TiVo 2013 Annual Report Download - page 99

Table of Contents
per DVR subscriber payable if the Verizon subscriber base exceeds certain pre-determined levels. The amount related to past infringement
and settlement was recorded under “Litigation proceeds” in the quarter ended October 31, 2012. The amount related to interest income was
recorded under “Interest income” in the quarter ended October 31, 2012. $171.4 million of future license royalties will be recorded as
technology revenues over the term of the agreement through July 31, 2018 using a pattern reflective of an increasing number of subscribers
covered by the minimum fixed license payments. Any incremental monthly fees per DVR subscriber payable if the Verizon's subscriber base
exceeds certain pre-determined levels will be recognized as Technology revenues when reported to TiVo by Verizon. In addition to the $250.4
million in compensation, TiVo will also receive incremental monthly fees at a higher rate than the rate implied by the guaranteed fees per
Verizon DVR subscriber if the growth of Verizon's DVR subscriber base exceeds certain pre-determined levels. Any incremental additional
per subscriber fees are due to TiVo 30 days after the end of each calendar quarter in which they are earned.
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Effective July 2, 2013, TiVo entered into a settlement and patent license agreement with ARRIS Group, Inc. (Arris) (owner of General
Instrument Corporation, formerly a subsidiary of Motorola Mobility, Inc.), Cisco Systems, Inc. (Cisco), and Google Inc. (Google) (owner of
Motorola Mobility, LLC formerly Motorola Mobility, Inc.) (with the settlement with Arris, Google, and Cisco referred to as the Motorola/Cisco
settlement). Pursuant to the terms of the Motorola/Cisco settlement the parties agreed to settle and dismiss all outstanding litigation between
them, including related litigation involving Time Warner Cable (as described in TiVo's periodic reports filed with the Securities and Exchange
Commission ), provide licenses to certain patents between the parties, and release patent infringement claims between the parties with
respect to all outstanding litigation in exchange for a payment of $490.0 million to TiVo by Google and Cisco in connection with the
Motorla/Cisco settlement.
The licenses granted by TiVo to Cisco and Google/Motorola Mobility under U.S. Patent Nos. 6,233,389, 7,529,465, 6,792,195, and
7,493,015 and certain related patents are perpetual. The other licenses granted by TiVo to Google/Motorola Mobility and from
Google/Motorola Mobility to TiVo will expire on July 31, 2018. The other licenses granted by TiVo to Cisco and from Cisco to TiVo will expire
on July 2, 2023, when the agreement expires.
The agreement includes multiple elements consisting of: (i) an exchange of licenses to certain intellectual property, (ii) an interest income
component related to the past infringement, and (iii) the settlement of all outstanding litigation and claims between TiVo and Arris,
Google/Motorola Mobility and Cisco. The proceeds of the agreement were allocated amongst the principal elements of the transaction based
on relative fair values of each element.
TiVo estimated the fair value of future licensing revenue from July 2, 2013 until July 31, 2018 using an income approach and future
licensing revenue from August 1, 2018 to July 2, 2023 using a market approach. The significant inputs and assumptions used in the
valuations included actual past and projected future estimated infringing DVR shipments, estimated life of the DVR, estimated market-based
royalty rates, and estimated risk-adjusted discount rates, among others. The development of a number of these inputs and assumptions in
the model requires a significant amount of management judgment and is based upon a number of factors. Changes in these assumptions
may have a substantial impact on the fair value assigned to each element. These inputs and assumptions represent management's best
estimates at the time of the transaction.
The total consideration of $490.0 million was allocated on a relative fair value basis as $381.1 million to the future licensing revenue
element, $752,000to interest income related to past infringement and $108.1 million of the past infringement and litigation settlement
element. The amount related to past infringement and settlement was recorded under “Litigation proceeds” in the fiscal year ended January
31, 2014. The amount related to interest income was recorded under “Interest income” in the fiscal year ended January 31, 2014. The
$381.1 million of license royalties has been or will be recorded as technology revenues over the term of the agreement through July 2023.
Technology revenues related to the above agreements were $141.6 million, $77.3 million and $35.3 million for the fiscal years ended
January 31, 2014, 2013, and 2012, respectively.
Revenues and cash from the contractual minimums under our licensing agreements with DISH, AT&T, Verizon, and Motorola/Cisco
through January 31, 2014 have been:
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