IDCC doesn't collect anything from Samsung on 2G CDMA or 3G CDMA yet, Eric. I should have labeled that Royalty per Handset column as a blended royalty number since Samsung's current deal with IDCC covers only GSM and TDMA or only 51% of Samsung's shipments. The actual royalty per TDMA/GSM handset number for Samsung is actually higher, but I was more interested in deriving a working range of numbers to use while waiting for the Samsung and IDCC to cross the t's and dot the i's. Samsung has a MFL clause that kicks in once Nokia and IDCC harmonize the Ericy and Nokia contracts and fill in the blanks.
Similarly, the applicable percentage for Nokia is around 70% of total shipments. The actual royalty per handset is higher, but like I said I'm more interested in getting ballpark numbers.
As you can see from this excerpt from IDCC's 2002 Annual report, the numbers fall within the range I derived:
The license agreements with Ericsson and Sony Ericsson establish the financial terms necessary to define the royalty obligations of Nokia Corporation(Nokia)and Samsung Electronics Co. Ltd.(Samsung) on sales of 2G GSM/TDMA and 2.5G GSM/GPRS/TDMA products under their existing agreements with us.
Under the most favored licensee(MFL) provision applicable to their respective patent licenses, both companies are obligated to pay royalties to us on sales of covered products from January 1, 2002 by reference to the terms of the Ericsson and Sony Ericsson licenses.
The MFL terms include provisions for a period of review, negotiation, and dispute resolution with regard to the determination of the royalty obligations of both Nokia and Samsung.
Based on the Company’s application of the MFL
provision, currently available third party estimates of Nokia’s and Samsung’s sales of covered products in 2002, and the Company’s assumptions regarding such items as Nokia’s and Samsung’s sales mix, selling prices, and market share, the Company projects that Nokia’s royalty obligation for 2002 could be in the range of $100 million to $120 million and Samsung’s royalty obligation for 2002 could be in the range of $22 million to $27 million.
Further, based on the application of the MFL
provision and assumptions noted above, recent market forecasts, and the advance payment of royalties (net of related discounts and any applicable credits) consistent with the terms of the Ericsson and Sony Ericsson agreements, the Company projects that 2003 royalty revenue from Nokia could be in the range of $80 million to $90 million, 2003 royalty revenue from Samsung could be in the range of $20 million to $24 million, and the aggregate advance royalty payments from Nokia and Samsung for 2003 and 2004 could be in the range of $180 million to $220 million.
Once these initial prepayments are exhausted, Nokia and Samsung can either make additional advance royalty payments (net of related discounts and any applicable credits) for discreet twenty-four month periods, or pay royalties at undiscounted base royalty rates on sales through 2006. The Company will not record revenue associated with the Nokia and Samsung license agreements until all elements required for revenue recognition are met. |
