . . .
Total comprehensive income attributable to InterDigital, Inc. — As

3,579
$
5,506
$
$174,293
$176,220
5.04
$
5.09
$
4.87
$
4.93
$

Reported . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$172,724

Total comprehensive income attributable to InterDigital, Inc. — As

Revised . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$174,651

$ 4,393
$ 5,556
$63,868
$65,031
1.85
$
1.89
$
1.81
$
1.84
$

$63,929

$65,092

Balance Sheets and Statements of
Shareholders’ Equity Impact

December 31, December 31, December 31,
2017

2018

2016

Retained earnings — As Reported . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Retained earnings — As Revised . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total InterDigital, Inc. shareholders’ equity — As Reported . . . . . . . . .
Total InterDigital, Inc. shareholders’ equity — As Revised . . . . . . . . . .
Noncontrolling interest — As Reported . . . . . . . . . . . . . . . . . . . . . . . . .
Noncontrolling interest — As Revised . . . . . . . . . . . . . . . . . . . . . . . . . .
Total equity — As Reported . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total equity — As Revised . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$1,120,766
$1,127,380
$ 739,709
$ 746,323
14,659
$
$
8,045
$ 754,368
$ 754,368

$1,249,091
$1,257,632
$ 855,267
$ 863,808
17,881
$
$
9,340
$ 873,148
$ 873,148

$1,426,266
$1,435,970
$ 927,025
$ 936,729
10,988
$
$
1,284
$ 938,013
$ 938,013

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, 2019. 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

121

2019 Annual Report

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, 2019. 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, 2019, 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, 2019 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 2019 that have

materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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

2019 Annual Report

122

the definitive proxy statement to be filed pursuant to Regulation 14A in connection with our 2020 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.

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 61.

(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.

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2019 Annual Report

Valuation and Qualifying Accounts

Balance Beginning
of Period

Increase/
(Decrease)

Reversal of
Valuation
Allowance

Balance End
of Period

2019 valuation allowance for deferred

tax assets . . . . . . . . . . . . . . . . . . . . . . .

$125,158

$ 8,639(a)

$ —

$133,797

2018 valuation allowance for deferred

tax assets . . . . . . . . . . . . . . . . . . . . . . .

$123,916

$ 1,568(a)

$(326)

$125,158

2017 valuation allowance for deferred

tax assets . . . . . . . . . . . . . . . . . . . . . . .

$ 89,815

$34,430(b)

$(329)

$123,916

2019 reserve for uncollectible

accounts . . . . . . . . . . . . . . . . . . . . . . .

2018 reserve for uncollectible

accounts . . . . . . . . . . . . . . . . . . . . . . .

2017 reserve for uncollectible

accounts . . . . . . . . . . . . . . . . . . . . . . .

$

$

$

693

456

—

$ (156)(c)

$ —

$

$

237

456

$ —

$ —

$

$

$

537

693

456

(a) The increase was primarily necessary to maintain a full, or near full, valuation allowance against our state
deferred tax assets and deferred tax assets for certain subsidiaries in France as well as a non-wholly owned
subsidiary in the United States and the United Kingdom.

(b) The increase was primarily a result of the Tax Cut and Jobs Act signed into law in December of 2017. There
was also a release of a state VA during the year that was recorded through tax expense. The remainder of the
increase was necessary to maintain a full, or near full, valuation allowance against our state deferred tax
assets and did not result in additional tax expense.

(c) The decrease relates to the write-off of a previously recorded reserve during 2019.

(3) Exhibits.

See Item 15(b) below.

(b)

Exhibit
Number

Exhibit Description

*3.1

*3.2

*4.1

4.2

*4.3

*4.4

*4.5

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).

Specimen Stock Certificate of InterDigital (Exhibit 4.3 to InterDigital’s Quarterly Report on
Form 10-Q dated April 28, 2011).

Description of InterDigital’s Securities.

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).

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).

Indenture, dated June 3, 2019, 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
May 29, 2019).

2019 Annual Report

124

Exhibit
Number

*4.6

*10.1

†*10.2

†*10.3

†*10.4

†*10.5

†*10.6

†*10.7

†*10.8

†*10.9

†*10.10

†*10.11

†*10.12

†*10.13

†*10.14

†*10.15

†*10.16

Form of 2.00% Senior Convertible Note due 2024 (included in Exhibit 4.1 to InterDigital’s
Current Report on Form 8-K dated May 29, 2019).

Exhibit Description

Real Estate Leases

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).

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). (P)

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 Stock Options
(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).

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).

2017 Equity Incentive Plan (Exhibit 10.1 to InterDigital’s Registration Statement on
Form S-8 filed with the SEC on June 15, 2017 (File No. 333-218755)).

2017 Equity Incentive Plan, Form of Agreement for Time-Based Restricted Stock Unit
Awards (Exhibit 10.2 to InterDigital’s Current Report on Form 8-K dated June 16, 2017).

2017 Equity Incentive Plan, Form of Agreement for Performance-Based Restricted Stock Unit
Awards (Exhibit 10.3 to InterDigital’s Current Report on Form 8-K dated June 16, 2017).

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2019 Annual Report

Exhibit
Number

†*10.17

†*10.18

Exhibit Description

2017 Equity Incentive Plan, Form of Agreement for Option Awards (Exhibit 10.4 to
InterDigital’s Current Report on Form 8-K dated June 16, 2017).

2017 Equity Incentive Plan, Form of Agreement for Restricted Stock Unit Awards to
Non-Employee Directors (Exhibit 10.18 to InterDigital’s Annual Report on Form 10-K for the
year ended December 31, 2017 dated February 22, 2018).

†*10.19

Compensation Program for Non-Management Directors (as amended March 2017)
(Exhibit 10.1 to InterDigital’s Current Report on Form 8-K dated April 3, 2017).

†10.20

Compensation Program for Non-Management Directors (as amended June 2019).

†*10.21

†*10.22

†*10.23

†*10.24

†*10.25

†*10.26

†*10.27

†*10.28

†*10.29

Deferred Compensation Plan (Exhibit 10.1 to InterDigital’s Current Report on Form 8-K
dated June 18, 2013).

2017 Equity Incentive Plan, Form of Term Sheet for 2018 Performance-Based Restricted
Stock Unit Awards (Exhibit 10.1 to InterDigital, Inc.’s Current Report on Form 8-K dated
July 9, 2018).

2017 Equity Incentive Plan, Form of Term Sheet for 2018 Performance-Based Stock Option
Awards (Exhibit 10.2 to InterDigital, Inc.’s Current Report on Form 8-K dated July 9, 2018).

2017 Equity Incentive Plan, Form of Agreement for Time-Based Restricted Stock Unit
Awards (revised October 2018) (Exhibit 10.3 to InterDigital’s Quarterly Report on Form
10-Q dated November 1, 2018).

2017 Equity Incentive Plan, Form of Agreement for Performance-Based Restricted Stock Unit
Awards (revised October 2018) (Exhibit 10.4 to InterDigital’s Quarterly Report on Form
10-Q dated November 1, 2018).

2017 Equity Incentive Plan, Form of Agreement for Stock Option Awards (revised October
2018) (Exhibit 10.5 to InterDigital’s Quarterly Report on Form 10-Q dated November 1, 2018).

InterDigital Inc. Executive Severance and Change in Control Policy (Exhibit 10.6 to
InterDigital’s Quarterly Report on Form 10-Q dated November 1, 2018).

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, Joan H. Gillman, S. Douglas Hutcheson, John A.
Kritzmacher, Jannie K. Lau, John D. Markley, Jr., Scott A. McQuilkin, William J. Merritt,
James J. Nolan, Kai O. Oistamo, Jean F. Rankin, Lawrence F. Shay, Philip P. Trahanas and
Richard L.Gulino)(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 and Lawrence F. Shay)
(Exhibit 10.90 to InterDigital’s Quarterly Report on Form 10-Q dated August 9, 2007).

†*10.30

Offer Letter Between InterDigital and Kai Oistamo dated October 10, 2018 (Exhibit 10.7 to
InterDigital’s Quarterly Report on Form 10-Q dated November 1, 2018).

2019 Annual Report

126

Exhibit
Number

†10.31

*10.32

*10.33

*10.34

*10.35

*10.36

*10.37

21

23.1

31.1

31.2

32.1

32.2

Retirement & Transition Agreement and Release, dated December 9, 2019, by and between
InterDigital and Jannie K. Lau.

Exhibit Description

Other Material Contracts

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).

Purchase Agreement, dated May 29, 2019, between InterDigital and Barclays Capital Inc., as
representative of the several initial purchasers named in Schedule I attached thereto
(Exhibit 10.1 to InterDigital’s Current Report on Form 8-K dated May 29, 2019).

Form of Convertible Note Hedge Transaction Confirmation (Exhibit 10.2 to InterDigital’s
Current Report on Form 8-K dated May 29, 2019).

Form of Warrant Transaction Confirmation (Exhibit 10.3 to InterDigital’s Current Report on
Form 8-K dated May 29, 2019).

Form of Unwind Agreement (Exhibit 10.4 to InterDigital’s Current Report on Form 8-K dated
May 29, 2019).

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. +

101.INS

XBRL Instance Document — The instance document does not appear in the Interactive Data
File because its XBRL tags are embedded within the Inline XBRL document.

101.SCH

Inline XBRL Taxonomy Extension Schema Document.

101.CAL

Inline XBRL Taxonomy Extension Calculation Linkbase Document.

101.DEF

Inline XBRL Taxonomy Extension Definition Linkbase Document.

101.LAB

Inline XBRL Taxonomy Extension Label Linkbase Document.

101.PRE

Inline XBRL Taxonomy Extension Presentation Linkbase Document.

104

Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).

*

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.

Item 16. FORM 10-K SUMMARY.

None.

127

2019 Annual Report

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 20, 2020

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 20, 2020

/s/ S. Douglas Hutcheson

S. Douglas Hutcheson, Chairman of the Board of
Directors

Date: February 20, 2020

Date: February 20, 2020

Date: February 20, 2020

Date: February 20, 2020

Date: February 20, 2020

Date: February 20, 2020

/s/

Joan H. Gillman

Joan H. Gillman, Director

/s/

John A. Kritzmacher

John A. Kritzmacher, Director

/s/

John D. Markley, Jr.

John D. Markley, Jr., Director

/s/

Jean F. Rankin

Jean F. Rankin, 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)

Date: February 20, 2020

/s/ Richard J. Brezski

Richard J. Brezski, Chief Financial Officer
(Principal Financial Officer and Principal Accounting
Officer)

2019 Annual Report

128

InterDigital, Inc.

NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
To Be Held June 3, 2020

TO THE SHAREHOLDERS OF INTERDIGITAL, INC.:

We are pleased to invite you to attend our 2020 annual meeting of shareholders, which will be held on Wednesday, June 3,

2020, at 2:00 PM 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 www.virtualshareholdermeeting.com/IDCC2020. 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 seven 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, 2020; 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. Shareholders attending the virtual meeting will be afforded the same rights and opportunities to
participate as they would at an in-person meeting. On or about April 17, 2020, we began mailing our shareholders a Notice of
Internet Availability of Proxy Materials (the “Notice”) containing instructions on how to access our 2020 proxy statement and
2019 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, 2020 proxy statement, 2019 annual report and proxy card.

All holders of record of shares of our common stock (NASDAQ: IDCC) at the close of business on April 1, 2020, 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 www.virtualshareholdermeeting.com/IDCC2020. 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 2:00 PM Eastern Time. In order to attend

and participate in the annual meeting, you will need to visit www.virtualshareholdermeeting.com/IDCC2020 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. Online check-in will begin at 1:30 PM Eastern
Time. Please allow sufficient time to complete the online check-in process.

By Order of the Board of Directors,

April 17, 2020
Wilmington, Delaware

RICHARD L. GULINO

Chief Legal Officer, General Counsel
and Corporate Secretary

TABLE OF CONTENTS

INTERNET AVAILABILITY OF PROXY MATERIALS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
EXPLANATORY NOTE ABOUT INTERDIGITAL, INC.
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ABOUT THE ANNUAL MEETING AND VOTING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
GOVERNANCE OF THE COMPANY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Code of Ethics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Director Independence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Board Leadership . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Board Oversight of Risk . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Board Structure and Committee Membership . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Board Self-Evaluation Process
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Communications with the Board . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Communications About Accounting Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
DIRECTOR COMPENSATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2019 Director Compensation Table . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
PROPOSALS TO BE VOTED ON . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Election of Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Advisory Resolution to Approve Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Ratification of Appointment of Independent Registered Public Accounting Firm . . . . . . . . . . . . . . . . .
REPORT OF THE AUDIT COMMITTEE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
EXECUTIVE OFFICERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
EXECUTIVE COMPENSATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Compensation Discussion and Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Compensation Committee Report
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Summary Compensation Table . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Grants of Plan Based Awards in 2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Outstanding Equity Awards at 2019 Fiscal Year End . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Option Exercises and Stock Vested in 2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Nonqualified Deferred Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Potential Payments upon Termination or Change in Control . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Chief Executive Officer Pay Ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
EQUITY COMPENSATION PLAN INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT . . . . . . . . . .
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
OTHER MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Delinquent Section 16(a) Reports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Shareholder Proposals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proxy Solicitation Costs and Potential Savings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Annual Report on Form 10-K . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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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 3, 2020, at 2:00 PM Eastern Time, and at any postponements or adjournments thereof. This
year’s annual meeting of shareholders will be held as a virtual meeting. Shareholders attending the virtual
meeting will be afforded the same rights and opportunities to participate as they would at an in-person meeting.
You will be able to attend and participate in the annual meeting online via a live webcast by visiting
www.virtualshareholdermeeting.com/IDCC2020. 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 17, 2020, 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 the Notice by mail, you will not receive a printed copy
of the proxy materials unless you request one. If you receive the 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 3, 2020:
The Notice of Meeting and Proxy Statement and 2019 Annual Report are available at
http://ir.interdigital.com/FinancialDocs.

EXPLANATORY NOTE ABOUT INTERDIGITAL, INC.

On April 3, 2018, for the purpose of reorganizing its holding company structure, InterDigital, Inc., a
Pennsylvania corporation and then-existing NASDAQ-listed registrant (the “Predecessor Company”), executed
an Agreement and Plan of Merger (“Merger Agreement”) with InterDigital Parent, Inc., a Pennsylvania
corporation (the “Successor Company”) 100% owned by the Predecessor Company, and another newly-formed
Pennsylvania corporation owned 100% by the Successor Company (“Merger Sub”). Pursuant to the Merger
Agreement, on April 3, 2018, Merger Sub merged (the “Merger” or “Reorganization”) with and into the
Predecessor Company, with the Predecessor Company surviving. As a result of the Merger, the Predecessor
Company is now a wholly-owned subsidiary of the Successor Company. Neither the business conducted by the
Successor Company and the Predecessor Company in the aggregate, nor the consolidated assets and liabilities of
the Successor Company and the Predecessor Company in the aggregate, changed as a result of the
Reorganization. By virtue of the Merger, each share of the Predecessor Company’s outstanding common stock
was converted, on a share-for-share basis, into a share of common stock of the Successor Company.

3

Proxy Statement

As a result, each shareholder of the Predecessor Company became the owner of an identical number of
shares of common stock of the Successor Company. Immediately following the Reorganization, the Successor
Company was renamed as “InterDigital, Inc.,” just like the Predecessor Company’s name prior to the Merger.
The Successor Company’s common stock continues to be traded under the name “InterDigital, Inc.” and
continues to be listed on the NASDAQ Global Select Market under the ticker symbol “IDCC”. In addition, the
directors and executive officers of the Successor Company immediately after the Merger were the same
individuals who were directors and executive officers, respectively, of the Predecessor Company immediately
prior to the Merger.

For the purpose of this proxy statement, references to the company, the Board or any committee thereof, or

our management, employees or business at any period prior to the Merger refer to those of the Predecessor
Company and thereafter to those of the Successor Company.

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 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 1, 2020 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
www.virtualshareholdermeeting.com/IDCC2020. Shareholders attending the virtual meeting will be afforded the
same rights and opportunities to participate as they would at an in-person meeting.

In order to attend and participate in the annual meeting, you will need to visit

www.virtualshareholdermeeting.com/IDCC2020 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 www.virtualshareholdermeeting.com/IDCC2020. 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. Online check-in will begin at 1:30 PM Eastern Time, and the
annual meeting will begin promptly at 2:00 PM 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 information you may need, are posted at www.virtualshareholdermeeting.com/
IDCC2020. In addition, questions regarding how to attend and participate will be answered by calling
855-449-0991 (international: 720-378-5962) beginning at 1:30 PM 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 1, 2020, 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 30,749,354 shares of our common stock outstanding on the record date.

Proxy Statement

4

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 such 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 2, 2020. 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
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
May 31, 2020. 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.

5

Proxy Statement

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 Corporate 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, 2020 (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
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.

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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 of the Board 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.

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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 each 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 IR menu heading “Governance – Governance Documents,” along with the
charters of each 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 Corporate 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 IR menu heading
“Governance – Governance 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 Corporate 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 Mses. Joan H. Gillman and Jean F. Rankin and Messrs. S. Douglas Hutcheson, John A. Kritzmacher,
John D. Markley, Jr., and Philip P. Trahanas are “independent” under applicable SEC rules and 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

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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.

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,
including those related to data privacy and information security risks. At least quarterly, the Audit Committee
receives presentations and reports directly from the company’s Chief Legal Officer, 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 Chief Legal Officer 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 seven directors. All directors are subject to election for one-year terms at each

annual meeting of shareholders.

How often did the Board meet during 2019?

The Board met ten times during 2019. 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 2019. 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. Seven directors attended the 2019 annual meeting of shareholders, constituting all of our current
directors.

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Proxy Statement

What are the roles of the primary Board committees?

The Board has standing Audit, Compensation, Finance, and Nominating and Corporate Governance

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 applicable SEC rules
and listing standards of the NASDAQ Stock Market. Each of the Board committees operates under a written
charter that has been approved by the Board. The following table provides information about the current
membership of the committees and the number of meetings each committee held in 2019.

Name

Audit
Committee

Compensation
Committee

Joan H. Gillman . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
S. Douglas Hutcheson . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
John A. Kritzmacher . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
John D. Markley, Jr. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Jean F. Rankin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Philip P. Trahanas . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

X

Chair
X

Number of Meetings in 2019 . . . . . . . . . . . . . . . . . . . . . . . .

8

X

Chair
X

5

Nominating
and
Corporate
Governance
Committee

X
Chair
X

4

Finance
Committee

X
X

Chair

7

Audit Committee

The Audit Committee assists the Board in fulfilling its oversight responsibilities relating to the company’s

corporate accounting, 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 (including resolution of disagreements
between management and the company’s independent registered public accounting firm regarding
financial reporting) and, if deemed appropriate, replaces the company’s independent registered public
accounting firm;

• Reviews and discusses the company’s practices with respect to risk assessment and risk management,

including data privacy and information security risks, and discusses with management and the
company’s independent registered public accounting firm significant risks and exposures and assesses
management’s steps to minimize them;

• Receives from the company’s independent registered public accounting firm reports required by
applicable SEC rules and professional standards, including reviewing and discussing with the
company’s independent registered public accounting firm the matters required to be discussed under
Auditing Standard No. 1301, 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

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10

regarding accounting, internal accounting controls, auditing or federal securities law matters and the
confidential, anonymous submission by the company’s 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 the company’s compliance with data privacy rules and regulations;

• Oversees and monitors the company’s ERM efforts; and

• Reviews and provides guidance to the Board with respect to tax planning, corporate insurance coverage

and implementation of new or revised accounting or auditing standards or regulatory changes.

All of the Audit Committee members are financially literate. The Board has determined that four of its
members (Messrs. Hutcheson, Kritzmacher, Markley and Trahanas), including two of the current members of the
Audit Committee (Messrs. Kritzmacher and Markley), 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. Mr. Markley acquired his expertise
primarily through his almost 20 years of investment experience, including more than 15 years at a venture capital
firm. In addition, Mr. Markley has 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 the

company’s 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 the 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;

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Proxy Statement

• 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
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. Hutcheson and Trahanas and Ms. Rankin served on the Compensation Committee during all of

2019. No director serving on the Compensation Committee during any part of 2019 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 the company’s 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 the company’s corporate governance principles and recommends changes to the

Board as appropriate;

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12

• Recommends to the Board, after consultation with the Audit Committee, changes to the company’s

Code of Ethics;

• Assists the Board in ensuring proper attention and effective response to shareholder concerns regarding

corporate governance;

•

Periodically reviews the company’s policies, programs, publications and procedures relating to
environmental (including climate change), social and other sustainability matters in coordination with
the other committees of the Board and, as appropriate, makes recommendations on such matters to the
full Board;

• 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.

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 Corporate 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 company is committed to ensuring that other existing and future anticipated commitments of its
directors do not materially interfere with his or her service as a director. Accordingly, our corporate governance
principles prohibit any director from serving on the boards of more than four other public companies aside from
the company, unless such director is an executive officer of a public company, and in such cases, such director
may not serve on the boards of more than two other public companies aside from the company. In addition, prior
to accepting service on the board of any other company, a director must notify the Board’s Chairman and the
Nominating and Corporate Governance Committee, and service on the board or a committee of any other
organization should be consistent with the company’s conflict of interest policies.

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Proxy Statement

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 election at this year’s annual meeting.

The Nominating and Corporate Governance Committee has previously retained a search firm 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 our Chief Executive Officer. 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.

Finance Committee

The primary role of the Finance 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 financial policies
and strategies and the capital structure of the company, and to approve 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:

• Reviews and provides guidance to the Board with respect to:

•

•

•

•

•

the company’s capital structure, including the issuance of debt, equity or other securities;

shareholder distributions, including share repurchases and dividends;

cash management investment policies;

foreign currency investment policies; and

on a periodic basis, the integrity of the company’s financial models;

• Approves minority investments in other companies by the company;

• Approves divestments of minority equity interests in other companies by the company; and

• 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.

Board Self-Evaluation Process

How does the Board evaluate its effectiveness?

The Nominating and Corporate Governance Committee establishes and oversees the annual self-assessment

process that the Board uses to evaluate its effectiveness and identify opportunities for improvement. Each
director is asked to provide an assessment of the Board’s effectiveness in several areas, including information
and planning, content and conduct of meetings, and accountability. Once the responses are compiled, the
Nominating and Corporate Governance Committee, in conjunction with the Board’s Chairman, identifies specific
areas of improvement for the following year. The assessment also asks each director their opinion of the Board’s
progress in these identified areas.

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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., 200 Bellevue Parkway, Suite 300, Wilmington, Delaware 19809-3727, or by sending
an email to Directors@InterDigital.com. Each communication should set forth (i) the name and address of the
shareholder as it appears on the company’s books, and, if the company’s common stock is held by a nominee, the
name and address of the beneficial owner of the company’s common stock, and (ii) the class and number of
shares of the company’s common stock that are owned of record by the record holder and beneficially by the
beneficial owner. 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 (a) are solicitations for products and services, (b) relate to
matters of a personal nature not relevant for the company’s shareholders to act on or for the Board to consider, or
(c) are 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 relevant correspondence and copies of all correspondence that deal with the functions of the Board or its
committees or that otherwise require 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 Corporate 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.

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Proxy Statement

How are directors compensated?

DIRECTOR COMPENSATION

During 2019, our non-employee directors were paid annual cash retainers for their Board and committee

participation as follows:

Board . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Audit Committee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Compensation Committee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Nominating and Corporate Governance Committee . . . . . . . . . . . . . . . . . . . . . .
Finance Committee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Chair

Member

$50,000*
$30,000
$20,000
$15,000
$15,000

$50,000**
$12,000
$10,000
$ 7,500
$ 7,500

*

The annual cash retainer paid to the Chairman of the Board is in addition to the annual cash retainer paid to
all non-employee Board members.

** On June 12, 2019, the company’s Compensation Program for Non-Management Directors was amended to

increase the base annual board retainer from $40,000 to $50,000, to be effective for the 2019-2020 Board
term.

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. Additional compensation is 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: $4,000 for each additional Board meeting and $1,000 for each additional committee
meeting.

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 the company’s 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 2019-2020 Board term, each non-employee director received a restricted
stock unit (“RSU”) award in an amount approximately equal in value to $175,000 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 that vests in full one year from the grant date. The number of RSUs
granted is calculated using the closing stock price of the company’s common stock on the date of grant. 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 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 $50,000 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

Proxy Statement

16

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, 2020, 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 2019 Board fees. For more information about the deferred compensation plan, see “Executive
Compensation – Nonqualified Deferred Compensation.”

2019 Director Compensation Table

The following table sets forth the compensation paid to each person who served as a director of the

company in 2019 for their service in 2019. 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 2019 compensation, see
“Executive Compensation – Summary Compensation Table.”

Name

Joan H. Gillman . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
S. Douglas Hutcheson . . . . . . . . . . . . . . . . . . . . . . . .
John A. Kritzmacher . . . . . . . . . . . . . . . . . . . . . . . . . .
John D. Markley, Jr. . . . . . . . . . . . . . . . . . . . . . . . . . .
Jean F. Rankin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Philip P. Trahanas . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Fees Earned or
Paid in Cash
($)(1)

65,038
113,038
82,238
72,538
73,038
70,538

Stock
Awards
($)(2)

174,998
174,998
174,998
174,998
174,998
174,998

Total ($)

240,036
288,036
257,236
247,536
248,036
245,536

(1) Amounts reported represent the aggregate annual Board, Chairman of the Board, committee chair and

committee membership retainers earned by each non-employee director in 2019, plus any fees earned for
attendance at additional meetings during the Board term, as described above.

(2) 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 2019. The
assumptions used in valuing these RSU awards are incorporated by reference to Notes 2 and 13 to our
audited financial statements included in our annual report on Form 10-K for the year ended December 31,
2019. The following table sets forth the grant date fair value of each RSU award granted to our
non-employee directors in 2019.

Name

Joan H. Gillman . . . . . . . . . . . . . . . . . . . . . . . . . .
S. Douglas Hutcheson . . . . . . . . . . . . . . . . . . . . . .
John A. Kritzmacher . . . . . . . . . . . . . . . . . . . . . . .
John D. Markley, Jr. . . . . . . . . . . . . . . . . . . . . . . .
Jean F. Rankin . . . . . . . . . . . . . . . . . . . . . . . . . . .
Philip P. Trahanas . . . . . . . . . . . . . . . . . . . . . . . . .

Number of
Restricted
Stock Units
(a)

Grant Date
Fair Value of
Stock Awards
($)

2,701
2,701
2,701
2,701
2,701
2,701

174,998
174,998
174,998
174,998
174,998
174,998

Grant Date

6/12/2019
6/12/2019
6/12/2019
6/12/2019
6/12/2019
6/12/2019

As of December 31, 2019, each person who served as a non-employee director of the company in 2019 had
the following aggregate amounts of unvested RSU awards (including accrued dividend equivalents) outstanding.

17

Proxy Statement

None of our non-employee directors had any options outstanding as of December 31, 2019. This table does not
include RSUs that, as of December 31, 2019, had vested according to their vesting schedule, but had been
deferred.

Name

Outstanding
Restricted Stock
Units
(#)

Joan H. Gillman . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
S. Douglas Hutcheson . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
John A. Kritzmacher
John D. Markley, Jr. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Jean F. Rankin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Philip P. Trahanas . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

2,732
2,732
2,732
2,732
2,732
2,732

Proxy Statement

18

PROPOSALS TO BE VOTED ON

Election of Directors
(Proposal 1)

Description

Which directors are nominated for election?

Mses. Joan H. Gillman and Jean F. Rankin and Messrs. S. Douglas Hutcheson, John A. Kritzmacher, John
D. Markley, Jr., William J. Merritt, and Philip P. Trahanas are recommended by the Nominating and Corporate
Governance Committee and nominated by the Board for election at the 2020 annual meeting, each to serve a
one-year term until our annual meeting in 2021 and until his or her successor is elected and qualified.

Set forth below is biographical information about the seven nominees, each of whose current terms of office

expire at the 2020 annual meeting, and other information about their skills and qualifications that contribute to
the effectiveness of the Board.

What are their backgrounds?

Joan H. Gillman, 56, has been a director of the company since April 2017. From 2006 to 2016, Ms. Gillman

served as Executive Vice President of Time Warner Cable, Inc. (“Time Warner Cable”), as well as Chief
Operating Officer of Time Warner Cable Media and President of Time Warner Cable Media, LLC. Ms. Gillman
joined Time Warner Cable as Vice President of Interactive TV and Advanced Advertising in 2005. Prior to Time
Warner Cable, among other roles, she served as the President of Static2358, the interactive TV, games and
production subsidiary of OpenTV, and as Director, Business Development, of British Interactive Broadcasting,
the digital and interactive TV joint venture between BSkyB, BT, HSBC and Matsushita. Ms. Gillman began her
career working in public affairs, serving in various roles for a U.S. Senator, including as Legislative Director and
State Director. Since October 2016, Ms. Gillman has also been a member of the board of directors of Centrica
plc, an international energy and services company based in the United Kingdom where she serves on the safety,
health, environment, security, remunerations and ethics and nominating committees. In addition, since November
2016, she has served on the board of directors of Airgain, Inc., a leading provider of embedded antenna
technologies used to enable high performance wireless networking, and she is currently a member of such
board’s audit committee, and chairs the nominating and corporate governance committee, as well as the board of
directors of Cumulus Media, which she joined in June 2018 and where she is a member of the compensation and
nominating committees of such board. Since May 2018, she has also chaired the Jesuit Volunteer Corps and is
the Foundation Manager and Trustee of the David T. Langrock Foundation. The Board has concluded that
Ms. Gillman should serve as a director of the company because her more than 20 years of executive experience
in the media and communications industries and her knowledge of content development and distribution as well
as key areas like partnership, mergers and acquisitions and marketing make her a valuable resource and
strengthen the company’s knowledge of the companies and industries shaping its existing and future markets.

S. Douglas Hutcheson, 64, has been a director of the company since July 2014, and he assumed the role of
Chairman of the Board in June 2015. Since 2015, Mr. Hutcheson has served as a senior advisor of Technology,
Media and Telecom for Searchlight Capital, a global private investment firm. From March 2014 through May
2017, Mr. Hutcheson served as Chief Executive Officer 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. Prior to March 2014, Mr. Hutcheson served as Chief
Executive Officer 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 Chief Executive Officer, 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

19

Proxy Statement

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. He also qualifies as an audit committee financial expert.

John A. Kritzmacher, 59, 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
research communications and education services. 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. 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.

John D. Markley, Jr., 54, has been a director of the company since November 2016. Since 2009,

Mr. Markley has served as Managing Partner of Bear Creek Capital Management, an investment firm focused on
the cloud computing, mobile and communications infrastructure sectors. In addition, since 2014, he has been a
Managing Partner of New Amsterdam Growth Capital, an investor in communications, media and technology
companies. From 1996 to 2009, he was a partner with Columbia Capital, a venture capital firm, where he served
in a number of capacities including partner, venture partner and portfolio company executive. Prior to Columbia
Capital, Mr. Markley served as a policy advisor at the Federal Communications Commission from 1994 to 1996,
where he and his team were instrumental in developing and launching the commercial spectrum auction process.
Mr. Markley has also been a director of Charter Communications, Inc., since 2009, currently serving as chair of
its nominating and corporate governance committee and as a member of its audit committee. He previously
served on the boards of directors of Millennial Media, Inc., from 2006 to 2014, and of BroadSoft, Inc., from 2002
until its acquisition by Cisco Systems, Inc. in February 2018. The Board has concluded that Mr. Markley should
serve as a director of the company based on his private equity and operating experience and his extensive
experience with communications, media and technology companies, which 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.

William J. Merritt, 61, 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.

Proxy Statement

20

Jean F. Rankin,61, 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. 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 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. Since 2017, Ms. Rankin has served on the board
of directors of Resonant, Inc. 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.

Philip P. Trahanas, 49, has been a director of the company since February 2016. He is a Partner at Lampros
Capital Partners, a private investment company. 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 and as a member of its compensation committee. 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.

Summary of Director Qualifications, Experience and Other Relevant Attributes

The following table summarizes the 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 necessarily 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

Gillman Hutcheson Kritzmacher Markley Merritt Rankin 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 . . . . .

•

•

•

•

•

•

•

•

•

•

•

•

•

•

•

•

•

•

•

•

•

•

•

•

•

•

•

•

•

•

•

•

•

•

•

•

•

•

•

•

•

•

•

•

•

•

•

21

Proxy Statement

Vote Required and Board Recommendation

A director nominee receiving the affirmative vote of the majority of votes cast for him or her will be elected

to serve as a director 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

22

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 in an effort 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
the “Compensation Discussion and Analysis” section of this proxy statement, 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” section of this proxy statement

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” section of this proxy statement 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 2020 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 2020 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 2021 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.

23

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, 2020. 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 for the fiscal years ended December 31, 2019

and 2018 were as follows:

Type of Fees
Audit Fees(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Audit-Related Fees(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tax Fees(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
All Other Fees(4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total

2019

2018

$1,180,500
$ 234,700
$ 185,000
$
3,500
$1,603,700

$1,190,000
51,800
$
$ 175,000
$
2,700
$1,453,276

(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, the
company’s joint venture with Sony Corporation of America.

(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 also include fees billed by PwC
in connection with attestation and audit services performed over the financial statements of the Signal Trust
for Wireless Innovation, a Delaware statutory trust formed in 2013. The increase in audit-related fees in
2019 compared to 2018 was primarily related to an increase in non-recurring accounting consultations that
took place in 2019.

(3) Tax Fees consist of the aggregate fees billed by PwC for the above fiscal years related to technical advice
pertaining to foreign and domestic tax matters. In addition, such fees for 2018 also include fees for
international tax assistance related to the acquisition of the Technicolor patent licensing business.

(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.

Proxy Statement

24

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 for reference a schedule of services and fees approved by category
for the current year, 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, 2020.

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, 2020.

25

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, 2019, 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, 2019 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, 2020.

AUDIT COMMITTEE:

John A. Kritzmacher, Chair
Joan H. Gillman
John D. Markley, Jr.

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 or the Exchange Act and shall not otherwise be deemed filed under these
acts, except to the extent specifically incorporated by reference.

Proxy Statement

26

EXECUTIVE OFFICERS

Set forth below is certain information concerning our executive officers as of March 31, 2020:

Name

Age

Position

William J. Merritt . . . . . . . . .
Kai Öistämö . . . . . . . . . . . . .
Richard J. Brezski . . . . . . . . .
Richard L. Gulino . . . . . . . . .

61
55
47
57

President and Chief Executive Officer
Chief Operating Officer
Chief Financial Officer and Treasurer
Chief Legal Officer, General Counsel and Corporate Secretary

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.

Kai O. Öistämö is InterDigital’s Chief Operating Officer, responsible for overseeing the company’s research
and development, product development and licensing functions. Mr. Öistämö joined InterDigital in October 2018,
and before that, served on the company’s board from November 2014 to October 2018. Prior to joining InterDigital
in 2018, Mr. Öistämö served as Executive Partner at Siris Capital, a private equity firm; he initially joined Siris
Capital in October 2015 as an advisor. 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 wireless handset manufacturer, as Executive Vice President, Chief Development Officer with
responsibility for strategic partnerships and alliances. Previous roles during his 23-year tenure at Nokia included the
position of Executive Vice President, Devices. Mr. Öistämö was also a member of the Nokia leadership team from.
Mr. Öistämö serves on the board of directors of Sanoma Corporation, a Finnish public company.

Richard J. Brezski is InterDigital’s Chief Financial Officer, responsible for overseeing the company’s finance,

accounting, audit, tax, treasury, 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.

Richard L. Gulinois InterDigital’s Chief Legal Officer, General Counsel and Corporate Secretary, responsible
for managing the company’s legal functions. Mr. Gulino joined InterDigital in September 2019 as Vice President,
Deputy General Counsel with responsibility for managing the company’s corporate, commercial and licensing
functions, and was promoted to Chief Legal Officer, General Counsel and Corporate Secretary in January 2020.
Prior to joining InterDigital, Mr. Gulino served as Senior Vice President, General Counsel and Secretary at Vanda
Pharmaceuticals, Inc., a global biopharmaceutical company headquartered in Washington, D.C., from September
2015 until May 2018. Prior to joining Vanda, Mr. Gulino was Vice President and General Counsel of Ameritox,
Ltd., a clinical drug testing laboratory, from June 2012 to August 2014. From November 2006 to February 2012,
Mr. Gulino was Vice President and Deputy General Counsel at Cephalon, Inc., a global biopharmaceutical
company, where he led the corporate commercial legal function. Mr. Gulino joined Cephalon as Corporate Counsel
in 1999. From 1992 to 1999, Mr. Gulino served as a commercial attorney at Zeneca, Inc. Mr. Gulino began his
career in private practice in Washington, D.C. Mr. Gulino received his Bachelor of Arts degree in history from
Colgate University and his Juris Doctor degree with high honors from Duke University School of Law.

The company’s executive officers are appointed to the offices set forth above to hold office until their

successors are duly appointed.

27

Proxy Statement

EXECUTIVE COMPENSATION

Compensation Discussion and Analysis

This Compensation Discussion and Analysis (“CD&A”) covers all material elements of compensation
awarded to, earned by or paid to the company’s Named Executive Officers (“NEOs”) during 2019 and focuses on
the principles underlying the company’s executive compensation policies and decisions. The CD&A explains the
compensation for the following individuals:

NEO

Position as of December 31, 2019

William J. Merritt
Richard J. Brezski
Jannie K. Lau(1)

Kai O. Öistämö

President and Chief Executive Officer (“CEO”)
Chief Financial Officer (“CFO”) and Treasurer
Chief Legal Officer (“CLO”), General Counsel
(“GC”) and Corporate Secretary
Chief Operating Officer (“COO”)

(1) Ms. Lau ceased to be an executive officer of the company effective December 31, 2019 upon

her retirement from InterDigital, Inc.

Executive Summary

2019 Company Performance

2019 represented the culmination of a long strategic journey for the company. We began expanding our
successful research-backed licensing model, primarily focused around cellular wireless technologies, into other
complementary markets. The acquisition of Technicolor SA’s research and innovation organization, competed on
May 31, 2019, with its vast portfolio of visual technology patents, and its licensing and patent management team
created an exciting new strategic position for InterDigital. With the acquisition and integration of the Technicolor
teams, we have significantly grown our valuable, research-driven, licensing business. We are positioned to drive
research, on a global scale, and license those customers who benefit from that innovation.

In 2019, our total revenue was $318.9 million, including recurring revenue of $298.2 million, which consists

of current patent royalties and current technology revenue. In 2018, our total revenue was $307.4 million, which
included recurring revenue of $280.3 million. While we have faced a challenging licensing environment in
China, we have moved forward with discussions and initiated litigation where necessary. In 2019, fixed-fee
royalties accounted for approximately 86% of our recurring revenue. The obligation to pay these fixed-fee
revenues are not affected by the related licensees’ success in the market or the general economic climate, which
positions the company well during extended periods of global market challenges.

Good Governance Practices and Policies

The Compensation Committee and the company strive to maintain good governance practices and regularly
review and update such practices related to the compensation of our executive officers, including our NEOs. The
following table highlights the responsible practices we have implemented, as well as the practices we have
avoided, in order to best serve our shareholders’ long-term interests:

Proxy Statement

28

WHAT WE DO

✓ We create a balanced compensation program
through a mix of fixed and variable short- and
long-term incentives.

WHAT WE DO NOT DO
È We do not have employment agreements with

any NEO.

✓ We cap payouts under our annual short-term

È We do not have single-trigger payout provisions

incentive plan (“STIP”) to individual employees,
including 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).

✓ 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 executive
officers results in a material restatement of our
financial statements.

in our equity award agreements.

È We do not provide golden parachute tax

gross-ups.

È We do not guarantee minimum STIP payouts.
È We do not provide excessive perquisites to

executive officers that other employees at or
above the senior director level do not receive.

✓ We have robust target stock ownership levels for

our executive officers and directors. Each NEO has
met the applicable stock ownership requirements

È We do not permit the hedging of InterDigital
stock by any employee, including executive
officers.

✓ We review compensation-related risk with an

È We do not pay out dividend equivalents on

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.

unvested RSUs; accrued dividend equivalents
are paid out only if and to the extent that the
underlying RSU award vests.

Results from 2019 Shareholder Advisory Vote on Executive Compensation

At the 2019 annual meeting of shareholders, we held an advisory vote on executive compensation.
Approximately 96% of the votes cast supported the compensation of the company’s NEOs. Given this strong
shareholder support as well as other factors considered by the Compensation Committee, the Compensation
Committee determined not to make any significant changes to the overall structure of the program. The
Compensation Committee considers the results of the annual advisory vote on executive compensation as a
strong data point in its compensation decisions.

2019 Compensation Decisions and Actions

The following are highlights of the key compensation decisions made by the Compensation Committee for 2019:

• Base Salaries: Mr. Merritt’s base salary increased by 4.5% effective April 1, 2019, to further avoid
salary compression between the CEO and his direct reports; the other NEOs received modest base
salary increases, consistent with the merit-based increases for our workforce. Please see “2019
Executive Compensation in Detail – Base Salaries” below for details.

•

•

Short-Term Incentive Plan (“STIP”): The target STIP levels for 2019 remained the same. The NEOs
received 2019 STIP payouts ranging from 81-86% of target based on individual and corporate performance.
Please see “2019 Executive Compensation in Detail – Short-Term Incentive Plan” below for details.

Long-Term Compensation Program (“LTCP”): Under the LTCP, the Compensation Committee
approved target 2019 LTCP grants to the NEOs using a mix of performance-based RSUs, stock options
and time-based RSUs. Please see “2019 Executive Compensation in Detail – Long-Term
Compensation Program” below for details.

29

Proxy Statement

•

2017 LTCP Grants: As of the initial measurement date, December 31, 2019, of the performance-based
RSUs granted in 2017, the company has not achieved threshold level of performance. As a result, 0% of
the 2017 performance-based RSUs vested. Please see “2019 Executive Compensation in Detail – Long-
Term Compensation Program” below for details.

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 incentive program targets at competitive levels for comparable roles in the marketplace;

• Retain our executives by providing a balanced mix of base salary and short and long-term incentive

compensation;

• Motivate our executives by “paying for performance,” or rewarding individual performance and the

accomplishment of corporate goals, as determined by the Compensation Committee, through
performance-based compensation; and

• Align the interests of executives and shareholders’ by rewarding our NEOs for increasing our stock

price over the long term and maximizing shareholder value with a substantial portion of total
compensation in the form of direct ownership in our company through long-term equity awards and
meaningful ownership guidelines.

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’ 2019 total
compensation is comprised of a mix of base salary, STIP and LTCP 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 2019 approximately 85% of our CEO’s target compensation and
79%, on average, of the target compensation of our other NEOs was comprised of STIP and LTCP awards and
thus variable based on the company’s performance.

CEO
TARGET PAY MIX

Stock Options
23%

Base Salary
15%

Fixed
15%

Short-Term
Incentives
15%

Variable
85%

Performance-Based
RSUs
23%

Time-Based 
RSUs
23%

OTHER NEO
TARGET PAY MIX (AVERAGE)

Stock Options
10%

Base Salary
21%

Fixed
21%

Performance-Based
RSUs
33%

Variable
79%

Short-Term
Incentives
18%

Time-Based RSUs
18%

Proxy Statement

30

The chart below demonstrates how our compensation structure is linked to company performance.
Based on the company’s performance in 2019, compared to the target value, the CEO’s actual compensation
for 2019 was just 39% of his target opportunity. For this purpose, realized compensation includes base pay,
annual incentive, value of RSUs vested, value of PSUs vested and value of options vested.

CEO Target & Actual Compensation

$4,500,000

$4,000,000

$3,500,000

$3,000,000

$2,500,000

$2,000,000

$1,500,000

$1,000,000

$500,000

$-

$3,880,000

$2,500,000

$690,000

$690,000

Long Term Incentive

Annual Incentive

Base Salary

$1,506,160
$269,364
$555,450

$681,346

Target
Compensation (1)

Actual
Compensation (2)

(1) Target Compensation represents 2019 base salary, 2019 target annual incentive, and grant
date target value of equity granted pursuant to 2017 LTCP, which vested in March 2020.

(2) Actual Compensation represents 2019 base salary, 2019 actual annual incentive, paid in
February 2020, and the value realized upon vesting of the 2017 LTCP time-based RSU
awards and performance-based RSUs based on the performance achieved, which vested in
March 2020.

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 the
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 Executive Officer and other executive officers. The Compensation Committee works very closely with
management and the Compensation Committee’s 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 discussed above under “Board
Structure and Committee Membership—Compensation Committee” and are specified in the Compensation
Committee’s charter, which is available on our website at http://ir.interdigital.com/CommitteeChart.

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, reviewing major individual accomplishments and
any other recommendations of the Chief Executive Officer regarding 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 incentive programs, based upon data related to achievement provided
by the Chief Financial Officer.

31

Proxy Statement

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 selects the consultant,
negotiates the fees paid and manages the engagement. The Compensation Committee retained Pearl Meyer to
advise it and the rest of the Board 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, and short and long-term incentive plan design and compensation of the company’s
executive officers. Based on consideration of the factors as set forth in applicable SEC rules and listing standards
of the NASDAQ Stock Market, the Compensation Committee has determined that Pearl Meyer has no conflicts
of interest in providing its services.

Factors Considered in Setting Compensation Amounts and Targets

In establishing compensation amounts and incentive 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 both the
general and high-technology industries, adjusted for size.

Consistent with its review practices, in November 2018, Pearl Meyer assisted the Compensation Committee

with its process of identifying peer group companies for 2019 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) and that have a relatively similar profit margin and market
capitalization. There were no changes to the compensation peer group for 2019 from 2018, except for the
removal of RPX Corporation due to M&A activity.

The companies comprising the 2019 compensation peer group were as follows:

ADTRAN Inc.
Ansys, Inc.
Aspen Technology
CalAmp Corp.
Dolby Laboratories, Inc.
Infinera Corporation

Inovalon Holdings
Integrated Device Technology, Inc.
Manhattan Associates
Plantronics, Inc.
Rambus Inc.
Silicon Laboratories, Inc.

Synaptics Inc.
TiVo Corporation
Ubiquiti Networks
Universal Display Corp.
Universal Electronics, Inc.
Xperi, Inc.

Pearl Meyer conducted a compensation 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 compensation 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, to identify those executives whose total compensation is substantially below or above the 50th
percentile of the market data, but does not benchmark executive officer compensation to specific market
percentages. 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.

Proxy Statement

32

2019 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 April 2019 were based on consideration of each NEO’s position, scope of responsibility and importance to
the company and performance during 2018, 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.
Mr. Merritt’s base salary was adjusted by 4.5% to avoid salary compression between the CEO and his direct reports.
The other NEOs received salary adjustments of between 1.5 and 3.0%, after remaining flat in 2018.

Set forth below are the 2018 and 2019 base salaries for our NEOs:

NEO

2018

2019

William J. Merritt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Richard J. Brezski
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Jannie K. Lau . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Kai O. Öistämö . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$660,000
396,500
379,600
600,000

$690,000
402,500
390,988
609,000

%
Increase

4.5%
1.5%
3.0%
1.5%

Short-Term Incentive Plan

The STIP annual incentive award is designed to provide a cash reward for 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 and individual performance.

In first quarter 2019, the Compensation Committee approved target STIP levels for each of the NEOs. The

2019 target STIP levels, set as a percentage of annual base salary, for the NEOs were as follows:

NEO

2019 Target STIP Level

William J. Merritt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Richard J. Brezski . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Jannie K. Lau . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Kai O. Öistämö . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

100%
75%
75%
100%

The actual 2019 STIP payout amounts for the NEOs are determined by considering performance against
pre-determined strategic corporate goals 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. For 2019, the strategic corporate goals for the company’s
executives and the relative weights assigned to each were as follows:

2019 STIP Strategic Corporate Performance Goals:

Goal

Core Exit Revenue

CE Exit Revenue

Business Transformation

Business Integration
Innovation

Compensation Committee

Discretion

TOTAL

Description

Target Weight

Achieve specified amount of expected revenues over the following 12-month
period based on existing contracts/relationships
Achieve specified amount of consumer electronics revenues over the
following 12-month period based on existing contracts/relationships
Successfully execute advancement of culture and communications projects;
successfully advance system infrastructure optimization
Successfully execute against integration objectives related to acquisition
Generate specified numbers of patent filings as well as contributions to 5G,
video and other standards; achieve external recognition of innovation success
Allow Compensation Committee to adjust performance upward or downward
as a result of unexpected outcomes or circumstances

20%

10%

20%

10%
20%

20%

100%

33

Proxy Statement

These strategic corporate goals were structured to challenge and motivate executives and intended to align

the executive team around a key set of company performance objectives.

In January 2020, the Chief Executive Officer reported to the Compensation Committee on the final achievement

of the strategic corporate goals and provided his assessment with respect to departmental and individual executive
officer performance for the year. For 2019, both core and consumer electronic revenue fell short of target as a result,
in part, of the ongoing geo-political situation with China. However, by year end we had secured our first Digital TV
licensee. The innovation goal was exceeded again, as a result of our continued success in 5G innovation as well as
through the addition of video coding and other related technology areas, through our enhanced capabilities in video
research and standards such as ISO/IEC Moving Picture Expert Group (MPEG), the ITU-T Video Coding Expert
Group (VCEG), the Joint Collaborative team on Video Coding (JCT-VC) and the Joint Video Export Team (JVET)
and our continued recognition as a thought leader in the wireless, video and other technology areas, as evidenced by
the growing number of invitations for speaking engagements and leadership roles within standards organizations. The
company successfully executed against its integration objectives related to the acquisitions of the patent licensing
business and research and innovation organization from Technicolor SA (together, the “Technicolor Acquisitions”),
as well as the business transformation goals related to infrastructure optimization and communications projects. The
Compensation Committee reviewed the company’s achievement with respect to all of the strategic goals and also
considered other developments in 2019 that were not captured specifically by the goals, and, as a result, the
Compensation Committee determined that the total achievement level with respect to the strategic corporate goals
was 71%.

The STIP payout for the CEO is based on achievement of the strategic corporate goals and his individual
performance. The STIP awards paid to all other NEOs are based on the achievement of the strategic corporate
goals and each NEO’s individual performance, measured, in part, by how well such NEO’s department
performed during the year with respect to the department’s goals/primary projects.

In determining the STIP payout to the CEO for 2019, the Compensation Committee considered the Board’s
assessment of his performance in 2019, as reflected in the recommendation of the non-executive Chairman of the
Board, who is the primary liaison between the CEO and the full Board. Although the company’s total
achievement level with respect to its strategic corporate goals was below target, primarily as a result of the
revenue shortfalls, the Compensation Committee recognized the significant integration and business
transformation efforts undertaken by Mr. Merritt in 2019 related to the Technicolor Acquisitions, which
positioned the company for success in 2020 and beyond. As a result, Mr. Merritt received an STIP payout of 81%
of target, reflecting the Company’s performance against goals.

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 considered its own
direct interactions with each NEO as well. As a result of the achievement level with respect to the strategic
corporate goals and departmental and individual performances, for their 2019 STIP Mr. Brezski received a
payout of 81% of target, and Mr. Öistämö received a payout of 86% of target. Ms. Lau did not receive a payout
under the 2019 STIP because her retirement date of December 31, 2019 was prior to the payout date; therefore,
she was ineligible for payment pursuant to the STIP.

The 2019 STIP awards paid to the NEOs 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 2019, and the
Summary Compensation Table below reports the amounts actually earned by each NEO for 2019 under the STIP.

Proxy Statement

34

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 consists of three components:

Equity Vehicle

Performance-
based RSUs

Aligns NEO and shareholder interests by
tying value to both business results and
future stock price.

What it Does

Vesting Requirements

100% achievement of the associated
performance goal results in full vesting of the
associated equity at target; typically,
threshold performance level is required for
the vesting of 50% of target, and
performance above the target performance
level results in the vesting of additional
equity. For performance that falls below
threshold achievement, no performance-
based award vests; vesting is capped at 200%
of target.
Vest 1/3 per year on the anniversary of the
grant date; exercise term typically 7-10
years.
Three-year cliff vesting of shares.

Stock options

Rewards for stock price appreciation.

Time-based
RSUs

Focuses our executives on long-term share
ownership and sustained value.

2019 LTCP Grant

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 and encourage
collaboration and shared responsibility for executing the company’s strategic plan. The Compensation
Committee approved LTCP equity grants on March 15, 2019 that were comprised of the following equity
vehicles:

NEO

2019 LTCP Grant: Equity Mix

Performance-Based
RSUs

Stock Options

Time-Based
RSUs

William J. Merritt . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Richard J. Brezski . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Jannie K. Lau . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Kai O. Öistämö . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

33%
75%
75%
33%

33%
0%
0%
33%

33%
25%
25%
33%

The table below shows the target award values for the 2019 LTCP grant for each of the NEOs:

Performance-Based
RSUs (1)

Stock Options
(2)

Time-Based
RSUs (1)

William J. Merritt . . . . . . . . . . . . . . .
Richard J. Brezski . . . . . . . . . . . . . . .
Jannie K. Lau . . . . . . . . . . . . . . . . . .
Kai O. Öistämö . . . . . . . . . . . . . . . . .

$1,083,383
750,065
750,065
666,702

$1,083,383

666,702

$1,083,383
250,021
250,021
666,702

Total Value

$3,250,148
1,000,087
1,000,087
2,000,106

(1) Award amounts for performance-based and time-based RSUs were determined based on the closing

price of our common stock on March 15, 2019, the date of grant.

(2)

Individual award amounts were calculated based on Black-Scholes values.

35

Proxy Statement

A Closer Look at 2019 LTCP Performance-Based RSUs. The actual number of performance-based

RSUs from the 2019 LTCP grant that may vest is based on the achievement of goal(s) set by the
Compensation Committee. Performance-based RSUs may vest at either the end of a three-year or five-year
performance period, as follows:

Performance Level

Below Threshold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Threshold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Target
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Maximum . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Vesting

0%
50%
100%
200%

2019 LTCP performance-based RSUs have a five-year performance period: January 1, 2019 –

December 31, 2023. The goals associated with the performance-based RSUs are to achieve specified levels
of revenue platform while maintaining a threshold level of pro forma EBITDA, measured at the end of the
performance period. The plan also provides for an interim measurement date of December 31, 2021. At each
measurement date, an earnings goal – pro forma EBITDA – is first measured. If the earnings goal is not met,
no payout will occur. If the earnings threshold has been met, then the revenue platform is measured; a
minimum payout of 50% for threshold achievement, 100% payout for target achievement and maximum
payout of 200% of target for superior achievement. Goal achievement for performance that falls between the
amounts established for threshold, target and maximum achievement is calculated using straight line
interpolation between the target achievement level and the actual achievement level. Awards earned based
on December 31, 2021 performance, if any, will be subtracted from awards earned based on December 31,
2023 performance, if any.

2017 and 2018 LTCP Grant: Outstanding Performance-Based RSUs

In 2017 and 2018, the NEOs at the time were granted target performance-based RSUs with vesting based on
the achievement of revenue platform and pro forma EBITDA goals. However, subsequent strategic decisions by
the company impacted their relevance and appropriateness. In particular, the company disposed of the Hillcrest
product business in 2019, reflecting the go-forward focus on wireless and visual technologies. Additionally, the
company completed the Technicolor Acquisitions in 2019, taking on additional costs in support of investments in
visual technology. These significant changes, coupled with intricacies of the cost accounting around the Madison
program, the CIR credit, and related matters, added significant complexity to calculating a pro forma EBITDA
target.

As a result, and in order to ensure that the outstanding performance-based RSUs successfully continue to
align management’s interest with those of the company’s shareholders and support the company’s leadership
incentive objectives, the Compensation Committee approved the elimination of pro forma EBITDA goals as a
scalable performance metric for the 2017 and 2018 LTCP performance cycles. Instead, the Compensation
Committee approved pro forma EBITDA amounts as a threshold minimum for each grant; maintaining the
earnings goal as a threshold minimum retains a profitability metric while reflecting the business changes
resulting from the acquisition and divestitures of the company. No modifications were made to the revenue
targets, which remain appropriate and continue to drive shareholder value.

Like the 2019 grant, the 2017 LTCP performance-based RSUs have a five-year performance period
(January 1, 2017 – December 31, 2021), with an interim measurement date on December 31, 2019. As of such
interim measurement date, pursuant to the modified goals, the company has not achieved the threshold pro forma
EBITDA. As a result, 0% of the 2017 performance-based awards have vested. The Compensation Committee
will reassess performance results at the end of the full performance period on December 31, 2021 to determine if
any awards will vest at that time.

Proxy Statement

36

Other Practices, Policies and Guidelines

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 CEO’s target ownership level is no less than the lesser
of (i) the amount of company stock with a value of at least five times his current annual base salary or (ii) 65,000
shares. Mr. Öistämö is expected to own no less than the lesser of (i) the amount of company stock with a value of
at least three and one-half times his current annual base salary or (ii) 25,000 shares, and the company’s other
executive officers (including Mr. Brezski and, during her tenure with the company, Ms. Lau) are expected to own
no less than the lesser of (i) the amount of company stock with a value of at least two times their current annual
base salary or (ii) 12,500 shares.

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. Unearned performance-based
RSUs and unexercised options do not count towards ownership guidelines. 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 December 31, 2019, all of the NEOs were
in compliance with the guidelines.

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 the NASDAQ Stock Market.

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. The company’s nonqualified deferred compensation plan (the “deferred compensation
plan”) provides a select group of 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 2019, 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;
in 2019, these contributions received the investment performance of the company’s common stock. Matching

37

Proxy Statement

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 October 2018, the company adopted the InterDigital, Inc. Executive Severance Policy, which has an
initial term of three years and automatically renews for additional successive one-year periods thereafter (unless
the company provides notice of non-renewal at least 30 days before the expiration of the term (as extended by
any renewal period)). Among other things, the Executive Severance Policy provides severance payments and
benefits upon certain qualifying terminations of employment, including upon termination of the NEO’s
employment by the company without “Cause,” and provides 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
Executive Severance Policy. For more information regarding the provisions governing these termination
scenarios, please see “Potential Payments upon Termination or Change in Control.”

On October 5, 2018, in connection with the Company’s adoption of the Executive Severance Policy, the

Compensation Committee approved a notice of non-renewal of employment agreement to be delivered to each
NEO who had an employment agreement with the Company. Accordingly, each NEO employment agreement
expired on January 20, 2019.

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.

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 STIP and LTCP 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 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.

Accounting for Share-Based Compensation

We follow FASB ASC Topic 718 for our share-based compensation awards. FASB 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. FASB ASC Topic 718 also requires companies to

Proxy Statement

38

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.

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
S. Douglas Hutcheson
Philip P. Trahanas

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.

Summary Compensation Table

The following table contains information concerning compensation awarded to, earned by or paid to our
NEOs in the last three years (unless 2018 and 2019 are the only years for which an executive officer has been
deemed an NEO, in which case the table only includes such information for 2018 and 2019). Our NEOs include:
(i) William J. Merritt, our President and CEO; (ii) Richard J. Brezski, our CFO; (iii) Kai O. Öistämö, our COO;
and (iv) Jannie K. Lau, our former CLO, GC and Corporate Secretary, who ceased to be an executive officer of
the company effective December 31, 2019. Additional information regarding the items reflected in each column
follows the table.

Name and Principal Position

Year

Salary
($)(1)

Bonus
($)(2)

Stock
Awards
($)(3)(4)

Option
Awards
($)(5)

Non-Equity
Incentive Plan
Compensation
($)(6)

All Other
Compensation
($)(7)

Total
($)

William J. Merritt . . . . . . . . . . . . . 2019 681,346
2018 640,000
2017 640,000

President and Chief
Executive Officer

1,083,383 1,083,383
—
1,666,750
500,000
— 500,076

Richard J. Brezski . . . . . . . . . . . . . 2019 400,783
2018 396,550
2017 393,000

Chief Financial Officer
and Treasurer

Jannie K. Lau . . . . . . . . . . . . . . . . 2019 387,703
2018 379,600
2017 375,000

Retired CLO, GC and
Corporate Secretary

250,000
— 250,050
— 175,048

250,000
— 250,050
— 175,048

—
—
—

—
—

Kai O. Öistämö (8) . . . . . . . . . . . . 2019 606,404 550,000

666,702

Chief Operating Officer

2018 133,846 550,000 1,150,117(9)

666,702
—

555,450
660,000
620,000

243,009
252,801
158,000

—
298,935
284,000

520,695
427,500

13,406
42,621
38,486

23,094
20,132
20,039

423,451
11,688
19,947

105,353
81,015

3,416,967
3,009,287
2,278,562

916,886
919,483
746,087

1,061,154
940,223
853,995

3,115,806
2,192,361

(1) Base salary increases, as applicable, for 2019, 2018 and 2017 did not become effective until April 1, July 1
and April 1, respectively, of each year. Amounts reported reflect the value of base salary earned by each
NEO during such years.

(2)

In connection with his hiring as COO in October 2018, Mr. Öistämö received a sign-on bonus, one-half to
be paid in 2018 and the other half to be paid in 2019.

(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

39

Proxy Statement

these awards are incorporated by reference to Notes 2 and 13 to our audited financial statements included in
our annual report on Form 10-K for the year ended December 31, 2019. 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 13 to our audited financial statements
included in our annual report on Form 10-K for the year ended December 31, 2019.

On March 15, 2019, the company granted performance-based RSU awards to its NEOs for the 2019 LTCP.
As of those dates of grant, consistent with the estimate determined as of the grant date under FASB ASC
Topic 718, the probable outcome of the performance conditions for these grants did not meet the threshold
for recording compensation cost, and, as a result, their grant date value was $0. Accordingly, there is no
value reported for the performance-based RSUs granted to the NEOs in 2019. The following table sets forth
the grant date fair value of the performance-based RSUs granted to the NEOs in 2019 assuming that the
highest level of performance conditions will be achieved and the grants vest at their maximum level
equating to performance against target of at least 200%:

NEO

Maximum Value
Performance-Based
RSU Awards
2019 LTCP
($)

William J. Merritt
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Richard J. Brezski . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Jannie K. Lau . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Kai O. Öistämö . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

2,166,766
1,500,000
1,500,000
1,333,404

(5) Amounts reported reflect the value recognized for financial reporting purposes in accordance with FASB

ASC Topic 718.

(6) Amounts reported include the value of payouts earned under the company’s STIP.

(7) The following table details each component of the “All Other Compensation” column in the Summary

Compensation Table for fiscal year 2019:

NEO

401(k) Plan
Matching
Contributions
($)(a)

Supplemental
LTD
($)(b)

Deferred
Compensation
Plan Matching
Contributions
($)(c)

PTO
Payout
($)(d)

Payments
Pursuant to
Retirement
Agreement
($)(e)

Travel
Allowance
($)(f)

Total
($)

William J. Merritt . . . . .
Richard J. Brezski . . . . .
Jannie K. Lau . . . . . . . .
Kai O. Öistämö . . . . . . .

8,400
8,400
8,400
—

5,006
3,495
3,438
5,353

—
11,199
—
—

—
—

—
—
11,613 400,000

— 13,406
— 23,094
423,451
— 100,000 105,353

—

(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.

Proxy Statement

40

(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) Amounts represent paid time off accrued but not taken, which, pursuant to company policy, is paid to

employees upon employment termination.

(e) Amount represents transition services payments and supplemental retirement payments made in 2020
pursuant to Ms. Lau’s retirement and transition agreement and release with the company, effective
December 9, 2019. For more information, see “Potential Payments upon Termination or Change in
Control.”

(f) Amount represents a taxable stipend to compensate Mr. Öistämö for expenses related to his travel

between his home and the company’s office in Wilmington, Delaware.

(8) Mr. Öistämö was not among the company’s NEOs for 2017.

(9)

Includes $150,052, or 1,903 restricted stock units, that Mr. Öistämö forfeited upon his resignation from the
Board on October 8, 2018.

Grants of Plan-Based Awards in 2019

The following table summarizes the grants of (i) cash awards under the STIP and (ii) options (OPT), time-
based RSU awards (TRSU) and performance-based RSU awards (PSU) under the 2019 cycle of the LTCP, each
made to the NEOs during the year ended December 31, 2019. Each of these types of awards is discussed in
“Compensation Discussion and Analysis” above.

Name

Type of
Award

Grant
Date

Threshold
($)

Target
($)

Maximum
($)

Threshold
(#)

Target
(#)

Maximum
(#)

Estimated Future Payouts
Under Non-Equity
Incentive Plan Awards(1)

Estimated Future Payouts
Under Equity Incentive
Plan Awards(2)

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)

William J. Merritt . . . . . . STIP
3/15/2019
OPT
TRSU 3/15/2019
PSU 3/15/2019

Richard J. Brezski

. . . . . STIP

TRSU 3/15/2019
PSU 3/15/2019

Jannie K. Lau . . . . . . . . . STIP

TRSU 3/15/2019
PSU 3/15/2019

Kai O. Öistämo . . . . . . . . STIP
3/15/2019
OPT
TRSU 3/15/2019
PSU 3/15/2019

0

690,000 1,380,000

0

0

0

301,875

603,750

293,241

586,482

609,000 1,218,000

8,012

16,024

32,048

79,192

16,024

67.61 1,083,382
1,083,382
0

5,547

11,094

22,188

5,547

11,094

22,188

4,930

9,861

19,722

3,698

3,698

9,861

250,000
0

250,000
0

666,702
666,702
0

48,733

67.61

(1) Amounts reported represent the potential threshold, target and maximum STIP payouts depending on the

level of performance achieved under the STIP for fiscal 2019. Such amounts ranged from 0 to 200% of the
target payout, representing the maximum payout possible under the STIP. For all NEOs, the actual amount
earned for fiscal 2019, which is reported in the Summary Compensation Table above, was based on the
company’s achievement of the 2019 strategic corporate goals established by the Compensation Committee
in March 2019 and individual performance of the NEO during 2019.

(2) Amounts reported represent the potential threshold, target and maximum number of performance-based

RSUs the NEO could earn pursuant to his or her performance-based RSU award for the 2019 LTCP. 100%
achievement of the performance goal or goals associated with the award results in a 100% payout of the
associated target amounts. Goal achievement for performance that falls between the amounts established for

41

Proxy Statement

threshold, target and maximum achievement is calculated using straightline interpolation between the target
achievement level and the actual achievement level, with a threshold payout of 50% of target and a
maximum payout of 200% of target.

(3) Grant date fair value of RSU awards is determined in accordance with FASB ASC Topic 718. The TRSU

awards granted in 2019 are scheduled to vest in full on March 15, 2022. 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 conditions for the 2019 LTCP did not meet the threshold for recording
compensation cost, and, as a result, the grant date value of the performance-based RSU awards was $0.
Accordingly, there is no value reported for the performance-based RSUs granted in 2019. Amounts reported
also reflect the value at the grant date of the stock options granted in 2019 as determined in accordance with
FASB ASC Topic 718. The weighted-average assumptions underlying the above valuation of the stock
options for Mr. Merritt and Mr. Öistämo under the Black-Scholes option pricing model are as follows:
expected life of 4.5 years; volatility of 25.8%; a risk-free interest rate of 2.4%; and a dividend yield of 2.0%.

Outstanding Equity Awards at 2019 Fiscal Year End

The following table sets forth information concerning outstanding option and stock awards of the NEOs as

of December 31, 2019.

Option Awards

Stock Awards

Number of
Securities
Underlying
Unexercised
Options
(#)
Exercisable
(1)

Number of
Securities
Underlying
Unexercised
Options
(#)
Unexercisable
(1)

Grant
Date

Equity
Incentive
Plan
Awards:
Number of
Securities
Underlying
Unexercised
Unearned
Options
(#)

Option
Exercise
Price
($)

Option
Expiration
Date

44.19
30.69
52.85
54.93
85.85

1/18/20
3/15/21
3/15/22
3/30/23
3/30/24

—
—
—
—
8,376

—
—
—
—
—

—

127,470

83.35

7/16/28

79,192

67.61

3/15/26

—
—
—
—

—
—
—
—

44.19
30.69
52.85
54.93

1/18/20
3/15/21
3/15/22
3/30/23

Name

William J. Merritt

. . . . . . .1/18/13
3/15/14
3/15/15
3/30/16
3/30/17
3/30/17
3/30/17(6)
7/16/18(7)
7/16/18
7/16/18(8)
3/15/19
3/15/19
3/15/19(9)

22,085
37,658
24,291
27,540
16,750

—

—

7,362
16,737
10,796
12,518

Richard J. Brezski . . . . . . .1/18/13
3/15/14
3/15/15
3/30/16
3/30/17
3/30/17(6)
7/16/18
7/16/18(8)
3/15/19
3/15/19(9)

Proxy Statement

42

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)

Number
of
Shares
or Units
of Stock
That
Have
Not
Vested
(#)(2)

Market
Value
of
Shares
or
Units of
Stock
That
Have Not
Vested
($)(3)

6,134

334,242

18,401 1,002,670

20,536 1,119,046

16,295

887,915

20,536 1,119,007

16,295

887,915

2,147

116,990

3,080

167,829

3,760

204,882

6,441

350,970

9,241

503,542

11,281

614,702

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

Name

Grant
Date

1,526
6,170
12,518

—
—
—

—
—
—

30.69
52.85
54.93

3/15/21
3/15/22
3/30/23

Jannie K. Lau . . . . . . . . . . 3/15/14
3/15/15
3/30/16
3/30/17
3/30/17(6)
7/16/18
7/16/18(8)
3/15/19
3/15/19(9)

Kai O. Öistämö . . . . . . . .11/15/18(7)

—

—

144,130

76.44

11/15/28

11/15/18
11/15/18(8)
3/15/19
3/15/19
3/15/19(9)

—

48,733

67.61

3/15/26

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)

Number
of
Shares
or Units
of Stock
That
Have
Not
Vested
(#)(2)

Market
Value
of
Shares
or
Units of
Stock
That
Have Not
Vested
($)(3)

2,147

116,990

3,080

167,829

3,760

204,882

13,368

728,422

10,027

546,371

6,441

350,970

9,241

503,542

11,281

614,702

13,368

728,422

10,027

546,371

(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 granted are time-based RSUs granted under LTCP. Awards granted on March 30, 2017 are

scheduled to fully vest on March 15, 2020; awards granted on July 16, 2018 are scheduled to fully vest on
March 15, 2021; and awards granted on March 15, 2019 are scheduled to fully vest on March 15, 2022.

(3) Values reported were determined by multiplying the number of unvested time-based RSUs by $54.49, the

closing price of our common stock on December 31, 2019, the last trading day in 2019 (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 $54.49, the closing price of our common stock on December 31,
2019, the last trading day in 2019 (plus cash in lieu of a fractional share).

(6) Performance-based RSU award granted for the 2017 LTCP. The performance-based RSUs granted for the

2017 LTCP vested on March 15, 2020, subject to the achievement of pre-approved goals established by the
Compensation Committee measured as of December 31, 2019, and the remaining unvested portion of such
performance-based RSU awards, if any, shall remain eligible to vest on March 15, 2022, subject to the
achievement of the same performance goals measured as of December 31, 2021.

(7) Performance-based stock option award granted for the 2018 LTCP. The performance-based stock options
granted for the 2018 LTCP will vest on March 15, 2021, subject to the achievement of pre-approved goals
established by the Compensation Committee measured as of December 31, 2020, and the remaining
unvested portion of such performance-based RSU awards, if any, shall remain eligible to vest on March 15,
2023, subject to the achievement of the same performance goals measured as of December 31, 2022. There
is a two-year holding period following vesting of the performance-based stock options.

43

Proxy Statement

(8) Performance-based RSU award granted for the 2018 LTCP. The performance-based RSUs granted for the
2018 LTCP will vest on March 15, 2021, subject to the achievement of pre-approved goals established by
the Compensation Committee measured as of December 31, 2020, and the remaining unvested portion of
such performance-based RSU awards, if any, shall remain eligible to vest on March 15, 2023, subject to the
achievement of the same performance goals measured as of December 31, 2022.

(9) Performance-based RSU award granted for the 2019 LTCP. The performance-based RSUs granted for the
2018 LTCP will vest on March 15, 2022, subject to the achievement of pre-approved goals established by
the Compensation Committee measured as of December 31, 2021, and the remaining unvested portion of
such performance-based RSU awards, if any, shall remain eligible to vest on March 15, 2024, subject to the
achievement of the same performance goals measured as of December 31, 2023.

Option Exercises and Stock Vested in 2019

The following table sets forth information, on an aggregated basis, concerning stock options exercised and

stock awards vested during 2019 for the NEOs.

Name

William J. Merritt . . . . . .
Richard J. Brezski . . . . . .
Jannie K. Lau(3) . . . . . . .
Kai O. Öistämö . . . . . . . .

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)

—
—
—
—

—
—
—
—

29,650
10,108
10,108
—

2,004,684
683,444
683,444

—

(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.

(3) Pursuant to Ms. Lau’s retirement and transition agreement and release with the company, dated December 9,
2019, following her retirement, Ms. Lau has 6 months to exercise any vested stock option awards before
such options expire.

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 designated select group of 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 may elect to defer base salary
and STIP payouts, and non-employee members of the Board 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.

Proxy Statement

44

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.

For the 2019 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, 2018. For 2019, 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, and matching contributions under the deferred compensation plan were deemed to be notionally
invested in the InterDigital Stock Fund and were 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 NEO information regarding the deferred compensation plan for

2019.

Name

Executive
Contributions
in Last FY
($)(1)

Registrant
Contributions
in Last FY
($)(2)

. . . . . . . . . . . . . . . .
William J. Merritt
Richard J. Brezski
. . . . . . . . . . . . . . . .
Jannie K. Lau . . . . . . . . . . . . . . . . . . . .
Kai O. Öistämö . . . . . . . . . . . . . . . . . .

—
40,078
—
—

—
11,199
—
—

Aggregate
Earnings
(Losses) in
Last FY
($)(3)

298,017
41,515
14,858

Aggregate
Withdrawals/
Distributions
($)

Aggregate Balance
at Last FYE
($)(4)

—
—
—
—

2,277,893
307,070
102,487
—

(1) Contributions include deferred 2019 salary amounts and deferred 2018 STIP amounts (corresponding to the
portion of the 2018 STIP amount paid in 2019). The payouts of the 2019 STIP were not made until 2020. As
a result, any deferrals of the 2019 STIP are not reflected in this column. For Mr. Brezski, $40,078, was
included in the “Salary” column of the Summary Compensation Table.

(2) For the 2019 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 2019 calendar year. The amounts
disclosed in this column reflect matching contributions (made by the company in 2020) for 2019 NEO
deferral contributions and are included in the “All Other Compensation” column of the Summary
Compensation Table for fiscal year 2019.

(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.

45

Proxy Statement

(4) Aggregate balance consists of employee contributions made in 2013 through 2019, company matching

contributions for 2013 through 2019 and notional investment earnings through 2019.

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 years 2013 through 2018, in the aggregate:

Name

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
William J. Merritt
Richard J. Brezski . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Jannie K. Lau . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Kai O. Öistämö . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Salary
($)

401,347
150,689
22,506
—

Non-Equity
Incentive Plan
Compensation
($)

1,205,746
50,192
—
—

All Other
Compensation
($)

191,656
53,255
8,409
—

Ms. Lau was not an NEO for any of the fiscal years 2013 through 2016. As a result, no amounts were
previously reported for her in the Summary Compensation Table for such years. The deferred compensation
plan was implemented in 2013. Therefore, there are no amounts included that were reported as
compensation to any NEO prior to 2013.

Potential Payments upon Termination or Change in Control

InterDigital, Inc. Executive Severance and Change in Control Policy

As discussed above in “Compensation Discussion and Analysis,” each NEO is eligible for benefits pursuant
to the Executive Severance Policy, which provides for severance pay and benefits, among other things, in certain
events of termination of employment, as described below.

Ms. Lau retired from employment with the company on December 31, 2019. Therefore, no payments would

have been made to her upon termination or change in control at December 31, 2019. The actual payments she
received upon retirement is disclosed below under “Payments upon Retirement for Ms. Lau”.

Time-Based RSU, Performance-Based RSU, Options, Performance-Based Stock Options 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 days during the period beginning on the grant date and ending on the
original vesting date (“Restricted Period”) for which the NEO was employed by the total number of days during
the Restricted 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 granted under the 2009 Plan or prior to the last year of a Performance Period
for performance-based RSUs or options granted under the 2017 Plan, the NEO would forfeit eligibility to receive
any payout of such performance-based RSUs or performance-based options. If an NEO’s employment is
terminated by the company without cause (as defined in the related award agreement) or by reason of the named
executive officer’s death or disability, in each case, after the second anniversary of the grant date for
performance-based RSUs granted under the 2009 Plan or during the last year of a Performance Period for
performance-based RSUs or options granted under the 2017 Plan, the performance-based RSUs or options will
vest as to a prorated portion (based on the number of payroll periods or days the NEO was employed during the
applicable performance period) of the number of RSUs or options that would have otherwise become vested
according to actual performance during the performance period. In the event of a termination without cause, the
prorated vesting is conditioned upon the NEO’s execution of a release of claims in favor of the company within
60 days following termination of employment for all awards granted under the 2017 Plan.

Proxy Statement

46

If an NEO’s employment terminates without cause or by reason of an NEO’s death or disability, the NEO

would be entitled to pro-rata vesting of stock options granted as part of the LTCP. Such prorated portion is
determined by multiplying the total number of shares subject to the then-unvested portion of the option by the
fraction equal to the number of days during the period beginning on the later of the grant date or the most recent
vesting date and ending on the third anniversary of the grant date (“Restricted Period”) for which the NEO was
employed divided by the total number of days during the Restricted Period and subject to the NEO’s execution of
a release of claims in favor of the company within 60 days following termination of employment.

Pursuant to the terms of the Executive Severance Policy, in the event of a termination without “cause” or

resignation for “good reason,” in each case, on or within one year following a “change in control” of the
company, each NEO would be entitled to receive an amount equal to 100% of their respective target payouts
under the STIP.

Pursuant to the terms of the equity awards and STIP, the NEO forfeits any such awards if employment

terminates for cause or the NEO resigns.

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 with the company for any reason, the NEO would receive a distribution

of 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 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 the 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 the 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 Performance-Based Option and STIP Awards” above for a description of the treatment of the
outstanding equity 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, if applicable, in accordance with his or her 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.

47

Proxy Statement

Termination for Cause

The company may terminate the employment of any NEO at any time for “cause” which is generally
defined in the Executive Severance Policy 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 the Executive Severance Policy 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 company (or the case of
Mr. Merritt, 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”).

Termination Without Cause

Pursuant to the terms of the Executive Severance Policy, in the event of a termination without cause, the
NEO would be entitled to receive the Standard Entitlements. In addition, provided the NEO executes a separation
agreement in a form acceptable to the company (which may include, among other things, a broad release of all
claims against the company, a non-disparagement, a non-solicitation and other standard restrictive covenant
provisions) (a “Separation Agreement”), the NEO would be entitled to receive: (i) severance in an amount equal
to one and a half times base salary then in effect (or, in the case of Messrs. Merritt and Öistämö, two and a half
times base salary then in effect) paid over a period of eighteen months (or, in the case of Messrs. Merritt and
Öistämö, thirty months); (ii) health coverage on terms and conditions comparable to those most recently provided
for the period of one year (or, in the case of Messrs. Merritt and Öistämö, eighteen months) 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 Following a Change in Control

Pursuant to the terms of the Executive Severance Policy, if the company terminates an NEO other than for
cause or such NEO terminates employment with us for “good reason”, in each case within one year following a
change in control of the company, he or she would be entitled to receive the Standard Entitlements. In addition,
provided that he or she executes a Separation Agreement, the NEO would be, entitled to (i) severance in an
amount equal to two times base salary then in effect (in the case of Messrs. Merritt, and Öistämö, three times
base salary then in effect) plus one times the target bonus under the STIP then in effect and (ii) an amount equal
to the cost of continued health coverage on terms and conditions comparable to those most recently provided for
the period of twenty-four months, in each case, paid in a lump sum 60 days after date of termination. Termination
for “good reason” 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 payment of the NEO’s compensation; (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 Executive Severance Policy or the company’s nondisclosure and assignment of ideas agreement.

If the company terminates an NEO other than for cause or such NEO terminates his or her 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 and performance-based stock
option awards at target and (ii) all outstanding stock option and time-based RSU awards would become fully
vested. Those equity awards granted under the 2017 Plan would be subject to the NEO’s execution of a
Separation Agreement. Any transfer restriction otherwise applicable to shares subject to performance-based stock
options will lapse upon a change in control.

Proxy Statement

48

For this purpose, under the Executive Severance Policy, “change in control” has the same defined meaning

as set forth in the company’s 2017 Equity Incentive Plan.

Change in Control without Termination

In the event of a change in control without termination, outstanding performance-based RSU awards granted

under the 2009 Plan will be treated as provided in the individual award agreement. A change in control without
termination does not result in any acceleration of performance-based RSUs under the 2017 Plan.

Post-Termination Obligations

Each of the NEOs is bound by certain confidentiality obligations, which extend indefinitely. 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 an NEO upon termination constitute “parachute payments” pursuant

to Section 280G of the Code, the Executive Severance Policy provides that the payments will be either
(i) reduced to such lesser amount that would result in no amount being subject to excise tax or (ii) made in full,
whichever produces the larger after-tax net benefit to the NEO. The Executive Severance Policy does not provide
for an excise tax “gross-up.”

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, 2019, and the price per share used to calculate the value of the
company’s stock awards was $54.49, the per share closing market price of our common stock on December 31,
2019, the last business day of 2019. The amounts reflected are estimates of the amounts that would have been
paid to the NEOs upon their termination pursuant to existing terms in place at December 31, 2019. 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, 2019, Mr. Merritt’s payments and benefits would

have an estimated value of:

Long-Term
Compensation
Awards
($)

Deferred
Compensation
($)(5)

Severance
($)

Disability . . . . . . . . . . . . . . .
Retirement . . . . . . . . . . . . . .
Death . . . . . . . . . . . . . . . . . .
Without Cause . . . . . . . . . . .

—
—
—

1,159,836(3)
—
1,159,836(3)
1,725,000(1) 1,159,836(3)

2,277,893
2,277,893
2,277,893
2,277,893

49

Payments
under
Executive
Life
Insurance
Program
($)(6)

—
—
750,000
—

Payments
under
Executive
Long-Term
Disability
Program
($)(7)

20,000
—
—
—

Welfare
Benefits
($)

Out-
placement
Services
($)(10)

—
—
—

—
—
—
18,185(8) 10,000

Proxy Statement

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)

Change in Control

(Termination by Us
Without Cause or by
Mr. Merritt for Good
Reason, within 1 year) . . .
Change in Control (Without
Termination) . . . . . . . . . .

2,760,000(2) 4,462,989(4)

2,277,893

—

—

2,277,893

—

—

—

—

24,246(9) 10,000

—

—

(1) This amount represents severance equal to two and a half times Mr. Merritt’s base salary of $690,000,

which he is entitled to receive once his Separation Agreement becomes effective and is payable in equal
installments over a period of 30 months after the date of his termination.

(2) This amount represents severance equal to the sum of three times Mr. Merritt’s base salary of $690,000 plus
his target 2019 STIP payout of $690,000. 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, 2019, of Mr. Merritt’s time-based and performance-

based RSUs granted for the 2017 LTCP, time-based RSUs granted for the 2018 and 2019 LTCPs 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
granted for the 2018 and 2019 LTCP since a termination on December 31, 2019 would not be in the final
year of the applicable performance periods. 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 for the 2017 LTCP (the performance period for which ended
December 31, 2019), the amount reflects the actual payout of 0% of target (based on actual performance
over the performance period) 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) $311,084, representing the value of 5,709 time-based RSUs
granted for the 2017 LTCP (plus cash in lieu of a fractional share); (b) $613,000, representing the value of
11,250 time-based RSUs granted for the 2018 LTCP (plus cash in lieu of fractional share); and (c)
$235,751, representing the value of 4,327 time-based RSUs granted for the 2019 LTCP (plus cash in lieu of
a fractional share). In addition, in the event of a termination by the company without cause, Mr. Merritt
would also be entitled to pro rata vesting of his options granted for the 2017 and 2019 LTCPs, resulting in
the accelerated vesting of 7,795 and 21,027 options respectively. The aggregate spread between the closing
stock price of $54.49 on December 31, 2019 and the exercise price of the options. As the exercise price for
the options granted to Mr. Merritt for the 2017 and 2019 LTCPs is greater than $54.49, the value reflected in
the table above for these options is zero.

(4) This amount represents the value, at December 31, 2019, of Mr. Merritt’s time-based RSUs, performance-

based RSUs and option awards granted for the 2017, 2018 and 2019 LTCPs 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) $334,276 representing the value of 6,135
time-based RSUs granted for the 2017 LTCP (plus cash in lieu of a fractional share); (b) $1,002,714,
representing the value of 18,402 performance-based RSUs granted for the 2017 LTCP (plus cash in lieu of a
fractional share); (c) $1,119,042, representing the value of 20,537 time-based RSUs granted for the 2018

Proxy Statement

50

LTCP (plus cash in lieu of a fractional share); (d) $1,119,042 representing the value of 20,537 performance-
based RSUs granted for the 2018 LTCP (plus cash in lieu of a fractional share); (e) $887,915, representing
the value of 16,296 time-based RSUs for the 2019 LTCP (plus cash in lieu of a fractional share); and (f)
$887,915, representing the value of 16,296 performance-based RSUs for the 2019 LTCP (plus cash in lieu
of a fractional share). The value of the accelerated options is the aggregate spread between the closing stock
price of $54.49 on December 31, 2019 and the exercise price of the options. Mr. Merritt also would be
entitled to the accelerated vesting of 8,376 and 79,192 options granted for the 2017 LTCP and 2019 LTCP
respectively, as well as 127,470 performance-based options granted for the 2018 LTCP, but, as the exercise
price for all outstanding options is greater than $54.49, the value reflected in the table above for these
options is zero.

(5) This amount represents the balance, at December 31, 2019, 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 $750,000.

(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, 2019, 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 18 months after
termination on terms and conditions comparable to those most recently provided to Mr. Merritt as of
December 31, 2019 pursuant to the Executive Severance Policy.

(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, 2019 pursuant to the Executive Severance Policy.

(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, 2019, Mr. Brezski’s payments and benefits would

have an estimated value of:

Disability . . . . . . . . . . . . . . . .
Retirement . . . . . . . . . . . . . . .
Death . . . . . . . . . . . . . . . . . . .
Without Cause . . . . . . . . . . . .

Long-Term
Compensation
Awards
($)

255,263(3)
—
255,263(3)
255,263(3)

Severance
($)

—
—
—
603,750(1)

Deferred
Compensation
($)(5)

307,070
307,070
307,070
307,070

51

Payments
under
Executive
Life
Insurance
Program
($)(6)

—
—
603,750

—

Payments
under
Executive
Long-Term
Disability
Program
($)(7)

20,000
—
—
—

Welfare
Benefits
($)

Out-
placement
Services
($)(10)

—
—
—

—
—
—
20,417(8) 10,000

Proxy Statement

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)

Change in Control

(Termination by Us
Without Cause or by
Mr. Brezski for Good
Reason, within 1 year) . . .

Change in Control (Without

1,106,875(2) 1,959,105(4)

307,070

Termination) . . . . . . . . . . .

—

—

307,070

—

—

—

—

30,626(9) 10,000

—

—

(1) This amount represents severance equal to one and a half times Mr. Brezski’s base salary of $402,500,

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. Brezski’s base salary of $402,500 and

one times his target 2019 STIP payout of $301,875. 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, 2019, of Mr. Brezski’s time-based and performance-

based RSUs granted for the 2017 LTCP, time-based RSUs granted for the 2018 and 2019 LTCP 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
granted in 2018 or 2019 since a termination on December 31, 2019 would be prior to the second anniversary
of the grant date or prior to the final year of a performance period. 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 for the 2017 LTCP (the performance period
for which ended December 31, 2019), the amount reflects the actual payout of 0% of target (based on actual
performance over the performance period) 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) $108,893 representing the value of 1,998 time-based
RSUs granted for the 2017 LTCP (plus cash in lieu of a fractional share); (b) $91,964, representing the
value of 1,688 time-based RSUs granted for the 2018 LTCP (plus cash in lieu of a fractional share); and (c)
$54,4063, representing the value of 998 time-based RSUs granted for the 2019 LTCP (plus cash in lieu of a
fractional share).

(4) This amount represents the value, at December 31, 2019, of Mr. Brezski’s time-based and performance-
based RSUs granted pursuant to the 2017, 2018 and 2019 LTCP 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) $117,011, representing the value of 2,147 time-based
RSUs granted for the 2017 LTCP (plus cash in lieu of a fractional share); (b) $350,976, representing the
value of 6,441 performance-based RSUs granted for the 2017 LTCP (plus cash in lieu of a fractional share);
(c) $167,881, representing the value of 3,081 time-based RSUs granted for the 2018 LTCP (plus cash in lieu
of a fractional share); (d) $503,588, representing the value of 9,242 performance-based RSUs granted for
the 2018 LTCP (plus cash in lieu of a fractional share); (e) $204,912, representing the value of 3,761 time-
based RSUs granted for the 2019 LTCP (plus cash in lieu of a fractional share); (f) $614,736, representing
the value of 11,282 performance-based RSUs granted for the 2019 LTCP (plus cash in lieu of a fractional
share).

Proxy Statement

52

(5) This amount represents the balance, at December 31, 2019, 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.

(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 $750,000.

(7) 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, 2018, 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. Brezski as of
December 31, 2018 pursuant the Executive Severance Policy.

(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. Brezski as of
December 31, 2018 pursuant to the Executive Severance Policy.

(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.

Kai O. Öistämö

Assuming the following events occurred on December 31, 2019, Mr. Öistämö’s payments and benefits

would have an estimated value of:

Long-Term
Compensation
Awards
($)

Deferred
Compensation
($)

Severance
($)

—
—
—
1,522,500(1)

544,131(3)
—
544,131(3)
544,131(3)

2,436,000(2) 2,549,781(4)

—

—

Payments
under
Executive
Life
Insurance
Program
($)(5)

—
—
750,000
—

Payments
under
Executive
Long-Term
Disability
Program
($)(6)

20,000
—
—
—

Welfare
Benefits
($)

Out-
placement
Services
($)(9)

—
—
—

—
—
—

10,198(7) 10,000

—

—

—

—

13,597(8) 10,000

—

—

—
—
—
—

—

—

Disability . . . . . . . . . . . . . . .
Retirement . . . . . . . . . . . . . .
Death . . . . . . . . . . . . . . . . . .
Without Cause . . . . . . . . . . .
Change in Control

(Termination by Us
Without Cause or by
Mr. Öistämö for Good
Reason, within 1 year) . . .
Change in Control (Without
Termination) . . . . . . . . . .

(1) This amount represents severance equal to two and a half times Mr. Öistämö’s base salary of $609,000,
which he is entitled to receive once his Separation Agreement becomes effective and is payable in equal
installments over a period of 30 months after the date of his termination.

(2) This amount represents severance equal to the sum of three times Mr. Öistämö’s base salary of $609,000

plus his target 2019 STIP payout of $609,000. 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.

53

Proxy Statement

(3) This amount represents the value, at December 31, 2019, of Mr. Öistämö’s time-based and performance-

based RSUs granted for the 2018 and 2019 LTCPs that would vest upon termination due to disability, death
or termination by the company without cause. Pursuant to the terms of the awards, Mr. Öistämö would
forfeit eligibility to receive any payout of performance-based RSUs granted for the 2018 and 2019 LTCPs
since a termination on December 31, 2019 would not be in the final year of the applicable performance
period. 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) $399,052, representing the value of 7,323
time-based RSUs granted for the 2018 LTCP (plus cash in lieu of a fractional share) and (b) $145,079,
representing the value of 2,662 time-based RSUs granted for the 2019 LTCP (plus cash in lieu of a
fractional share).

(4) This amount represents the value, at December 31, 2019, of Mr. Öistämö’s time-based RSUs, performance-
based RSUs and option awards granted for the 2018 and 2019 LTCPS 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) $728,477, representing the value of
13,369 time-based RSUs granted for the 2018 LTCP (plus cash in lieu of a fractional share); (b) $728,477,
representing the value of 13,369 performance-based RSUs granted for the 2018 LTCP (plus cash in lieu of a
fractional share); (c) $546,414, representing the value of 10,028 time-based RSUs granted for the 2019
LTCP; and (d) $546,414, representing the value of 10,028 performance-based RSUs granted for the 2019
LTCP. The value of the accelerated options is the aggregate spread between the closing stock price of
$54.49 on December 31, 2019 and the exercise price of the options. Although Mr. Öistämö also would be
entitled to the accelerated vesting of 144,130 performance-based options granted for the 2018 LTCP and
48,733 stock options granted for the 2019 LTCP, because the exercise price for these options is greater than
$54.49, the value reflected in the table above for these options is zero.

(5) 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 $750,000.

(6) This amount represents the monthly benefit that would become payable to Mr. Öistämö under our executive
long-term disability plan in the event of his termination due to disability on December 31, 2019, 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.

(7) 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. Öistämö as of
December 31, 2019 pursuant to the Executive Severance Policy.

(8) 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. Öistämö as of
December 31, 2019 pursuant to the Executive Severance Policy.

(9) 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.

Proxy Statement

54

Payments upon Retirement pursuant to the Retirement & Transition Agreement for Ms. Lau

As previously disclosed by the company on a Form 8-K filed on December 9, 2019, the company entered into a
retirement and transition agreement and release with Ms. Lau on December 9, 2019 (the “Lau Retirement
Agreement”), under which Ms. Lau agreed to provide limited transition services to the company and a release of
claims in favor of the company and its designated releasees in exchange for the payments described below:

Transition
Services and
Other
Payments
($)(1)

PTO Payout
($)(2)

Long-Term
Compensation
Awards
($)(3)

Total
($)

Ms. Lau . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

400,000

11,613

—

411,613

(1) Ms. Lau agreed to provide limited transition services on a part-time basis for a period of 100 calendar days
following her retirement date in exchange for a portion of the $400,000, payable in 2 equal installments on
February 15, 2020 and March 31, 2020.

(2) Ms. Lau received payment for all accrued, but unused paid time off, pursuant to company policy.

(3) Ms. Lau’s equity awards ceased to vest as of December 31, 2019. All outstanding, unvested, equity awards

as of December 31, 2019, were forfeited.

Chief Executive Officer Pay Ratio

We believe our executive compensation program must be consistent and internally equitable to motivate our
employees to perform. The Compensation Committee monitors the relationship between the pay of our executive
officers and the pay of our non-executive employees. The Compensation Committee reviewed a comparison of
our Chief Executive Officer’s annual total compensation in fiscal year 2019 to that of the median of all other
employees for that same period.

In May 2019, we acquired the research and innovation organization of Technicolor SA, which included
employees located in both France and the United States. The approximately 155 employees were not included in
our pay ratio, as permitted by the SEC rules.

Our Chief Executive Officer’s total 2019 compensation, as set forth in the Summary Compensation Table
above, was approximately $3,416,967, and our median employee’s total 2019 compensation was approximately
$175,542, making our Chief Executive Officer’s pay in 2019 approximately 19 times the pay of our median
employee.

The pay ratio described above is a reasonable estimate calculated in a manner consistent with Item 402(u) of
Regulation S-K (“Item 402(u)”). The median employee was identified by determining the compensation for each
employee using the following consistently applied compensation measures:

• Annual Salary for fiscal year 2019;

• Annual incentive bonus target (i.e., STIP award);

• Grant date fair value of equity awards (or long-term cash compensation award) granted during fiscal

year 2019; and

• Auto allowance paid in fiscal year 2019 (applicable for our employees in the UK).

Our calculation includes all employees in the United States, Canada, United Kingdom, Germany and France
as of December 15, 2019 (excluding those who joined InterDigital in May 2019 as the result of the acquisition of
Technicolor SA’s research and innovation organization). Our employees located in Belgium and South Korea, an
aggregate of 2 employees (which is less than 5% of the total number of employees), were excluded from the
calculation under the de minimis exception provided for in Item 402(u). We applied U.S. exchange rates to the
compensation elements paid in non-U.S. dollars.

55

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, 2019:

(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)

958,784

$58.83

1,309,763

—
958,784

$ —
$58.83

—
1,309,763

Plan Category

Equity compensation plans
approved by InterDigital
shareholders . . . . . . . . . .
Equity compensation plans

not approved by
InterDigital
shareholders(3) . . . . . . .
Total . . . . . . . . . . . . . . . . . .

(1) Column (a) includes 283,416 shares of common stock underlying outstanding time-based RSU awards,
664,268 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, and 335,188 shares of common stock underlying outstanding performance-based option
awards, assuming a maximum payout of 200% of the target number of performance-based awards after the
end of the applicable performance period, as well as 28,173 dividend equivalents credited in respect of the
RSU awards. 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 14, 2017, the company’s shareholders adopted and approved our 2017 Equity Incentive Plan (the
“2017 Plan”), which provides for grants of stock options, stock appreciation rights, restricted stock, RSUs,
performance units, performance shares and incentive cash bonuses. Amounts reported relate to securities
available for future issuance under the 2017 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

56

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 30,749,354 shares of
our common stock outstanding as of March 31, 2020, 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, 2020, 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:
Joan H. Gillman(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
S. Douglas Hutcheson(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
John A. Kritzmacher . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
John D. Markley, Jr.(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
William J. Merritt(4)
Jean F. Rankin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Philip P. Trahanas(5) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Named Executive Officers:
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Kai O. Öistämö(6)
Richard J. Brezski(7) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Jannie K. Lau(8) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Richard L. Gulino(9)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
All directors, director nominees and executive officers as a group

Common Stock

Shares

Percent
of Class

6,064
13,136
12,344
5,379
322,893
20,238
11,301

27,703
77,637
27,195
—

*
*
*
*
1.1%
*
*

*
*
*
*

(11 persons)(10) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

523,890

1.7%

Greater Than 5% Shareholders:
BlackRock, Inc.(11) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

3,788,989

12.3%

55 East 52nd Street

New York, New York 10055

The Vanguard Group(12) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

3,095,147

10.1%

100 Vanguard Boulevard

Malvern, Pennsylvania 19355

*

Represents less than 1% of our outstanding common stock.

(1)

Includes 5,739 shares of common stock that have vested but have been deferred by Ms. Gillman.

(2)

Includes 6,754 shares of common stock that have vested but have been deferred by Mr. Hutcheson.

(3)

Includes 2,067 shares of common stock that have vested but have been deferred by Mr. Markley.

(4)

Includes 186,298 shares of common stock that Mr. Merritt has the right to acquire through the exercise of
stock options within 60 days of March 31, 2020 and 3,735 whole shares of common stock beneficially
owned by Mr. Merritt through participation in the 401(k) Plan.

57

Proxy Statement

(5)

Includes 6,337 shares of common stock that have vested but have been deferred by Mr. Trahanas.

(6)

(7)

(8)

Includes 16,245 shares of common stock that Mr. Öistämö has the right to acquire through the exercise of
stock options within 60 days of March 31, 2020.

Includes 40,051 shares of common stock that Mr. Brezski has the right to acquire through the exercise of
stock options within 60 days of March 31, 2020 and 2,046 whole shares of common stock beneficially
owned by Mr. Brezski through participation in the 401(k) Plan.

Includes 18,688 shares of common stock that Ms. Lau has the right to acquire through the exercise of stock
options within 60 days of March 31, 2020. Ms. Lau was not an executive officer of the company as of
March 31, 2020, but is an NEO for purposes of this proxy statement.

(9) No shares of common stock that Mr. Gulino will have a right to acquire will have vested within 60 days of

March 31, 2020.

(10) Includes: 261,282 shares of common stock that all directors, director nominees and executive officers as a
group have the right to acquire through the exercise of stock options within 60 days of March 31, 2020;
20,897 shares of common stock that have vested but have been deferred by all directors, director nominees
and executive officers as a group; and 5,781 whole shares of common stock beneficially owned by all
directors, director nominees and executive officers as a group through participation in the 401(k) Plan.

(11) As of December 31, 2019, based on information contained in the Schedule 13G/A filed on February 10,

2020 by BlackRock, Inc. With respect to the shares beneficially owned, BlackRock, Inc. reported that it has
sole voting power with respect to 3,729,499 shares and sole dispositive power with respect to 3,788,989
shares.

(12) As of December 31, 2019, based on information contained in the Schedule 13G/A filed on April 9, 2020 by

The Vanguard Group. With respect to the shares beneficially owned, the Vanguard Group reported that it
has sole voting power with respect to 0 shares, shared voting power with respect to 70,458 shares, sole
dispositive power with respect to 3,001,379 shares and shared dispositive power with respect to 93,768
shares.

Proxy Statement

58

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.

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Proxy Statement

OTHER MATTERS

Delinquent Section 16(a) Reports

During 2019, did all directors and officers timely file all reports required by Section 16(a) of the Exchange
Act?

Based solely 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 2019, all of our directors and officers timely
filed all reports required by Section 16(a), with the exception of Messrs. Merritt and Öistämö, each of whom, due
to a clerical error, failed to timely file a Form 4 with respect to a grant of employee stock options to each them on
March 15, 2019. Each Form 4 was subsequently filed on February 14, 2020.

Shareholder Proposals

How may shareholders make proposals or director nominations for the 2021 annual meeting?

Shareholders interested in submitting a proposal for inclusion in our proxy statement for the 2021 annual
meeting may do so by submitting the proposal in writing to our Corporate Secretary at InterDigital, Inc., 200
Bellevue Parkway, Suite 300, Wilmington, DE 19809-3727. To be eligible for inclusion in our proxy statement
for the 2021 annual meeting, shareholder proposals must be received no later than December 18, 2020, 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 2021 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 5, 2021, and no later than
April 4, 2021. However, if the date of our 2021 annual meeting is more than 30 days before or more than 60 days
after the anniversary of our 2020 annual meeting, the submission and the required information must be received
by us no earlier than the 90th day prior to the 2021 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
2021 annual meeting. Proposals or nominations that do not comply with the advance notice requirements in our
bylaws will not be entertained at the 2021 annual meeting. A copy of the bylaws may be obtained on our website
at http://ir.interdigital.com under the IR menu heading “Governance – Governance Documents,” or by writing to
our Corporate 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 2020, 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

60

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 Corporate 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 2019 annual report on Form 10-K

upon written request to our Corporate Secretary at InterDigital, Inc., 200 Bellevue Parkway, Suite 300,
Wilmington, DE 19809-3727. Our 2019 annual report and this proxy statement are also available online at
http://ir.interdigital.com/FinancialDocs.

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.

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Proxy Statement

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BOARD OF DIRECTORS

S. DOUGLAS HUTCHESON
Chairman of the Board, InterDigital, Inc.
Senior Advisor, Searchlight Capital

JOHN A. KRITZMACHER
Executive Vice President & Chief 
Financial Officer, John Wiley & Sons, Inc.

JEAN F. RANKIN
Former Executive Vice President, General 
Counsel and Secretary, LSI Corporation

JOAN H. GILLMAN
Former Executive Vice President, 
Time Warner Cable, Inc.

WILLIAM J. MERRITT
President and Chief Executive Officer, 
InterDigital, Inc. 

PHILIP P. TRAHANAS
Partner, Lampros Capital Partners

JOHN D. MARKLEY, JR.
Managing Partner, New Amsterdam 
Growth Capital

EXECUTIVE OFFICERS

WILLIAM J. MERRITT
President & Chief Executive Officer

RICHARD J. BREZSKI
Chief Financial Officer & Treasurer

KAI O. ÖISTÄMÖ
Chief Operating Officer

RICHARD L. GULINO
Chief Legal Officer, General Counsel 
& Corporate Secretary 

SHAREHOLDER INFORMATION

ANNUAL MEETING OF SHAREHOLDERS
Wednesday, June 3, 2020
2 PM Eastern Time
www.virtualshareholdermeeting.com/IDCC2020

COMMON STOCK INFORMATION
The primary market for 
Interdigital’s common stock is the NASDAQ 
Global Select Market®. InterDigital trades 
under the ticker symbol “IDCC”.

REGISTRAR & 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

LOCATIONS

CORPORATE HEADQUARTERS
200 Bellevue Parkway
Suite 300
Wilmington, Delaware 19809
+1 302-281-3600

OTHER OFFICE LOCATIONS
Conshohocken, Pennsylvania
New York, New York
Palo Alto, California
Princeton, New Jersey
Washington, D.C
Montreal, Canada

Berlin, Germany 
Brussels, Belgium
Issy-les-Moulineaux, France
London, England
Rennes, France

Designed by Eli Coretti
Corporate information on inside back cover is as of April 3, 2020.
InterDigital is a registered trademark of InterDigital, Inc. All other trademarks, service marks, and/or trade names appearing in this 
Annual Report are the property of their respective holders. 

W W W. I N T E R D I G I TA L . C O M