SECURITIES AND EXCHANGE COMMISSION



þ☑		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
		~~For the quarterly period ended September 30, 2018~~



o☐		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
		~~For the transition period from~~ to

(State or Other Jurisdiction of

Incorporation or Organization)

200 Bellevue Parkway, Suite 300, Wilmington, DE19809-3727

~~(302)~~ (302) 281-3600

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



Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, par value $0.01 per share	IDCC	NASDAQ Stock Market LLC

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 þ☑ No o☐

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 (Section 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 þ☑ No o☐

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 filerR	☑	Accelerated filero	☐
Non-accelerated filero	☐	Smaller reporting companyo	☐
Emerging growth companyo	☐

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. o

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

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

InterDigital^® is a registered trademark of InterDigital, Inc. All other trademarks, service marks and/or trade names appearing in this Quarterly Report on Form 10-Q are the property of their respective holders.

PART I — FINANCIAL INFORMATION

Item 1.FINANCIAL STATEMENTS

The accompanying notes are an integral part of these statements.



	FOR THE THREE MONTHS ENDED SEPTEMBER 30,						FOR THE NINE MONTHS ENDED SEPTEMBER 30,
	2019			2018			2019			2018
Net income	$	835		$	20,110		$	2,999		$	58,615
Unrealized gain (loss) on investments, net of tax	245			467			2,366			(904		)
Comprehensive income	$	1,080		$	20,577		$	5,365		$	57,711
Comprehensive loss attributable to noncontrolling interest	(1,399		)	(1,642		)	(4,175		)	(4,333		)
Total comprehensive income attributable to InterDigital, Inc.	$	2,479		$	22,219		$	9,540		$	62,044

The accompanying notes are an integral part of these statements.



										Accumulated Other Comprehensive Income (Loss)
	Common Stock			Additional Paid-In Capital			Retained Earnings						Treasury Stock				Non-Controlling Interest			Total Shareholders' Equity
	Shares	Amount		Additional Paid-In Capital			Retained Earnings						Shares	Amount			Non-Controlling Interest			Total Shareholders' Equity
BALANCE, DECEMBER 31, 2017	70,749	$	707	$	680,040		$	1,257,632		$	(2,083	)	36,127	$	(1,072,488	)	$	9,340		$	873,148
Cumulative effect of change in accounting principle	—	—		—			161,701			(449		)	—	—			—			161,252
Net income attributable to InterDigital, Inc.	—	—		—			30,230			—			—	—			—			30,230
Net loss attributable to noncontrolling interest	—	—		—			—			—			—	—			(1,501		)	(1,501		)
Net change in unrealized gain (loss) on short-term investments	—	—		—			—			(1,747		)	—	—			—			(1,747		)
Dividends declared ($0.35 per share)	—	—		115			(12,280		)	—			—	—			—			(12,165		)
Issuance of common stock, net	208	2		(8,279		)	—			—			—	—			—			(8,277		)
Amortization of unearned compensation	—	—		816			—			—			—	—			—			816
Repurchase of common stock	—	—		—			—			��			84	(6,024		)	—			(6,024		)
BALANCE, MARCH 31, 2018	70,957	$	709	$	672,692		$	1,437,283		$	(4,279	)	36,211	$	(1,078,512	)	$	7,839		$	1,035,732
Net income attributable to InterDigital, Inc.	—	—		—			10,966			—			—	—			—			10,966
Net loss attributable to noncontrolling interest	—	—		—			—			—			—	—			(1,190		)	(1,190		)
Net change in unrealized gain (loss) on short-term investments	—	—		—			—			376			—	—			—			376
Dividends declared ($0.35 per share)	—	—		102			(12,255		)	—			—	—			—			(12,153		)
Exercise of common stock options	90	1		3,930			—			—			—	—			—			3,931
Issuance of common stock, net	12	—		(111		)	—			—			—	—			—			(111		)
Amortization of unearned compensation	—	—		1,821			—			—			—	—			—			1,821
Repurchase of common stock	—	—		—			—			—			40	(3,148		)	—			(3,148		)
BALANCE, JUNE 30, 2018	71,059	$	710	$	678,434		$	1,435,994		$	(3,903	)	36,251	$	(1,081,660	)	$	6,649		$	1,036,224
Net income attributable to InterDigital, Inc.	—	—		—			21,752			—			—	—			—			21,752
Net loss attributable to noncontrolling interest	—	—		—			—			—			—	—			(1,642		)	(1,642		)
Net change in unrealized gain (loss) on short-term investments	—	—		—			—			467			—	—			—			467
Dividends declared ($0.35 per share)	—	—		127			(12,124		)	—			—	—			—			(11,997		)
Exercise of common stock options	56	1		2,431			—			—			—	—			—			2,432
Issuance of common stock, net	2	—		(91		)	—			—			—	—			—			(91		)
Amortization of unearned compensation	—	—		2,239			—			—			—	—			—			2,239
Repurchase of common stock	—	—		—			—			—			424	(34,335		)	—			(34,335		)
BALANCE, SEPTEMBER 30, 2018	71,117	$	711	$	683,140		$	1,445,622		$	(3,436	)	36,675	$	(1,115,995	)	$	5,007		$	1,015,049

FOR THE THREE MONTHS ENDED SEPTEMBER 30, FOR THE NINE MONTHS ENDED SEPTEMBER 30,
2018 2017 2018 2017
Net income $ 20,110
$ 34,725
$ 58,615
$ 119,047
Unrealized (loss) gain on investments, net of tax 467
(94 ) (904 ) (181 )
Comprehensive income $ 20,577
$ 34,631
$ 57,711
$ 118,866
Comprehensive loss attributable to noncontrolling interest (1,297 ) (811 ) (3,423 ) (2,744 )
Total comprehensive income attributable to InterDigital, Inc. $ 21,874
$ 35,442
$ 61,134
$ 121,610

The accompanying notes are an integral part of these statements.

INTERDIGITAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

Refer to Note 1, "Basis of Presentation," for ~~more~~additional supplemental cash flow information. Additionally, refer to Note 2, "Leases" for information regarding the impact of our adoption of the new leases accounting standard, ASC ~~606~~842, and Note 9,8, "~~Business Combinations~~Cash, Concentration of Credit Risk and Fair Value of Financial Instruments" for a reconciliation of cash, cash equivalents and restricted ~~cash.~~

cash to the condensed consolidated balance sheets.

The accompanying notes are an integral part of these statements.

September 30, ~~2018~~2019

1.BASIS OF PRESENTATION

In the opinion of management, the accompanying unaudited, condensed consolidated financial statements contain all adjustments, consisting only of normal recurring adjustments, necessary for a fair statement of the financial position of InterDigital, Inc. (individually and/or collectively with its subsidiaries referred to as “InterDigital,” the “Company,” “we,” “us” or “our,” unless otherwise indicated) as of September 30, ~~2018~~,2019, and the results of our operations for the three and nine months ended September 30, ~~2018~~2019 and ~~2017~~2018 and our cash flows for the nine months endedSeptember 30, ~~2018~~2019 and ~~2017~~.2018. The accompanying unaudited, condensed consolidated financial statements have been prepared in accordance with the instructions for Form 10-Q and, accordingly, do not include all of the detailed schedules, information and notes necessary to state fairly the financial condition, results of operations and cash flows in conformity with United States generally accepted accounting principles (“GAAP”). The year-end condensed consolidated balance sheet data was derived from audited financial statements, but does not include all disclosures required by GAAP for year-end financial statements. Therefore, these financial statements should be read in conjunction with the financial statements and notes thereto contained in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, ~~2017~~2018 (our ~~“2017~~“2018 Form ~~10-K~~”10-K”) as filed with the Securities and Exchange Commission (“SEC”) on February ~~22, 2018.~~21, 2019. Definitions of capitalized terms not defined herein appear within our 2018 Form 10-K. The results of operations for interim periods are not necessarily indicative of the results to be expected for the entire year. We have ~~one~~1 reportable segment.

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 and disclosures of contingent assets and liabilities as of the date of the financial statements, as well as the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates.

Change in Accounting Policies

There have been no material changes or updates to our existing accounting policies from the disclosures included in our ~~2017~~2018 Form 10-K,, except as indicated in ~~the following footnotes:~~

•Note ~~1 - Basis of Presentation; and~~

•~~Note 9 - Business Combinations.~~2, "Leases".

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

Prior Periods Financial Statement Revision

~~New Accounting Guidance~~

~~Accounting Standards Update: Revenue Recognition~~

In ~~May 2014,~~connection with 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 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 requirementspreparation of the ~~new standard as~~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 ~~January 1, 2018 using~~noncontrolling interest.

We assessed the ~~modified retrospective transition method applied to those contracts that were not completed as~~materiality of ~~January 1, 2018.~~ ~~Accordingly, all periods~~this misstatement on prior ~~to January 1, 2018 are presented~~periods’ financial statements in accordance with ASC Topic ~~605, "Revenue Recognition"~~250, Accounting Changes and Error Corrections, (“ASC ~~605”).~~

The adoption of the new guidance affected our recognition of revenue from both our fixed-fee and per-unit license agreements. For accounting purposes under this new guidance, 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”250”) and ~~(ii) those agreements that do~~concluded it was not ~~provide~~material to any prior annual or interim periods. In accordance with ASC 250, we have corrected our presentation of noncontrolling interest for ~~rights to such future technologies (“Static Fixed-Fee Agreements”). Under our previous accounting practices, after~~all prior periods presented in this Form 10-Q by revising the ~~fair value allocation between the past~~condensed consolidated financial statements and future components of the agreement, we recognized the future components of revenue from all fixed-fee license agreements on a straight-line basis over the term of the related license agreement. As a result of our adoption of the new guidance, weother consolidated financial information included herein. We will continue to ~~recognize revenue from Dynamic Fixed-Fee Agreements~~present the prior periods on ~~a straight-line~~this revised basis ~~over the term of the related license agreement, while we expect to recognize most or all of the revenue from Static Fixed-Fee Agreements in the quarter the license agreement is signed.~~

We will 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 will recognize more or less revenue and corresponding interest expense or income, as appropriate.

In addition, under our previous accounting practices, we recognized revenue from our per-unit license agreements in the period in which we received the related royalty report, generally one quarter in arrears from the period in which the underlying sales occurred (i.e. on a "quarter-lag"). We are now required to 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 will be 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~~present such prior periods in future filings. Refer to ~~per-unit license agreements that do not provide rights over the term of the license~~Note 12, "Revision to future technologies that are highly interdependent or highly interrelated to the technologies provided at the inception of the agreement, we will recognize such prepayments as revenue in the period in which all remaining revenue recognition criteria have been met.

~~Finally, under our previous accounting practices, we established a receivable, and any related deferred tax asset~~Noncontrolling Interest" for ~~foreign withholding taxes, for payments expected to be received within twelve months from the balance sheet date, based~~additional information on the terms of the license agreement. Our reporting of such payments resulted in increases to: accounts receivable and deferred revenue; and deferred tax assets and taxes payable. Under ASC 606, we will only recognize those amounts as they become due.revision.

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 (or cumulative adjustments to retained earnings in the initial period of adopting ASC 606) 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.Supplemental Cash Flow Information

~~See below for a summary of adjustments related to our adoption of ASC 606. Amounts are in thousands.~~

December 31, 2017 Static Fixed-Fee Agreements Static Prepayments Elimination of Quarter-Lag Reporting Significant Financing Component Related Tax Effects and Other Balance Sheet Impacts Total Adjustments January 1, 2018
Accounts Receivable $ 216,293
$ 6,000
$ —
$ 10,948
$ —
$ (171,727 ) $ (154,779 ) $ 61,514
Deferred Tax Assets 84,582
—
—
—
—
(52,199 ) (52,199 ) 32,383
Taxes Payable (14,881 ) —
—
—
—
8,655
8,655
(6,226 )
Deferred Revenue (616,813 ) 99,466
85,146
—
3,235
171,727
359,574
(257,239 )
Retained Earnings (1,249,091 ) (105,466 ) (85,146 ) (10,948 ) (3,235 ) 43,544
(161,251 ) (1,410,342 )

~~Disaggregated Revenue~~

The following ~~tables present the disaggregation of our revenue~~table presents additional supplemental cash flow information for the ~~three and~~ nine months ended September 30, 2019 and 2018 ~~under ASC 606. Revenues for the three and nine months ended September 30, 2017 are presented in accordance with ASC 605. Amounts are in thousands.~~(in thousands):



	FOR THE NINE MONTHS ENDED SEPTEMBER 30,
SUPPLEMENTAL CASH FLOW INFORMATION:	2019		2018
Interest paid	$	3,930	$	4,740
Income taxes paid, including foreign withholding taxes	16,483		24,459
Non-cash investing and financing activities:
Dividend payable	10,897		11,996
Increases in noncontrolling interests	13,750		—
Non-cash acquisition of patents	22,500		—
Accrued capitalized patent costs and property and equipment	390		(1,513		)

For the Three Months Ended September 30,
2018 2017 Increase/(Decrease)
Variable patent royalty revenue $ 13,645
$ 10,081
$ 3,564
35 %
Fixed-fee royalty revenue 60,272
73,653
(13,381 ) (18 )%
Current patent royalties ^a
73,917
83,734
(9,817 ) (12 )%
Non-current patent royalties ^b
128
8,832
(8,704 ) (99 )%
Total patent royalties 74,045
92,566
(18,521 ) (20 )%
Current technology solutions revenue ^a
1,034
4,759
(3,725 ) (78 )%
Total revenue $ 75,079
$ 97,325
$ (22,246 ) (23 )%
New Accounting Guidance

Accounting Standards Update: Leases

For the Nine Months Ended September 30,
2018 2017 Increase/(Decrease)
Variable patent royalty revenue $ 26,322
$ 37,338
$ (11,016 ) (30 )%
Fixed-fee royalty revenue 178,207
220,083
(41,876 ) (19 )%
Current patent royalties ^a
204,529
257,421
(52,892 ) (21 )%
Non-current patent royalties ^b
25,489
56,692
(31,203 ) (55 )%
Total patent royalties 230,018
314,113
(84,095 ) (27 )%
Current technology solutions revenue ^a
2,060
13,521
(11,461 ) (85 )%
Total revenue $ 232,078
$ 327,634
$ (95,556 ) (29 )%

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

~~During first nine months 2018, we recognized $54.1 million of revenue that had been included in deferred revenue as of the beginning of the period. Additionally, upon~~supersedes prior lease guidance. Refer to Note 2, "Leases," for information regarding our adoption of ~~ASC 606 on~~this guidance effective January 1, ~~2018, we had $24.7 million of contract assets. As of September 30, 2018, we had contract assets of $22.0 million~~2019 and ~~$5.5 million included within accounts receivable and other non-current assets, respectively.~~

~~Impact of Adoption of ASC 606~~

~~In accordance with the new revenue standard requirements, the disclosure~~a discussion of the impact ofto 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 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 ~~condensed~~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 period consolidated income statement and balance sheet is presented below. We believe this additional information is vital during the transition year to allow readers of our financial statements to compare financial results from the preceding financial year given the absence of restatement of the prior period. expected credit losses, otherwise known as CECL. 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 Three Months Ended September 30,
2018 2017
As Reported ASC 606 Adjustment ASC 605 As Reported (ASC 605)
REVENUES:
Variable patent royalty revenue $ 13,645
$ (5,242 ) $ 8,403
$ 10,081
Fixed-fee royalty revenue 60,272
20,309
80,581
73,653
Current patent royalties 73,917
15,067
88,984
83,734
Non-current patent royalties 128
—
128
8,832
Total patent royalties 74,045
15,067
89,112
92,566
Current technology solutions revenue 1,034
1,197
2,231
4,759
$ 75,079
$ 16,264
$ 91,343
$ 97,325
OPERATING EXPENSES: 62,159
—
62,159
56,450
Income from operations 12,920
16,264
29,184
40,875
OTHER EXPENSE (NET) (13,953 ) 3,993
(9,960 ) (2,187 )
Income before income taxes (1,033 ) 20,257
19,224
38,688
INCOME TAX BENEFIT (EXPENSE) 21,143
(6,676 ) 14,467
(3,963 )
NET INCOME $ 20,110
$ 13,581
$ 33,691
$ 34,725
Net loss attributable to noncontrolling interest (1,297 ) —
(1,297 ) (811 )
NET INCOME ATTRIBUTABLE TO INTERDIGITAL, INC. $ 21,407
$ 13,581
$ 34,988
$ 35,536
NET INCOME PER COMMON SHARE — BASIC $ 0.62
$ 0.39
$ 1.01
$ 1.02
NET INCOME PER COMMON SHARE — DILUTED $ 0.60
$ 0.38
$ 0.98
$ 1.00

For the Nine Months Ended September 30,
2018 2017
As Reported ASC 606 Adjustment ASC 605 As Reported (ASC 605)
REVENUES:
Variable patent royalty revenue $ 26,322
$ (466 ) $ 25,856
$ 37,338
Fixed-fee royalty revenue 178,207
60,081
238,288
220,083
Current patent royalties 204,529
59,615
264,144
257,421
Non-current patent royalties 25,489
(10,000 ) 15,489
56,692
Total patent royalties 230,018
49,615
279,633
314,113
Current technology solutions revenue 2,060
5,232
7,292
13,521
$ 232,078
$ 54,847
$ 286,925
$ 327,634
OPERATING EXPENSES: 173,328
—
173,328
171,843
Income from operations 58,750
54,847
113,597
155,791
OTHER EXPENSE (NET) (25,136 ) 13,004
(12,132 ) (7,331 )
Income before income taxes 33,614
67,851
101,465
148,460
INCOME TAX BENEFIT (EXPENSE) 25,001
(15,607 ) 9,394
(29,413 )
NET INCOME $ 58,615
$ 52,244
$ 110,859
$ 119,047
Net loss attributable to noncontrolling interest (3,423 ) —
(3,423 ) (2,744 )
NET INCOME ATTRIBUTABLE TO INTERDIGITAL, INC. $ 62,038
$ 52,244
$ 114,282
$ 121,791
NET INCOME PER COMMON SHARE — BASIC $ 1.79
$ 1.50
$ 3.29
$ 3.52
NET INCOME PER COMMON SHARE — DILUTED $ 1.74
$ 1.47
$ 3.21
$ 3.40

September 30, 2018 December 31, 2017
As Reported ASC 606 Adjustment ASC 605 As Reported (ASC 605)
Accounts Receivable, net $ 29,769
$ 206,079
$ 235,848
$ 216,293
Deferred Tax Assets 60,056
46,098
106,154
84,582
Other Non-current Assets 63,877
(5,500 ) 58,377
37,963
Taxes Payable (98,022 ) (16,438 ) (114,460 ) (14,881 )
Deferred Revenue (269,662 ) (341,816 ) (611,478 ) (616,813 )
Retained Earnings (1,436,171 ) 111,577
(1,324,594 ) (1,249,091 )

~~Contracted Revenue~~

Based on contracts signed and committed Dynamic Fixed-Fee Agreement payments as of September 30, 2018, we expect to recognize the following amounts of revenue over the term of such contracts (in thousands):

Revenue
Remainder 2018 $ 60,272
2019 237,339
2020 236,089
2021 169,039
2022 85,228

~~See below for our revised Revenue Recognition accounting policy upon adoption of the~~ new ~~guidance.~~

~~Revenue Recognition~~

We derive the vast majority of our revenue from patent licensing. The timing and amount of revenue recognized from each licensee depends upon a variety of factors, including the specific terms of each agreement and the nature of the deliverables and obligations. Such agreements are often complex and include multiple 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.

~~All agreements have been accounted for under ASC 606. This~~ guidance requires the ~~use~~recognition of ~~a five-step model to achieve~~an allowance that reflects the ~~core underlying principle that an entity should recognize revenue to depict the transfer~~current estimate 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 amountscredit losses expected to be received from customers in future periods, where the revenue recognized to date (or cumulative adjustments to retained earnings in the initial period of adopting ASC 606) 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 Condensed Consolidated Balance Sheets. Contract assets due more than twelve months after the balance sheet date are included in 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. 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 licenseeincurred 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 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~~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 ~~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,~~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. While we are ~~not separately identifiable. Upon entering a new agreement,~~still completing our accounting assessment, 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~~expect this guidance 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. Generally, our performance obligations are satisfied at contract signing, and as such revenue is recognized at that time.

~~Variable Agreements~~

~~Upon entering~~have 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 constraintmaterial impact on our ~~ability to estimate such amounts.~~

~~Technology Solutions~~

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

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.consolidated financial statements.

Accounting Standards Update: ~~Leases~~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 that 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.

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. While we are still completing our accounting assessment, we do not expect this guidance to have a material impact on our consolidated financial statements.

In February 2016, the FASB issued ~~new guidance related to leases that~~ASC 842, which outlines a comprehensive change to the lease accounting model

and supersedes ~~the current~~prior lease ~~guidance.~~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. It~~months, and also changes the definition of a lease and expands the disclosure requirements of lease arrangements.

The ~~new~~Company adopted this guidance ~~must be adopted~~on January 1, 2019 using the modified retrospective ~~approach~~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 ~~will be effective~~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 ~~starting in first quarter 2019. Early~~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 ~~is permitted. We are in the process of determining the effect the adoption will have on the Company's consolidated financial statements.~~

~~Accounting Standards Update: Financial Instruments~~

In January 2016, the FASB issued ASU No. 2016-01, "Financial Instruments (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities," which amends certain measurement, presentation, and disclosure requirements for financial instruments. The new guidance must be adopted by means of a cumulative-effect adjustment to the balance sheet in the year of adoption and became effective for the Company starting in first quarter 2018. We adopted this guidance in first quarter 2018, and it did not have a material ~~effect~~impact on the Company's condensed consolidated ~~financial results. In conjunction~~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 ~~this adoption, we made an accounting policy election for a measurement alternative for equity investments that~~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 ~~have~~include any renewal options in our lease terms for calculating our lease liabilities, as the renewal 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, ~~fair values, specifically related~~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 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 transactionsborrow on a collateralized basis over a similar term for an ~~identical or~~amount equal to the lease payments in a similar ~~investment~~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 ~~same issuer, if any.~~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 September 30, 2019 (in thousands):



	Balance Sheet Classification	January 1, 2019		September 30, 2019
Assets
Operating lease right-of-use assets, net	Other Non-current Assets	$	13,634	$	16,587
Total Lease Assets		$	13,634	$	16,587

Liabilities
Operating lease liabilities - Current	Other Accrued Expenses	$	3,519	$	3,624
Operating lease liabilities - Noncurrent	Other Long-Term Liabilities	13,652		15,867
Total Lease Liabilities		$	17,171	$	19,491



	Three months ended September 30,		Nine months ended September 30,
	2019		2019
Operating lease cost	$	1,210	$	3,325
Short-term lease cost	211		731
Variable lease cost	362		1,054

For the three and nine months ended September 30, 2019, sublease income was insignificant. Cash paid for amounts included in the measurement of operating lease liabilities for the three and nine months ended September 30, 2019 was $1.4 million and $3.8 million, respectively, and was included in net cash provided by operating activities in our condensed consolidated statements of cash flows. Operating lease right-of-use assets obtained in exchange for operating lease obligations

totaled $5.5 million during the three and nine months ended September 30, 2019. As of September 30, ~~2018~~2019, the weighted average remaining operating lease term was 5.6 years and the weighted average discount rate used to determine the operating lease liabilities was 6.2%. As of September 30, 2019, the Company had an additional operating lease that had not yet commenced of approximately $10.0 million, which is set to commence in October 2019 and will have a lease term of approximately 10.8 years years.

The maturities of our operating lease liabilities as of September 30, 2019 under ASC 842, excluding short-term leases with terms less than 12 months, were as follows (in thousands):



Maturity of Operating Lease Liabilities	September 30, 2019
Remainder 2019	$	1,348
2020	4,440
2021	3,934
2022	3,965
2023	3,229
Thereafter	6,310
Total lease payments	$	23,226
Less: Imputed interest	(3,735		)
Present value of lease liabilities	$	19,491

~~Accounting Standards Update: Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income~~



Maturity of Operating Leases	December 31, 2018
2019	$	5,362
2020	3,386
2021	2,883
2022	2,920
2023	2,184
Thereafter	5,582

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

share-based payments issued to nonemployees. The guidance is effective for fiscal years beginning after December 15, 2018 and early adoption is permitted. We do not expect the adoption of this guidance to have a material effect on the Company's consolidated financial statements.

Disaggregated Revenue

The following table presents the disaggregation of our revenue for the three and nine months ended September 30, 2019 and 2018 (in thousands):



	Three months ended September 30,
	2019			2018		Increase/(Decrease)
Variable patent royalty revenue	$	4,683		$	13,645	$	(8,962	)	(66	)%
Fixed-fee royalty revenue	63,736			60,272		3,464			6	%
Current patent royalties ^a	68,419			73,917		(5,498		)	(7	)%
Non-current patent royalties ^b	(370		)	128		(498		)	(389	)%
Total patent royalties	68,049			74,045		(5,996		)	(8	)%
Current technology solutions revenue ^a	3,724			1,034		2,690			260	%
Patent sales ^b	750			—		750			—	%
Total revenue	$	72,523		$	75,079	$	(2,556	)	(3	)%



	Nine months ended September 30,
	2019			2018		Increase/(Decrease)
Variable patent royalty revenue	$	22,557		$	26,322	$	(3,765	)	(14	)%
Fixed-fee royalty revenue	190,345			178,207		12,138			7	%
Current patent royalties ^a	212,902			204,529		8,373			4	%
Non-current patent royalties ^b	(4,908		)	25,489		(30,397		)	(119	)%
Total patent royalties	207,994			230,018		(22,024		)	(10	)%
Current technology solutions revenue ^a	7,794			2,060		5,734			278	%
Patent sales ^b	975			—		975			—	%
Total revenue	$	216,763		$	232,078	$	(15,315	)	(7	)%

During first nine months 2019, we recognized $120.3 million of revenue that had been included in deferred revenue as of the beginning of the period. As of September 30, 2019, we had contract assets of $14.4 million and $1.3 million included within accounts receivable and other non-current assets, 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, respectively.

Based on contracts signed and committed as of September 30, 2019, we expect to recognize the following revenue from Dynamic Fixed-Fee Agreement payments over the term of such contracts (in thousands):



	Revenue
Remainder 2019	$	63,736
2020	248,250
2021	178,583
2022	85,228
2023	—

In first nine months ~~2018,~~2019, based on the statutory federal tax rate net of discrete federal and state taxes, ~~our~~we had an effective tax rate ~~was a benefit~~ of ~~74.4%~~50.1%. The effective tax rate for first nine months ~~2018~~2019 was ~~favorably~~ impacted by ~~provisions contained within~~losses in certain jurisdictions where the ~~Tax Reform Act, discussed below. We~~Company presently has recorded a valuation allowance against the related tax benefit. Excluding this valuation allowance, our first nine months 2019 effective tax rate would have been a benefit of 25.3%. In first nine months 2019, the Company recorded net discrete tax expenses of $3.1 million related to the acquisition of the Research & Innovation ("R&I")

unit of Technicolor SA, the extinguishment of long-term debt, the filing of amended federal income tax returns and the sale of our Hillcrest Laboratories, Inc. ("Hillcrest") product business. Refer to Note 7, "Business Combinations and Other Transactions" and Note 9, "Long-Term Debt" for further discussion of these transactions. This is compared to an effective tax rate benefit of 74.4% based on the statutory federal tax rate net of discrete federal and state taxes during first nine months 2018. During first nine months 2018, we recorded discrete net benefits of $18.4 million ~~from excess tax benefits~~ related to share-based compensation, our sale of a commercial initiative and a benefit from the anticipated filing by the Company of amended tax returns in connection with the Competent Authority Proceeding (as defined ~~and discussed below)~~in our 2018 Form 10-K). ~~The~~Excluding these discrete benefits, the effective tax rate would have been a benefit of 19.7% not including these discrete net benefits. This is compared to an effective tax rate provision of 19.8% based on the statutory federal tax rate net of discrete federal and state taxes during first nine months 2017. The effective tax rate for first nine months 2017 included a $12.1 million discrete benefit, primarily related to excess tax benefits from share-based compensation, and a $9.1 million discrete benefit, primarily related to the reversal of uncertain tax positions associated with domestic production activities refund claims. The effective tax rate would have been a provision of 34.2% not including these discrete benefits for first nine months 2017..

During first nine months 2018 and 2017, we paid approximately $16.5 million and $11.7 million, respectively, of foreign source withholding tax. Additionally, as of September 30, 2018 and December 31, 2017, we have included $0.6 million and $14.9 million, respectively, of foreign source withholding tax within our taxes payable and deferred tax asset balances. These amounts are related to receivables from foreign licensees.

On December 22, 2017, the Tax Cuts and Jobs Act of 2017 (the "Tax Reform ~~Act~~Act") was signed into law. The Tax Reform Act ~~significantly revised the U.S. corporate income tax regime by, among other things: lowering the U.S. corporate tax rate from 35% to 21% effective January 1, 2018; imposing~~imposes a 13.125% tax rate on income that qualifies as Foreign Derived Intangible Income ("FDII")~~; repealing the deduction for domestic production activities; implementing a territorial tax system; and imposing a repatriation tax on deemed repatriated earnings of foreign subsidiaries.~~. The ~~first nine months 2018 effective tax rate includes a forecasted $16.8 million net~~reduction in benefit is primarily related to the differences in our FDII deduction between the periods. The difference in the FDII deduction between the periods was driven by the timing of income ~~qualifying as~~between book and tax mostly related to revenue recognition. On March 6, 2019, the IRS issued proposed regulations for FDII. ~~As a result~~The Company is currently evaluating the impact of the ~~Tax Reform Act, we recorded a tax charge of approximately $43.3 million in 2017 due to a re-measurement of deferred tax assets~~proposed regulations and ~~liabilities, and we do not expect a material repatriation tax liability to be owed. We~~ will ~~continue to monitor~~record the impact, if any, as additional guidance is released. The tax charge represents provisional amounts and the Company’s current best estimates. Any adjustments recorded to the provisional amounts through fourth quarter 2018 will be included in net income as an adjustment to tax expense. The provisional amounts incorporate assumptions made based upon our current interpretation of the Tax Reform Act and may change as the Company receives additional clarification and implementation guidance.applicable.

The effective tax rate reported in any given year will continue to be influenced by a variety of factors, including timing differences between the recognition of book and tax revenue, the level of pre-tax income or loss, the foreign vs. domestic classification of the Company’s customers, and any discrete items that may occur. The Company further notes that its tax positions could be altered by pending IRS regulations that could clarify certain provisions of the Tax Reform Act.

~~As previously disclosed in our 2017 Form 10-K,~~During first nine months 2019 and 2018, we ~~have~~ paid approximately $11.5 million and $16.5 million, respectively, of foreign taxes, including to those foreign governments that have tax treaties with the U.S., for which we have claimed foreign tax credits against our U.S. tax obligations. On July 24, 2018, the Company received notification that its request for competent authority pertaining to Article 27 (Mutual Agreement

Procedure) of the United States-Republic of Korea Income Tax Convention had been reviewed by the Internal Revenue Service and an agreement had been reached (the "Competent Authority Proceeding"). As a result of this agreement, we expect to receive a total refund of approximately $97.4 million, inclusive of interest, a portion of which we have already received. We have recorded in taxes payablesource withholding tax. Additionally, as of September 30, 2019 and December 31, 2018, ~~an amount corresponding to the expected total refund. In addition,~~ we ~~have recorded a net~~included approximately $0.2 million and $1.5 million, respectively, of foreign source withholding tax ~~benefit of $15.7 million in~~within our ~~third quarter 2018 results~~taxes payable and deferred tax asset balances. These amounts are related to ~~an anticipated refund the Company expects to receive as a result of amending tax returns for tax years covered by this agreement.~~receivables from foreign licensees.

3.5.NET INCOME (LOSS) PER SHARE



	Three months ended September 30,
	2019				2018
	Basic		Diluted		Basic		Diluted
Numerator:
Net income applicable to InterDigital, Inc.	$	2,234	$	2,234	$	21,752	$	21,752
Denominator:
Weighted-average shares outstanding: Basic	31,130		31,130		34,651		34,651
Dilutive effect of stock options, RSUs, convertible securities and warrants			178				956
Weighted-average shares outstanding: Diluted			31,308				35,607
Earnings Per Share:
Net income per common share: Basic	$	0.07	$	0.07	$	0.63	$	0.63
Dilutive effect of stock options, RSUs, convertible securities and warrants			—				(0.02		)
Net income per common share: Diluted			$	0.07			$	0.61

For the Three Months Ended September 30,
2018 2017
Basic Diluted Basic Diluted
Numerator:
Net income applicable to InterDigital, Inc. $ 21,407
$ 21,407
$ 35,536
$ 35,536
Denominator:
Weighted-average shares outstanding: Basic 34,651
34,651
34,709
34,709
Dilutive effect of stock options, RSUs, convertible securities and warrants 956
679
Weighted-average shares outstanding: Diluted 35,607
35,388
Earnings Per Share:
Net income: Basic $ 0.62
$ 0.62
$ 1.02
$ 1.02
Dilutive effect of stock options, RSUs, convertible securities and warrants (0.02 ) (0.02 )
Net income: Diluted $ 0.60
$ 1.00



	Nine months ended September 30,
	2019					2018
	Basic		Diluted			Basic		Diluted
Numerator:
Net income applicable to InterDigital, Inc.	$	7,174	$	7,174		$	62,948	$	62,948
Denominator:
Weighted-average shares outstanding: Basic	31,757		31,757			34,687		34,687
Dilutive effect of stock options, RSUs, convertible securities and warrants			253					927
Weighted-average shares outstanding: Diluted			32,010					35,614
Earnings Per Share:
Net income per common share: Basic	$	0.23	$	0.23		$	1.81	$	1.81
Dilutive effect of stock options, RSUs, convertible securities and warrants			(0.01		)			(0.04		)
Net income per common share: Diluted			$	0.22				$	1.77

~~Certain shares~~Shares of common stock issuable upon the exercise or conversion of certain securities have been excluded from our computation of EPS because the strike price or conversion rate, as applicable, of such securities was greater than the average market price of our common stock 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 EPS for the periods presented (in thousands):.



	Three months ended September 30,		Nine months ended September 30,
	2019	2018	2019	2018
Restricted stock units and stock options	155	78	120	44
Convertible securities	6,260	—	5,236	—
Warrants	6,260	4,405	5,236	4,404
Total	12,675	4,483	10,592	4,448

For the Three Months Ended September 30, For the Nine Months Ended September 30,
2018 2017 2018 2017
Restricted stock units and stock options 78
25
44
18
Convertible securities —
—
—
—
Warrants 4,405
4,386
4,404
—
Total 4,483
4,411
4,448
18

Convertible Notes and Warrants

Refer to Note 9, "Long-Term Debt," for information about the Company's convertible notes and warrants and related conversion and strike prices. During periods in which the average market price of the Company's common stock is above the applicable conversion price of the Company's ~~1.50% Senior Convertible Notes due 2020 (for purposes of this discussion, the "Convertible Notes") ($71.74 per share as of September 30, 2018)~~convertible notes, or above the strike price of our outstanding warrants, ~~($87.68 per share as of September 30, 2018),~~ the impact of conversion or exercise, as applicable, would be dilutive and such dilutive effect is reflected in diluted EPS. As a result, in periods where the average market price of the Company's common stock is above the conversion price or strike price, as applicable, under the treasury stock method, the Company calculates the number of shares issuable under the terms of the ~~Convertible Notes~~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. ~~See Note 7, "Long-Term Debt," for additional information about the Convertible Notes and warrants.~~


4.	6. LITIGATION ~~AND LEGAL PROCEEDINGS~~

~~ARBITRATIONS~~ AND LEGAL PROCEEDINGS

COURT PROCEEDINGS ~~(OTHER THAN DE DISTRICT COURT ACTIONS RELATED TO USITC PROCEEDINGS)~~

Huawei China ~~Proceedings~~

On ~~February 21, 2012,~~January 3, 2019, InterDigital was ~~served with two complaints~~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~~People’s 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 Intermediate People’s Court to hear the action. The court's decision regarding InterDigital's jurisdictional challenge is pending. InterDigital’s patent license agreement with Huawei expired on December 31, 2018.

Lenovo

U.K. Proceedings

On August 27, 2019, InterDigital, Inc., and its wholly owned subsidiaries InterDigital Holdings, Inc., InterDigital Technology Corporation, and InterDigital Patent Holdings, Inc., filed a claim in the High Court of Justice, Business and Property Courts, Intellectual Property List (Chancery Division), Patents Court of England and Wales (the “High Court”), against Lenovo Group Limited, Lenovo (United States) Inc., Lenovo Technology (United Kingdom) Limited, Motorola Mobility LLC, and Motorola Mobility UK Limited (Claim No. HP-2019-000032). The claim alleges infringement of 4 of InterDigital’s patents relating to 3G and/or 4G/LTE standards: European Patent (U.K.) Nos. 2,363,008; 2,421,318; 2,485,558; and 2,557,714.

In these proceedings, InterDigital is seeking a “FRAND injunction” of the type previously awarded by the High Court in ~~China~~Unwired Planet v. Huawei,preventing further infringement of InterDigital’s standards-essential patents where the court has settled the terms of a worldwide FRAND license and the defendant does not enter into a license on ~~December 5, 2011.~~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 ~~first complaint named as defendants~~High Court's decision regarding these challenges is pending.

District of Delaware Proceedings

On August 28, 2019, InterDigital, Inc., and its wholly owned subsidiaries InterDigital Technology Corporation, and InterDigital Communications, LLC (now InterDigital Communications, Inc.), and alleged that InterDigital had abused its dominant market position in the market for the licensing of essential patents owned by InterDigital by engaging in allegedly unlawful practices, including differentiated pricing, tying and refusal to deal. The second complaint named as defendants the Company's wholly owned subsidiaries InterDigital Technology Corporation, InterDigital Communications, LLC (now InterDigital Communications, Inc.), InterDigital Patent Holdings, Inc. and IPR Licensing, Inc. and alleged that InterDigital had failed to negotiate on FRAND terms with Huawei. Huawei asked the court to determine the FRAND rate for licensing essential Chinese patents to Huawei and also sought compensation for its costs associated with this matter.

On February 4, 2013, the Shenzhen Intermediate People's Court issued rulings in the two proceedings. With respect to the first complaint, the court decided that InterDigital had violated the Chinese Anti-Monopoly Law by (i) making proposals for royalties from Huawei that the court believed were excessive, (ii) tying the licensing of essential patents to the licensing of non-essential patents, (iii) requesting as part of its licensing proposals that Huawei provide a grant-back of certain patent rights to InterDigital and (iv) commencing a USITC action against Huawei while still in discussions with Huawei for a license. Based on these findings, the court ordered InterDigital to cease the alleged excessive pricing and alleged improper bundling of InterDigital's Chinese essential and non-essential patents, and to pay Huawei 20.0 million RMB (approximately $3.2 million) in damages related to attorneys’ fees and other charges, without disclosing a factual basis for its determination of damages. The court dismissed Huawei's remaining allegations, including Huawei's claim that InterDigital improperly sought a worldwide license and improperly sought to bundle the licensing of essential patents on multiple generations of technologies. With respect to the second complaint, the court determined that, despite the fact that the FRAND requirement originates from ETSI's Intellectual Property Rights policy, which refers to French law, InterDigital's license offers to Huawei should be evaluated under Chinese law. Under Chinese law, the court concluded that the offers did not comply with FRAND. The court further ruled that the royalties to be paid by Huawei for InterDigital's 2G, 3G and 4G essential Chinese patents under Chinese law should not exceed 0.019% of the actual sales price of each Huawei product.

On March 11, 2013, InterDigital filed notices of appeal with respect to the judgments in both proceedings, seeking reversal of the court’s February 4, 2013 rulings. On October 16, 2013, the Guangdong Province High Court issued a ruling affirming the ruling of the Shenzhen Intermediate People's Court in the second proceeding, and on October 21, 2013, issued a ruling affirming the ruling of the Shenzhen Intermediate People's Court in the first proceeding.

InterDigital believes that the decisions are seriously flawed both legally and factually. For instance, in determining a purported FRAND rate, the Chinese courts applied an incorrect economic analysis by evaluating InterDigital’s lump-sum 2007 patent license agreement with Apple (the “2007 Apple PLA”) in hindsight to posit a running royalty rate. Indeed, the ALJ in USITC Inv. No. 337-TA-800 rejected that type of improper analysis. Moreover, the Chinese courts had an incomplete record and applied incorrect facts, including with respect to the now-expired and superseded 2007 Apple PLA, which had been found in an arbitration between InterDigital and Apple to be limited in scope.

~~On April 14, 2014, InterDigital filed a petition for retrial of the second proceeding with the Chinese Supreme People’s Court (“SPC”)~~, seeking dismissal of the judgment or at least a higher, market-based royalty rate for a license to InterDigital’s Chinese standards-essential patents (“SEPs”). The petition for retrial argues, for example, that (1) the lower court improperly determined a Chinese FRAND running royalty rate by using as a benchmark the 2007 Apple lump sum fixed payment license agreement, and looking in hindsight at the unexpectedly successful sales of Apple iPhones to construct an artificial running royalty rate that neither InterDigital nor Apple could have intended and that would have varied significantly depending on the relative success or failure in hindsight of Apple iPhone sales; (2) the 2007 Apple PLA was also an inappropriate benchmark because its scope of product coverage was significantly limited as compared to the license that the court was considering for Huawei, particularly when there are other more comparable license agreements; and (3) if the appropriate benchmarks had been used, and the court had considered the range of royalties offered by other similarly situated SEP holders in the wireless telecommunications industry, the court would have determined a FRAND royalty that was substantially higher than 0.019%, and would have found, consistent with findings of the ALJ’s initial determination in the USITC 337-TA-800 proceeding, that there was no proof that InterDigital’s offers to Huawei violated its FRAND commitments.

The SPC held a hearing on October 31, 2014, regarding whether to grant a retrial and requested that both parties provide additional information regarding the facts and legal theories underlying the case. The SPC convened a second hearing on April 1, 2015 regarding whether to grant a retrial. If the retrial is granted, the SPC will likely schedule one or more additional hearings before it issues a decision on the merits of the case. The SPC retrial proceeding was excluded from the dismissal provisions of the August 2016 patent license agreement between Huawei and InterDigital, and a decision in this proceeding is still pending.

~~ZTE China Proceedings~~

On July 10 and 11, 2014, InterDigital was served with two complaints filed by ZTE Corporation in the Shenzhen Intermediate People's Court in China on April 3, 2014. The first complaint names as defendants the Company's wholly owned subsidiaries InterDigital Technology Corporation, InterDigital Communications, Inc., and InterDigital ~~Patent~~ Holdings, Inc. and IPR Licensing, Inc. This complaint alleges that InterDigital has failed to comply with its FRAND obligations for the licensing of its Chinese standards-essential patents. ZTE is asking the court to determine the FRAND rate for licensing InterDigital’s standards-essential Chinese patents to ZTE and also seeks compensation for its litigation costs associated with this matter. The second complaint names as defendants InterDigital, Inc. and its wholly owned subsidiaries InterDigital Technology Corporation and InterDigital Communications, Inc. This complaint alleges that InterDigital has a dominant market position in China and the United States in the market for the licensing of essential patents owned by InterDigital, and abused its dominant market position in violation of the Chinese Anti-Monopoly Law by engaging in allegedly unlawful practices, including excessively high pricing, tying, discriminatory treatment, and imposing unreasonable trading conditions. ZTE originally sought relief in the amount of 20.0 million RMB (approximately $2.9 million based on the exchange rate as of September 30, 2018), ~~an order requiring InterDigital to cease the allegedly unlawful conduct and compensation for its litigation costs associated with this matter.~~

On August 7, 2014, InterDigital filed petitions challenging the jurisdiction of the Shenzhen Intermediate People's Court to hear the actions. On August 28, 2014, the court denied InterDigital’s jurisdictional challenge with respect to the anti-monopoly law case. InterDigital filed an appeal of this decision on September 26, 2014. On September 28, 2014, the court denied InterDigital’s jurisdictional challenge with respect to the FRAND case, and InterDigital filed an appeal of that decision on October 27, 2014. On December 18, 2014, the Guangdong High Court issued decisions on both appeals upholding the Shenzhen Intermediate Court’s decisions that it had jurisdiction to hear these cases. On February 10, 2015, InterDigital filed a petition for retrial with the Supreme People’s Court regarding its jurisdictional challenges to both cases.

The Shenzhen Court held hearings on the anti-monopoly law case on May 11, 13, 15 and 18, 2015. At the May hearings, ZTE withdrew its claims alleging discriminatory treatment and the imposition of unfair trading conditions and increased its damages claim to 99.8 million RMB (approximately $14.5 million based on the exchange rate as of September 30, 2018). The Shenzhen Court held hearings in the FRAND case on July 29-31, 2015 and held a second hearing on the anti-monopoly law case on October 12, 2015.

On September 18, 2018, ZTE independently filed a petition with the Shenzhen Court to withdraw the complaint in its FRAND case against InterDigital, and on September 28, 2018, the Shenzhen Court granted ZTE’s petition and dismissed the FRAND case without prejudice. On October 25, 2018, ZTE independently filed a petition with the Shenzhen Court to withdraw the complaint in its anti-monopoly law case against InterDigital, and on October 26, 2018, the Shenzhen Court granted ZTE’s petition and dismissed the anti-monopoly law case without prejudice.

~~Asustek Actions~~

~~On April 15, 2015, Asustek Computer Incorporated (“Asus”)~~ filed a complaint in the ~~CA Northern~~United States District Court for the District of Delaware against ~~InterDigital,~~Lenovo Holding Company, Inc., Lenovo (United States) Inc., and ~~its subsidiaries~~Motorola Mobility LLC, alleging that Lenovo infringes 8 of InterDigital’s U.S. patents—U.S. Patent Nos. 8,085,665; 8,199,726; 8,427,954; 8,619,747; 8,675,612; 8,797,873; 9,203,580; and 9,456,449—by making, using, offering for sale, and/or selling Lenovo wireless devices with 3G and/or 4G LTE capabilities. As relief, InterDigital ~~Communications, Inc.,~~is seeking: (a) a declaration that InterDigital Technology Corporation, IPR Licensing, Inc., and InterDigital Patent Holdings, Inc. The complaint asserted the following causes of action: violation of Section Two of the Sherman Act, violation of Section 17200 of the California Business and Professions Code,is not in breach of ~~contract resulting from ongoing negotiations, breach~~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 ~~contract leading~~a FRAND license, and does not agree to ~~and resulting~~be bound by the FRAND terms to be set by the High Court in the ~~parties’ April 2008 patent license agreement (the “2008 Asus PLA”)~~separately filed U.K. Proceedings (described above), ~~promissory estoppel, waiver,~~an injunction prohibiting Lenovo from continued infringement; (c) damages, including enhanced damages for willful infringement and ~~fraudulent inducement to contract. Among other allegations, Asus alleged~~supplemental damages; and (d) attorneys’ fees and costs.

ZTE USITC Proceedings and Related Delaware District Court Proceedings

Information regarding legal proceedings that InterDigital ~~breached its FRAND commitment. As relief, Asus sought a judgment that~~filed against ZTE Corporation and ZTE (USA) Inc. (collectively, "ZTE") with the ~~2008 Asus PLA is void or unenforceable, damages~~United States International Trade Commission ("USITC") and the Delaware District Court can be found in the ~~amount~~description of ~~excess royalties Asus paid under~~legal proceedings contained in InterDigital's 2018 Form 10-K. With respect to the 2008 Asus PLA plus interest, a judgment setting the proper FRAND terms and conditions for InterDigital’s patent portfolio, an order requiring InterDigital to grant Asus a license on FRAND terms and conditions, and punitive damages and other relief.

In response, on May 30, 2015, InterDigital filed an Arbitration Demand with the ICDR. InterDigital claimed that Asus breached the 2008 Asus PLA’s dispute resolution provision by filing its CA Northern District Court lawsuit and sought declaratory relief that it is not liable for any of the claims in Asus’s complaint. On June 2, 2015, InterDigital filed in the CA Northern District Court a motion to compel arbitration on each of Asus’s claims. On August 25, 2015, the court granted InterDigital’s motion for all of Asus’s claims except its claim for breach of contract resulting from ongoing negotiations. Aside from this claim, the court ruled that the issue of arbitrability should be decided by an arbitrator, and stayed the proceedings pending that determination.

Asus asserted counterclaims in the arbitration that mirrored its CA Northern District Court claims, except that it did not assert the breach of contract claim that the court determined was not arbitrable and it added a claim of violation of the Delaware ~~Consumer Fraud Act. Asus also contended that its counterclaims were not arbitrable. InterDigital added a claim for breach of the 2008 Asus PLA’s confidentiality provision.~~

~~On July 14, 2016, Asus filed a motion to lift the stay in the CA Northern~~ District Court proceeding ~~along with~~related to the 2013 USITC Proceeding (337-TA-868), on January 23, 2019, InterDigital and ZTE filed a ~~notice~~joint status report that informed the Delaware District Court of the ~~arbitral tribunal’s~~Federal Circuit's decision ~~on arbitrability, informing~~regarding the ~~court of~~'966 and '847 patents and that the ~~arbitrators’ decision~~PTAB proceedings regarding the '244 patent remained pending. The parties jointly requested that ~~other than InterDigital’s breach of contract claims and Asus’s fraudulent inducement claim, no other claim or counterclaim is arbitrable. Asus then filed in~~ the ~~CA Northern District Court an amended complaint on August 18, 2016. This amended complaint includes all of~~case remain stayed so that the claims in Asus’s first CA Northern District Court complaint except fraudulent inducement and adds a claim of violation of the Delaware Consumer Fraud Act. It seeks the same relief as its first CA Northern District Court complaint, but also seeks a ruling that each of InterDigital’s patents “declared [to standards-setting organizations] to be essential or potentially essential” is unenforceable and any contracts InterDigital entered into in furtherance of its unlawful conduct are void. On September 8, 2016, InterDigital filed its answer and counterclaims to Asus’s amended complaint. It denied Asus’s claims and filed a counterclaim for declaratory judgment that Asus’s tort claims are invalid or preempted as applied under the First Amendment to the U.S. Constitution, the Patent Clause of the U.S. Constitution, and Title 35 of the U.S. Code. On September 28, 2016, Asus answered and denied InterDigital’s counterclaims. On December 16, 2016, the court set a case schedule that includes a May 2019 trial date.

With respect to its arbitration counterclaim for fraudulent inducement, Asus stated in its pleadings that it was seeking return of excess royalties (which totaled close to $63 million as of the August 2016 date referenced in the pleadings and had increased with additional royalty payments made by Asus since such time), plus interest, costs and attorneys’ fees. The evidentiary hearing in the arbitration was held in January 2017, and the parties presented oral closing arguments on March 22, 2017. On August 2, 2017, the arbitral tribunal issued its Final Award. The tribunal fully rejected Asus’s counterclaim, finding that InterDigital did not fraudulently induce Asus to enter into the 2008 Asus PLA. Accordingly, the tribunal dismissed Asus’s fraudulent inducement counterclaim in its entirety. The tribunal also dismissed InterDigital’s claims that Asus breached the confidentiality provisions and the dispute resolution provisions of the 2008 Asus PLA. On October 20, 2017, InterDigital and Asus jointly moved to confirm both the tribunal’s Final Award and the Interim Award on Jurisdiction in the CA Northern District. The court confirmed both awards on October 25, 2017.

On April 16, 2018, InterDigital filed a motion in the CA Northern District Court proceeding for leave to amend its counterclaims to include a claim of intentional interference with contract. On June 12, 2018, the court denied this motion.

On April 17, 2018, the parties served opening expert reports in the CA Northern District Court proceeding. Asus’s damages expert contends that Asus is currently owed damages in the amount of $75.9 million based on its claims that InterDigital charged royalties inconsistent with its FRAND commitments. Those damages, which represent a substantial portion of the ~~royalties paid~~case related to damages potentially owed by ~~Asus through third quarter 2017, do not reflect Asus’s most recent royalty payments. Asus also seeks interest, costs and attorneys’ fees,~~ZTE as ~~well as, in connection with its Sherman Act claim, treble damages.~~to the 3 patents-in-suit could be coordinated. The court granted that request on January 25, 2019.

On ~~August 16, 2018,~~October 18, 2019, InterDigital and ZTE entered into a Patent License Agreement pursuant to which the parties agreed that, upon the performance of certain obligations by ZTE, the parties will end all legal proceedings initiated by either party or otherwise pending between them. On October 25, 2019, ZTE filed ~~motions for summary judgment.~~an unopposed motion with the Federal Circuit to withdraw from the '244 patent PTAB remand appeal. InterDigital ~~contends~~further expects that ~~(1) Asus is judicially estopped~~ZTE will withdraw from ~~arguing~~any other proceedings related to the Inter Parties Review of the '244 patent, though InterDigital has retained the right to continue to participate in such proceedings, including any remand or appeals. InterDigital expects that the 2008 Asus PLA is “non-FRAND” due to Asus’s prior inconsistent positions; (2) issue preclusion prevents Asus from re-litigating issues decided in the arbitration; (3) as a matter of law, Asus cannot void the binding and enforceable 2008 Asus PLA; and (4) Asus’s Sherman Act, promissory estoppel, and California UCL claims fail as a matter of law. For its part, Asus contends that, as a matter of law, InterDigital breached its contractual obligation to license its essential patents on FRAND terms and conditions by engaging in discriminatory licensing practices. The parties filed oppositions on September 13, 2018 and replies on September 27, 2018, and the court held an oral argument on October 11, 2018. These motions remain pending.

~~The Company has not recorded any accrual at September 30, 2018, for contingent losses associated with the CA Northern~~Delaware District Court ~~Proceeding. While a material loss is reasonably possible,~~proceedings related to the ~~Company cannot estimate the potential range of loss given the range of possible outcomes, as this matter is not at a sufficiently advanced stage to allow for such an estimate.~~2011 USITC Proceeding (337-TA-800) and 2013 USITC Proceeding (337-TA-868) will be dismissed with prejudice by January 2020.

REGULATORY ~~PROCEEDINGS~~PROCEEDING

Investigation by National Development and Reform Commission of China (now State Administration for Market Regulation)

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:

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.

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 ~~will expire five years from the effective date of the suspension of the investigation, or~~expired on May 22, 2019.

~~USITC PROCEEDINGS AND RELATED DELAWARE DISTRICT COURT PROCEEDINGS~~

~~2013 USITC Proceeding (337-TA-868) and Related ZTE Delaware District Court Proceeding~~

~~USITC Proceeding (337-TA-868)~~

~~On January 2, 2013,~~ With the Company’s wholly owned subsidiaries InterDigital Communications, Inc., InterDigital Technology Corporation, IPR Licensing, Inc. and InterDigital Holdings, Inc. filed a complaint with the United States International Trade Commission (the “USITC” or “Commission”) against Samsung Electronics Co., Ltd., Samsung Electronics America, Inc. and Samsung Telecommunications America, LLC, Nokia Corporation and Nokia Inc., Huawei Technologies Co., Ltd., Huawei Device USA, Inc. and FutureWei Technologies, Inc. d/b/a Huawei Technologies (USA) and ZTE Corporation and ZTE (USA) Inc. (collectively, the “337-TA-868 Respondents”), alleging violationsconsolidation of ~~Section 337 of the Tariff Act of 1930 in that they engaged in unfair trade practices by selling for importation~~China’s anti-monopoly enforcement authorities into the United States, importing into the United States and/or selling after importation into the United States certain 3G and 4G wireless devices (including WCDMA-, cdma2000- and LTE-capable mobile phones, USB sticks, mobile hotspots, laptop computers and tablets and components of such devices) that infringe one or more of up to seven of InterDigital’s U.S. patents. The complaint also extended to certain WCDMA and cdma2000 devices incorporating Wi-Fi functionality. InterDigital’s complaint with the USITC sought an exclusion order that would bar from entry into the United States infringing 3G or 4G wireless devices (and components), including LTE devices, that are imported by or on behalf of the 337-TA-868 Respondents, and also sought a cease-and-desist order to bar further sales of infringing products that have already been imported into the United States. Certain of the asserted patents were also asserted against Nokia, Huawei and ZTE in earlier pending USITC proceedings (including the Nokia, Huawei and ZTE 2011 USITC Proceeding (337-TA-800) and the Nokia 2007 USITC Proceeding (337-TA-613), as set forth below) and therefore were not asserted against those 337-TA-868 Respondents in this investigation.

On December 23, 2013, InterDigital and Huawei reached a settlement agreement to enter into binding arbitration to resolve their global patent licensing disputes. Pursuant to the settlement agreement, InterDigital and Huawei moved to dismiss all litigation matters pending between the parties except the action filed by Huawei in China to set a fair, reasonable and non-discriminatoryState Administration for Market Regulation (“FRAND”) rate for the licensing of InterDigital’s Chinese standards-essential patents (discussed above under “Huawei China Proceedings”), the decision in which InterDigital is permitted to further appeal. As a result, effective February 12, 2014, the Huawei Respondents were terminated from the 337-TA-868 investigation.

From February 10 to February 20, 2014, ALJ Essex presided over the evidentiary hearing in this investigation. The patents in issue in this investigation as of the hearing were U.S. Patent Nos. 7,190,966 (the “’966 patent”) and 7,286,847 (the “’847 patent”) asserted against ZTE and Samsung, and U.S. Patent No. 7,941,151 (the “’151 patent”) asserted against ZTE, Samsung and Nokia.

On June 3, 2014, InterDigital and Samsung filed a joint motion to terminate the investigation as to Samsung on the basis of settlement. The ALJ granted the joint motion by initial determination issued on June 9, 2014, and the USITC determined not to review the initial determination on June 30, 2014.

~~On June 13, 2014, the ALJ issued an Initial Determination (“ID”~~SAMR”) in the 337-TA-868 investigation. In the ID, the ALJ found that no violation of Section 337 had occurred in connection with the importation of 3G/4G devices by ZTE or Nokia, on the basis that the accused devices do not infringe asserted claims 1-6, 8-9, 16-21 or 23-24 of the ’151 patent, claims 1, 3, 6, 8, 9, or 11 of the ’966 patent, or claims 3 or 5 of the ’847 patent. The ALJ also found that claim 16 of the ’151 patent was invalid as indefinite. Among other determinations, the ALJ further determined that InterDigital did not violate any FRAND obligations, a conclusion also reached by the ALJ in the 337-TA-800 investigation, and that Respondents have engaged in patent “hold out.”

~~On June 30, 2014, InterDigital filed a Petition~~April 2018, SAMR is now responsible for Review with the USITC seeking review and reversal of certain of the ALJ’s conclusions in the ID. On the same day, Respondents filed a Conditional Petition for Review urging alternative grounds for affirmance of the ID’s finding that Section 337 was not violated and a Conditional Petition for Review with respect to FRAND issues.

~~In June 2014, Microsoft Mobile Oy (“MMO”) was added as a respondent in the investigation.~~

~~On August 14, 2014, the Commission determined to review in part the June 13, 2014 ID but terminated the investigation with a finding of no violation.~~

On October 10, 2014, InterDigital filed a petition for review with the U.S. Court of Appeals for the Federal Circuit (the “Federal Circuit”), appealing certain of the adverse determinations in the Commission’s August 8, 2014 final determination including those related to the ’966 and ’847 patents. On June 2, 2015, InterDigital moved to voluntarily dismiss the Federal Circuit appeal, because, even if it were to prevail, it did not believe there would be sufficient time following the court’s decision and mandate for the USITC to complete its proceedings on remand such that the accused products would be excluded before the ’966 and ’847 patents expire in June 2016. The court granted the motion and dismissed the appeal on June 18, 2015.

~~Related Delaware District Court Proceeding~~

On January 2, 2013, the Company’s wholly owned subsidiaries InterDigital Communications, Inc., InterDigital Technology Corporation, IPR Licensing, Inc. and InterDigital Holdings, Inc. filed four related district court actions in the Delaware District Court against the 337-TA-868 Respondents. The proceedings against Huawei, Samsung and Nokia were subsequently dismissed, as discussed below. The remaining complaint alleges that ZTE infringes the same patents with respect to the same products alleged in the complaint filed by InterDigital in USITC Proceeding (337-TA-868). The complaint seeks a permanent injunction and compensatory damages in an amount to be determined, as well as enhanced damages based on willful infringement, and recovery of reasonable attorneys’ fees and costs.

~~On January 31, 2013, ZTE filed its answer and counterclaims to~~overseeing InterDigital’s Delaware District Court complaint; ZTE asserted counterclaims for breach of contract, equitable estoppel, waiver of right to enjoin and declarations that InterDigital has not offered ZTE licenses on FRAND terms, declarations seeking the determination of FRAND terms and declarations of noninfringement, invalidity and unenforceability. In addition to the declaratory relief specified in its counterclaims, ZTE seeks specific performance of InterDigital's purported contracts with ZTE and standards-setting organizations, appropriate damages in an amount to be determined at trial, reasonable attorneys’ fees and such other relief as the court may deem appropriate.

On March 21, 2013, pursuant to stipulation, the Delaware District Court granted InterDigital leave to file an amended complaint against ZTE to assert allegations of infringement of the ’244 patent. On March 22, 2013, ZTE filed its answer and counterclaims to InterDigital’s amended Delaware District Court complaint. On April 9, 2013, InterDigital filed a motion to dismiss ZTE’s counterclaims relating to its FRAND allegations. On July 12, 2013, the Delaware District Court held a hearing on InterDigital’s motion to dismiss. By order issued the same day, the Delaware District Court granted InterDigital’s motion, dismissing ZTE's counterclaims for equitable estoppel and waiver of the right to injunction or exclusionary relief with prejudice. It further dismissed the counterclaims for breach of contract and declaratory relief related to InterDigital’s FRAND commitments with leave to amend.

On August 6, 2013, ZTE filed its answer and amended counterclaims for breach of contract and for declaratory judgment seeking determination of FRAND terms. The counterclaims also continue to seek declarations of noninfringement, invalidity, and unenforceability. On August 30, 2013, InterDigital filed a motion to dismiss the declaratory judgment counterclaim relating to the request for determination of FRAND terms. On May 28, 2014, the court granted InterDigital’s motion and dismissed ZTE's FRAND-related declaratory judgment counterclaim, ruling that such declaratory judgment would serve no useful purpose.

On December 30, 2013, InterDigital and Huawei filed a stipulation of dismissal on account of the confidential settlement agreement and agreement to arbitrate their disputes in this action. On the same day, the Delaware District Court granted the stipulation of dismissal and dismissed the action against Huawei.

On February 11, 2014, the Delaware District Court judge entered an InterDigital, Nokia, and ZTE stipulated Amended Scheduling Order that bifurcated issues relating to damages, FRAND-related affirmative defenses, and any FRAND-related counterclaims.

On August 28, 2014, the court granted in part a motion by InterDigital for summary judgment that the asserted ’151 patent is not unenforceable by reason of inequitable conduct, holding that only one of the references forming the basis of defendants’ allegations would remain in issue, and granted a motion by InterDigital for summary judgment that the asserted claims of the ’966 and ’847 patents are not invalid for lack of enablement.

On August 5, 2014, InterDigital and Samsung filed a stipulation of dismissal in light of the parties’ settlement agreement. On the same day, the court granted the stipulation of dismissal and dismissed the action against Samsung with prejudice.

~~By order dated August 28, 2014, MMO was joined in the case against Nokia as a defendant.~~

The ZTE trial addressing infringement and validity of the ’966, ’847, ’244 and ’151 patents was held from October 20 to October 27, 2014. During the trial, the judge determined that further construction of certain claim language of the ’151 patent was required, and the judge decided to hold another trial as to ZTE's infringement of the ’151 patent at a later date. On October 28, 2014, the jury returned a unanimous verdict in favor of InterDigital, finding that the ’966, ’847 and ’244 patents are all valid and infringed by ZTE 3G and 4G cellular devices. The court issued formal judgment to this effect on October 29, 2014.

On November 26, 2014, ZTE filed a motion for judgment as a matter of law that the asserted claims of the ’966, ’847 and ’244 patents are not infringed and, in the alternative, for a new trial. InterDigital filed an opposition on December 15, 2014, and ZTE filed a reply on January 7, 2015.

The ZTE trial addressing infringement of the ’151 patent was held from April 20 to April 22, 2015. On April 22, 2015, the jury returned a verdict in favor of ZTE, finding that the ’151 patent is not infringed by ZTE 3G and 4G cellular devices.

~~On May 29, 2015, the court entered a new scheduling order for damages and FRAND-related issues, scheduling the ZTE trial related to damages and FRAND-related issues for October 2016.~~

On September 14, 2015, a panel of Administrative Law Judges of the United States Patent and Trademark Office Patent Trial and Appeal Board (the “PTAB”) issued a final written decision in two Inter Partes Review (“IPR”) cases concerning the ’244 patent. These IPR proceedings were commenced on petitions filed by ZTE Corporation and ZTE (USA) Inc. and by Microsoft Corporation, respectively. Specifically, the panel determined that a number of claims of the ’244 patent are unpatentable as obvious. IPR Licensing, Inc. appealed to the Federal Circuit seeking review of the PTAB’s decision. Oral argument in the appeal was heard on April 7, 2017. On April 20, 2017, the Federal Circuit affirmed the PTAB’s decision that most of the challenged claims of the ’244 patent are unpatentable as obvious. However, the court vacated and remanded the PTAB’s obviousness finding as to claim 8, which returned the matter to the PTAB for further proceedings as to that claim. On July 28, 2017, IPR Licensing, Inc., filed a petition for a writ of certiorari with the U.S. Supreme Court seeking to appeal the Federal Circuit decision, arguing that the petition should be held pending the Supreme Court’s decision in ~~Oil States Energy Services, LLC v. Greene’s Energy Group, LLC~~, which will determine whether the IPR process as a whole is unconstitutional. On October 2, 2017, ZTE filed a response to the petition for a writ of certiorari in which ZTE agreed that the petition should be held pending the Court’s decision in ~~Oil States~~ ~~and then disposed of as appropriate in light of that decision. On April 24, 2018, the Supreme Court rejected the petitioner’s constitutional challenge to the IPR process in the~~ ~~Oil States~~ case. Accordingly, InterDigital expects that the Supreme Court will deny IPR Licensing, Inc.’s July 28, 2017 petition for a writ of certiorari. On March 6, 2018, in the PTAB remand proceeding, the PTAB again found claim 8 to be invalid. On April 10, 2018, IPR Licensing, Inc. appealed to the Federal Circuit seeking review of the PTAB’s decision. That appeal (the “’244 patent PTAB remand appeal”) remains pending.

On December 21, 2015, the district court entered another scheduling order that vacated the October 2016 date for the ZTE trial related to damages and FRAND-related issues as set forth in the May 2015 scheduling order.

On March 18, 2016, the court denied ZTE’s motion for judgment as a matter of law, or in the alternative for a new trial, with respect to the ’966 and ’847 patents. The court postponed its ruling on ZTE’s motion as to the ’244 patent pending the Federal Circuit’s decision on InterDigital’s appeal of the September 14, 2015 PTAB ruling and administratively closed that portion of the motion.

On April 18, 2016, ZTE filed a stipulated request for dismissal with prejudice of its counterclaims for breach of contract and patent unenforceability based on FRAND and withdrew its corresponding FRAND-related affirmative defenses. The court granted this request the same day. Also on April 18, 2016, ZTE filed a motion under Federal Rule of Civil Procedure 54(b) seeking certification of partial final judgment on the claims for infringement of the ’966 and ’847 patents to allow ZTE to file an immediate appeal as to those patents. The motion was granted on June 7, 2016, and a partial final judgment was entered on June 20, 2016. On July 18, 2016, ZTE filed its notice of appeal with the Federal Circuit regarding the Delaware District Court’s judgment against ZTE with respect to the ’966 and ’847 patents. Oral argument on ZTE’s appeal was heard on October 4, 2017. On November 3, 2017, the Federal Circuit issued its decision affirming the Delaware District Court judgment finding that the ’966 and ’847 patents are not invalid and are infringed by ZTE 3G and 4G cellular devices. On December 4, 2017, ZTE filed a petition for panel rehearing of the Federal Circuit’s decision. The Federal Circuit denied ZTE’s petition on December 20, 2017, and the court’s mandate issued on December 27, 2017.

On May 15, 2017, InterDigital and Nokia/MMO filed a stipulation of dismissal of the case against MMO, Nokia Corporation and Nokia, Inc. pursuant to a Settlement Agreement and Release of Claims among InterDigital, Microsoft Corporation, Microsoft Mobile, Inc., and MMO, dated May 9, 2017, (the “Microsoft Settlement Agreement”). On May 16, 2017, the Delaware District Court granted the stipulation and dismissed the case against MMO, Nokia Corporation and Nokia, Inc. with prejudice.

The case against ZTE remains pending. On January 16, 2018, InterDigital and ZTE filed a joint status report that informed the 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 may be coordinated. The court granted this request on January 17, 2018. The case remains stayed through at least January 23, 2019.

~~2011 USITC Proceeding (337-TA-800) and Related ZTE Delaware District Court Proceeding~~

~~USITC Proceeding (337-TA-800)~~

On July 26, 2011, InterDigital’s wholly owned subsidiaries InterDigital Communications, LLC (now InterDigital Communications, Inc.), InterDigital Technology Corporation and IPR Licensing, Inc. filed a complaint with the USITC against Nokia Corporation and Nokia Inc., Huawei Technologies Co., Ltd. and FutureWei Technologies, Inc. d/b/a Huawei Technologies (USA) and ZTE Corporation and ZTE (USA) Inc. (collectively, the “337-TA-800 Respondents”), alleging violations of Section 337 of the Tariff Act of 1930 in that they engaged in unfair trade practices by selling for importation into the United States, importing into the United States and/or selling after importation into the United States certain 3G wireless devices (including WCDMA- and cdma2000-capable mobile phones, USB sticks, mobile hotspots and tablets and components of such devices) that infringe several of InterDigital’s U.S. patents. The action also extended to certain WCDMA and cdma2000 devices incorporating WiFi functionality. InterDigital’s complaint with the USITC sought an exclusion order that would bar from entry into the United States any infringing 3G wireless devices (and components) that are imported by or on behalf of the 337-TA-800 Respondents, and also sought a cease-and-desist order to bar further sales of infringing products that have already been imported into the United States. In May 2012, Huawei Device USA, Inc. was added as a 337-TA-800 Respondent.

The ALJ held an evidentiary hearing from February 12-21, 2013. The patents in issue as of the hearing were U.S. Patent Nos. 8,009,636 (the “’636 patent”), 7,706, 830 (the “’830 patent”), 7,502,406 (the “’406 patent”), 7,616,970 (the “’970 patent”), 7,706,332 (the “’332 patent”), 7,536,013 (the “’013 patent”) and 7,970,127 (the “’127 patent”). The ALJ’s Initial Determination (“ID”) issued on June 28, 2013, finding no violation because the asserted patents were not infringed and/or invalid. Among other determinations, with respect to the 337-TA-800 Respondents’ FRAND and other equitable defenses, the ALJ found that Respondents had failed to prove either that InterDigital violated any FRAND obligations, that InterDigital failed to negotiate in good faith, or that InterDigital’s licensing offers were discriminatory. The ALJ also found that InterDigital is not precluded from seeking injunctive relief based on any alleged FRAND commitments.

Petitions for review of the ID to the Commission were filed by InterDigital and the 337-TA-800 Respondents on July 15, 2013. On September 4, 2013, the Commission determined to review the ID in its entirety.

On December 19, 2013, the Commission issued its final determination. The Commission adopted, with some modification, the ALJ’s finding of no violation of Section 337 as to Nokia, Huawei, and ZTE. The Commission did not rule on any other issue, including FRAND and domestic industry, and stated that all other issues remain under review.

On December 20, 2013, InterDigital filed in the Federal Circuit a petition for review seeking reversal of the Commission’s final determination. On February 18, 2015, the Federal Circuit issued a decision affirming the USITC’s determinations that the claims of the ’830, ’636, ’406 and ’332 patents were not infringed, that the claims of the ’970 patent are invalid, and that the Respondents did not violate Section 337. On April 6, 2015, InterDigital filed a combined petition for panel rehearing and rehearing e~~n banc~~ ~~as to the ’830 and ’636 patents. The petition was denied on May 12, 2015, and the court’s mandate issued on May 19, 2015.~~

~~Related Delaware District Court Proceeding~~

On July 26, 2011, the same date that InterDigital filed USITC Proceeding (337-TA-800), it filed a parallel action in the United States District Court for the District of Delaware against the 337-TA-800 Respondents alleging infringement of the same asserted patents identified in USITC Proceeding (337-TA-800). The Delaware District Court complaint seeks a permanent injunction and compensatory damages in an amount to be determined, as well as enhanced damages based on willful infringement, and recovery of reasonable attorneys' fees and costs. On September 23, 2011, the defendants in the Delaware District Court complaint filed a motion to stay the Delaware District Court action pending the parallel proceedings in the USITC. Because the USITC has instituted USITC Proceeding (337-TA-800), the defendants have a statutory right to a mandatory stay of the Delaware District Court proceeding pending a final determination in the USITC. On October 3, 2011, InterDigital amended the Delaware District Court complaint, adding LG as a defendant and adding the same additional patent that InterDigital requested be added to USITC Proceeding (337-TA-800). On October 11, 2011, the Delaware District Court granted the defendants' motion to stay. The case is currently stayed through December 10, 2018.

On January 14, 2014, InterDigital and Huawei filed a stipulation of dismissal of their disputes in this action on account of the confidential settlement agreement mentioned above. On the same day, the Delaware District Court granted the stipulation of dismissal.

On May 15, 2017, InterDigital and Nokia filed a stipulation of dismissal of their dispute pursuant to the Microsoft Settlement Agreement discussed above. On May 16, 2017, the Delaware District Court granted the stipulation and dismissed the case with prejudice with respect to Nokia Corporation and Nokia Inc.

In December 2017, InterDigital entered into a patent license agreement with LG, pursuant to which the parties agreed to terms for dismissal by InterDigital of the outstanding litigation among the parties and their affiliates. Accordingly, on

December 5, 2017, InterDigital and LG filed a stipulation of dismissal of the case against LG. On the same day, the Delaware District Court granted the stipulation and dismissed the case against LG with prejudice.

~~The case remains pending with respect to ZTE.~~

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 September 30, ~~2018.~~2019.

5.~~EQUITY~~7. BUSINESS COMBINATIONS AND OTHER TRANSACTIONS

~~Changes~~Acquisition of Technicolor's Patent Licensing Business

On July 30, 2018, we completed our acquisition of the patent licensing business of Technicolor, a worldwide technology leader in ~~shareholders’ equity~~the media and entertainment sector (the "Technicolor Acquisition"). The Technicolor 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. Refer to our 2018 Form 10-K for further information on the Technicolor Acquisition.

The Technicolor Acquisition met the definition of a business combination, and as such was accounted for using the acquisition method of accounting. 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.

The amount of revenue and earnings that would have been included in the Company’s condensed consolidated statement of income for the three and nine months endedSeptember 30, 2018 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 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 for per share data):



	Three Months Ended		Nine Months Ended
	September 30,		September 30,
	2018		2018
Actual revenue	$	75,079	$	232,078
Supplemental pro forma revenue	76,034		238,761
Actual earnings	21,752		62,948
Supplemental pro forma earnings	22,884		55,314
Actual diluted earnings per share	0.61		1.77
Supplemental pro forma diluted earnings per share	0.64		1.55

Acquisition of Technicolor's Research & Innovation Unit

On May 31, 2019, we completed the acquisition of the Research & Innovation, or R&I, unit of Technicolor SA. The acquisition brought the Company’s research team to approximately 340 engineers in 8 R&D offices worldwide, and 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 R&I unit was the driving creative force behind the patent portfolio that was acquired in the Technicolor Acquisition discussed above.

The acquisition of the R&I 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 acquisition. As consideration for the acquisition, the jointly funded R&D collaboration that was entered into as part of the Technicolor 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 Acquisition, as further discussed below.

The acquisition of the R&I unit resulted in a net gain of approximately $14.2 million in second quarter 2019, inclusive of 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 condensed consolidated statement of income.

Contingent Consideration

The original revenue-sharing arrangement between the Company and Technicolor created a contingent consideration liability upon closing of the Technicolor Acquisition in third quarter 2018. Refer to our 2018 Form 10-K for further information on the initial contingent consideration liability which was accounted for at fair value each reporting period.

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 (as defined below) 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 Acquisition was significantly modified in conjunction with the acquisition of the R&I unit, 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 during the nine months ended September 30, ~~2017~~2019 and is included within "Other Income (Expense), Net" in the condensed consolidated statement of income.

Defined Benefit Plans

In connection with the Technicolor Acquisition and the acquisition of the R&I unit, 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 September 30, 2019, the combined accumulated projected benefit obligation related

to these plans totaled $6.5 million. Service cost and interest cost for the combined plans totaled $0.1 million for the nine months ended September 30, 2019. These plans are not required to be funded and were not funded as ~~follows (in thousands):~~

of September 30, 2019.

For the Nine Months Ended September 30,
2018 2017
Balance beginning of period, December 31 $ 855,267
$ 739,709
Cumulative effect of change in accounting principle 161,251
—
Net income attributable to InterDigital, Inc. 62,038
121,791
Unrealized (loss) gain on investments, net (904 ) (181 )
Cash dividends declared (36,312 ) (32,966 )
Repurchase of common stock (43,508 ) —
Exercise of common stock options 6,362
82
Taxes withheld upon vesting of restricted stock units (8,478 ) (22,235 )
Share-based compensation 4,875
13,901
Total InterDigital, Inc. shareholders’ equity end of period $ 1,000,591
$ 820,101
Noncontrolling Interest Balance beginning of period, December 31 17,881
14,659
Net loss attributable to noncontrolling interest (3,423 ) (2,744 )
Noncontrolling interest 14,458
11,915
Total Equity end of period $ 1,015,049
$ 832,016
Madison Arrangement

~~Repurchase~~In conjunction with the Technicolor Acquisition, effective July 30, 2018, we assumed Technicolor’s rights and obligations under a joint licensing program with Sony Corporation (“Sony”) relating to digital televisions and standalone computer display monitors, which commenced in 2015 and is referred to as the "Madison Arrangement." We also assumed Technicolor's role as sole licensing agent for the Madison Arrangement. As licensing agent, we are responsible for making decisions regarding the prosecution and maintenance of ~~Common Stock~~

~~In June 2014, our Board~~the combined patent portfolio and the licensing and enforcement of ~~Directors authorized a $300 million share repurchase program (the “2014 Repurchase Program”~~the combined patent portfolio in the field of use of digital TVs and computer display monitors on an exclusive basis during the specified term in exchange for an agent fee. The Madison Arrangement falls under the scope of ASC 808, Collaborative Arrangements (“ASC 808”). ~~In June 2015,~~Refer to our 2018 Form 10-K for further information on the Madison Arrangement.

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 ~~Directors authorized a $100 million increase~~future revenues, specifically through September 11, 2030 in regard to the ~~program,~~Technicolor patents.

Upon our assumption of Technicolor’s rights and obligations under the Madison Arrangement, our relationship with CPPIB Credit meets 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 condensed consolidated balance sheet. This initial fair value measurement was based on the perspective of a market participant and included 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 September ~~2017, our Board~~30, 2019 and December 31, 2018 is disclosed within Note 8. 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 are amortized under the interest method. At each reporting period, we will review the discounted expected future cash flows over the life of ~~Directors authorized another $100 million increase~~the obligation. The Company made an accounting policy election to utilize the ~~program, bringing~~catch-up method when there is a change in the ~~total~~estimated future cash flows, whereby we will adjust the carrying amount of the ~~2014 Repurchase Program~~debt to ~~$500 million.~~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 condensed consolidated statements of income. The ~~Company may repurchase shares~~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 three and nine months ended September 30, 2019, we recognized $0.7 million and $2.0 million, respectively, of interest expense related to this debt, which was included within “Interest Expense” in the condensed 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. Refer to Note 8, "Cash, Concentration of Credit Risk and Fair Value of Financial Instruments," for a reconciliation of total cash, cash equivalents and restricted cash as of September 30, 2019 and December 31, 2018 to the captions within the condensed consolidated balance sheets.

Commitments

To receive consent from both Sony and CPPIB Credit to assume the rights and responsibilities of Technicolor under the ~~2014 Repurchase Program~~Madison Arrangement, we committed to contributing cash to fund shortfalls in the Madison Arrangement, up to a maximum of $25.0 million, through ~~open market purchases, pre-arranged trading plans~~2020. A shortfall funding is only required in the scenario where 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 ~~privately negotiated purchases.~~

~~The table below sets forth~~CPPIB Credit, assuming they have not participated in the ~~number of shares repurchased and the dollar value of shares repurchased under the 2014 Repurchase Program from inception~~funding of the ~~program through third quarter 2018 (in thousands).~~shortfall. As of September 30, 2019, we have not contributed any shortfall funding.

Transaction costs

2014 Repurchase Program
# of Shares Value
2018 549
$ 43,508
2017 107
7,693
2016 1,304
64,685
2015 1,836
96,410
2014 3,554
152,625
Total 7,350
$ 364,921

~~Dividends~~

~~Cash dividends on outstanding common stock declared in~~ ~~2018~~Transaction and ~~2017~~integration related costs related to the above transactions for the three months ended September 30, 2019 and 2018 were ~~as follows (in thousands, except per share data):~~

2018 Per Share Total Cumulative by Fiscal Year
First quarter $ 0.35
$ 12,124
$ 12,124
Second quarter $ 0.35
$ 12,192
$ 24,316
Third quarter 0.35
11,996
36,312
$ 1.05
$ 36,312

2017 Per Share Total Cumulative by Fiscal Year
First quarter $ 0.30
$ 10,404
$ 10,404
Second quarter 0.30
10,413
20,817
Third quarter 0.35
12,149
32,966
Fourth quarter 0.35
12,156
45,122
$ 1.30
$ 45,122

In$2.1 million and $5.4 million, respectively. Transaction and integration related costs related to the above transactions for the nine months ended September ~~2017, we announced that our Board~~30, 2019 and 2018 were $6.9 million and $9.2 million, respectively. The majority of ~~Directors had approved an increase~~these costs were recorded within “Patent administration and licensing” and “Selling, general and administrative” expenses in the ~~Company’s quarterly cash dividend~~condensed consolidated statements of income.

Sale of Business

On July 19, 2019, we completed the sale of our Hillcrest product business to ~~$0.35 per share. We currently expect~~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 ~~continue to pay dividends comparable to our quarterly $0.35 per share cash dividend~~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 ~~future; however, continued payment~~condensed consolidated statements of ~~cash dividends~~income for the three 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.nine months ended September 30, 2019.

6.8.CASH, CONCENTRATION OF CREDIT RISK AND FAIR VALUE OF FINANCIAL ~~ASSETS AND FINANCIAL LIABILITIES~~INSTRUMENTS

Cash, Cash Equivalents and Restricted Cash

Cash, cash equivalents and restricted cash currently consists of money market and demand accounts. The following table provides a reconciliation of total cash, cash equivalents and restricted cash as of September 30, 2019, December 31, 2018 and September 30, 2018 to the captions within the condensed consolidated balance sheets and condensed consolidated statements of cash flows (in thousands). The Company had no restricted cash balance prior to third quarter 2018.



	September 30,		December 31,		September 30,
	2019		2018		2018
Cash and cash equivalents	$	735,886	$	475,056	$	508,829
Restricted cash included within prepaid and other current assets	9,229		13,677		15,942
Restricted cash included within other non-current assets	1,080		—		—
Total cash, cash equivalents and restricted cash	$	746,195	$	488,733	$	524,771

Concentration of Credit Risk and Fair Value of Financial Instruments

Financial instruments that potentially subject us to concentration of credit risk consist primarily of cash equivalents, short-term investments, and accounts receivable. We place our cash equivalents and short-term investments only in highly rated financial instruments and in United States government instruments.

Our accounts receivable and contract assets are derived principally from patent license and technology solutions agreements. As of September 30, ~~2018~~2019 and December 31, ~~2017,~~2018, four and ~~three~~five licensees, respectively, comprised ~~64%~~54% and ~~96%~~76% of our net accounts receivable balance, respectively. 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.

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 generally included within short-term investments on our condensed 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 September 30, ~~2018~~2019 and December 31, ~~2017~~2018 (in thousands):



	Fair Value as of September 30, 2019
	Level 1		Level 2		Level 3		Total
Assets:
Money market and demand accounts (a)	$	746,195	$	—	$	—	$	746,195
Commercial paper (b)	—		—		—		—
U.S. government securities	—		113,541		—		113,541
Corporate bonds, asset backed and other securities	—		98,196		—		98,196
Total	$	746,195	$	211,737	$	—	$	957,932

Fair Value as of September 30, 2018
Level 1 Level 2 Level 3 Total
Assets:
Money market and demand accounts (a) $ 415,614
$ —
$ —
$ 415,614
Commercial paper (b) —
131,987
—
131,987
U.S. government securities —
328,440
—
328,440
Corporate bonds, asset backed and other securities —
198,251
—
198,251
Total $ 415,614
$ 658,678
$ —
$ 1,074,292
Liabilities:
Contingent consideration resulting from the Technicolor Acquisition —
—
18,616
$ 18,616
Long-term debt resulting from the Technicolor Acquisition —
—
18,107
$ 18,107
$ —
$ —
$ 36,723
$ 36,723


	Fair Value as of December 31, 2017								Fair Value as of December 31, 2018
	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
Assets:
Money market and demand accounts (a)	$	417,348	$	—	$	—	$	417,348	$	488,733	$	—	$	—	$	488,733
Commercial paper (b)	—		66,132		—		66,132		—		14,548		—		14,548
U.S. government securities	—		511,032		—		511,032		—		289,576		—		289,576
Corporate bonds, asset backed and other securities	—		163,483		—		163,483		—		166,600		—		166,600
	$	417,348	$	740,647	$	—	$	1,157,995
Total									$	488,733	$	470,724	$	—	$	959,457
Liabilities:
Contingent consideration resulting from the Technicolor Acquisition									$	—	$	—	$	19,800	$	19,800
Total									$	—	$	—	$	19,800	$	19,800

Contingent consideration



~~Significant Unobservable Input~~	~~Ranges~~
~~Risk-adjusted discount rate for revenue~~	~~13.5% - 14.5%~~
~~Credit risk discount rate~~	~~3.9% - 6.7%~~
~~Revenue volatility~~	~~35.0%~~
~~Projected years of earn out~~	~~2018 - 2030~~

~~Significant increases or decreases~~acquisition of the R&I unit of Technicolor SA. The transaction met the definition of an asset acquisition and was accounted for using the cost accumulation and allocation model. As discussed in ~~any~~Note 7, "Business Combinations and Other Transactions," as part of ~~those inputs in isolation could result in a significantly lower or higher fair value measurement. Adjustments~~this acquisition, Technicolor reduced its rights to the ~~fair value of~~

liability from the Technicolor Acquisition. We determined that the initial contingent consideration liability from the Technicolor Acquisition ~~long-term debt~~

~~We also recognized long-term debt~~was significantly modified in conjunction with the ~~Technicolor Acquisition as more fully disclosed in Note 9. This long-term debt is measured at fair value on a recurring basis based on the discounted expected future cash flows over the life~~acquisition of the ~~arrangement. Estimating~~R&I unit, and, as such, the ~~future cash flows~~contingent consideration liability will now be accounted for under ~~this~~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 ~~requires several Level 3 significant unobservable inputs, including the following:~~



~~Significant Unobservable Input~~	~~Ranges~~
~~Discount rate for revenue~~	~~14.5%~~
~~Projected term of arrangement~~	~~2018 - 2030~~

~~Significant increases or decreases in any of those inputs in isolation could result in a significantly lower or higher fair value measurement,~~was not probable and ~~estimates may change which would result in future adjustments to the accretion~~estimable as of the ~~interest expense and~~acquisition date, the ~~principal amortization of the debt. Adjustments to the fair~~carrying value of the ~~long-term debt are reflected as interest expense~~previous contingent consideration liability was derecognized, which resulted in a $20.5 million gain which was included within ~~“Other Expense (Net)~~"Other Income (Expense), Net” in the condensed consolidated ~~statements~~statement of ~~income.~~income for second quarter 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.

The following table provides a reconciliation of the beginning and ending balances of our ~~two~~ Level 3 fair value measurements from December 31, ~~2017~~2018 to September 30, ~~2018, both of~~2019, which ~~relate to~~includes the contingent consideration liability resulting from the Technicolor Acquisition ~~and are~~ discussed further ~~above and within Note 9. As of September 30, 2018, the~~above. The Level 3 contingent consideration liability iswas historically included within ~~"Other~~"Other long-term ~~liabilities" and the Level 3 long-term debt is included within "Long-term debt"~~liabilities" in the condensed consolidated balance ~~sheet.~~sheet prior to its derecognition in second quarter 2019.



Level 3 Fair Value Measurements	Contingent Consideration Liability
Balance as of December 31, 2018	$	19,800
Changes in fair value recognized in the condensed consolidated statements of income		710
Derecognition of contingent consideration liability as a Level 3 fair value measurement		(20,510	)
Balance as of September 30, 2019	$	—

Level 3 Fair Value Measurements
Contingent Consideration Liability
Technicolor Acquisition
Long-term Debt
Balance as of December 31, 2017 $ —
$ —
Technicolor Acquisition - July 30, 2018 18,616
17,717
Reduction for payments —
—
Interest expense accretion —
390
Changes in fair value recognized in the condensed consolidated statements of income —
—
Balance as of September 30, 2018 $ 18,616
$ 18,107

During third quarter ~~2018,~~2019, we recognized ~~an aggregate $8.4~~a $3.3 million loss resulting from the ~~sale~~partial impairment of ~~our entire ownership interest in~~ one of our long-term strategic investments, ~~and~~which was included within “Other Income (Expense), Net” in the ~~impairment~~condensed consolidated statement of ~~a separate strategic investment.~~

Fair Value of ~~Senior Convertible~~ Long-Term Debt



	September 30, 2019						December 31, 2018
	Principal Amount		Carrying Value		Fair Value		Principal Amount		Carrying Value		Fair Value
Senior Convertible Long-Term Debt	$	494,909	$	419,136	$	488,432	$	316,000	$	298,951	$	331,595

2018 was ~~calculated using inputs such~~ as ~~actual trade data, benchmark yields, broker/dealer quotes and other similar data, which were obtained from independent pricing vendors, quoted market prices or other sources.~~follows (in thousands). The aggregate fair value of the Technicolor Acquisition long-term debt is a Level 3 fair value measurement.



	September 30, 2019				December 31, 2018
	Carrying Value		Fair Value		Carrying Value		Fair Value
Technicolor Acquisition Long-Term Debt	$	20,393	$	22,882	$	18,428	$	19,100

Technicolor Acquisition Long-Term Debt

Refer to Note 97, "Business Combinations and Other Transactions," and Note 8, "Cash, Concentration of Credit Risk and Fair Value of Financial Instruments," for information regarding the long-term debt recognized ~~during third quarter 2018 resulting~~in conjunction with the Technicolor Acquisition.

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 ~~Technicolor Acquisition.~~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.

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 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 ($1.6 million net of tax) allocated to the equity component were recorded as a reduction of the equity component.

2020 Senior Convertible Notes, and ~~related~~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”).~~referred to as 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~~which commenced 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. Refer to the 2018 Form 10-K for further details on this transaction.

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 September 30, 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 September 30, 2019. As of September 30, 2019, the warrants under the 2020 Warrant Transactions had a strike price of approximately $86.59 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 in second quarter 2019.

We recognized a $5.5 million loss on extinguishment of debt during second quarter 2019 in connection with this repurchase, which was included within "Other Income (Expense), Net" in the condensed 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 in second quarter 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.

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 ~~13.9392~~14.1153 shares of common stock per $1,000 principal amount of 2020 Notes as of September 30, 2019 (which is equivalent to a conversion price of approximately ~~$71.74~~$70.85 per share), as adjusted pursuant to the

terms of the indenture ~~for~~governing the 2020 Notes (the ~~"Indenture"~~"2020 Notes Indenture"). The conversion rate of the 2020 Notes, and thus the conversion price, may be adjusted ~~under~~in certain circumstances, including in connection with ~~conversions~~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 ~~settlement~~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.~~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 ~~$93.26~~$92.11 based on the current conversion ~~price)~~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 ~~in multiples of $1,000 principal amount,~~ at any time prior to 5:00 p.m., New York City time, on the second scheduled trading day immediately preceding the maturity date of the 2020 Notes.

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

On March 5 and March 9, 2015, in connection with the offering of the 2020 Notes, we entered into convertible note hedge transactions that cover approximately 3.8 million and approximately 0.6 million shares of our common stock, respectively, at a strike price that corresponds initially to the initial conversion price of the 2020 Notes and are exercisable upon conversion of the 2020 Notes.

~~The cost of the March 5 and March 9, 2015 convertible note hedge transactions was approximately $51.7 million and approximately $7.7 million, respectively.~~

On March 5 and March 9, 2015, we sold warrants to acquire approximately 3.8 million and approximately 0.6 million, respectively, of common stock, subject to customary anti-dilution adjustments. As of September 30, 2018, the warrants had a strike price of approximately $87.68 per share, as adjusted. The warrants become exercisable and expire in daily tranches over a three and a half month period starting in June 2020. As consideration for the warrants issued on March 5 and March 9, 2015, we received approximately $37.3 million and approximately $5.6 million, respectively.

~~Accounting Treatment of the 2020 Notes and related Convertible Note Hedge and Warrant Transactions~~

The offering of the 2020 Notes on March 5, 2015 was for $275.0 million and included an overallotment option that allowed the initial purchasers to purchase up to an additional $41.0 million aggregate principal amount of 2020 Notes. The initial purchasers exercised their overallotment option on March 9, 2015, bringing the total amount of 2020 Notes issued on March 11, 2015 to $316.0 million.

In connection with the offering of the 2020 Notes, as discussed above, InterDigital entered into convertible note hedge transactions with respect to its common stock. The $59.4 million cost of the convertible note hedge transactions was partially offset by the proceeds from the sale of the warrants described above, resulting in a net cost of $16.5 million. Both the convertible note hedge and warrants were classified as equity.

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, respectively. The initial $256.7 million liability component was determined based on the fair value of similar debt instruments excluding the conversion feature. The initial $59.3 million ($38.6 million net of tax) equity component represents the difference between the fair value of the initial $256.7 million in debt and the $316.0 million of gross proceeds. The related initial debt discount of $59.3 million is being amortized using the effective interest method over the life of the 2020 Notes. An effective interest rate of 5.89% was used to calculate the debt discount on the 2020 Notes.

In connection with the above-noted transactions, the Company incurred $9.3 million of directly related costs. The initial purchasers' transaction fees and related offering expenses were allocated to the liability and equity components in proportion to the allocation of proceeds and accounted for as debt and equity issuance costs, respectively. We allocated $7.0 million of debt issuance costs to the liability component, which were capitalized as deferred financing costs. These costs are being amortized to interest expense over the term of the debt using the effective interest method. The remaining $2.4 million of costs allocated to the equity component were recorded as a reduction of the equity component.

The following table reflects the carrying value of the 2024 Notes and 2020 Notes as of September 30, ~~2018~~2019 and December 31, ~~2017~~2018 (in thousands):



	September 30, 2019									December 31, 2018
	2024 Notes			2020 Notes			Total			2020 Notes
Principal	$	400,000		$	94,909		$	494,909		$	316,000
Less:
Unamortized interest discount	(67,857		)	(1,673		)	(69,530		)	(15,428		)
Deferred financing costs	(6,069		)	(174		)	(6,243		)	(1,621		)
Net carrying amount of 2024 and 2020 Notes	$	326,074		$	93,062		$	419,136		$	298,951

September 30, 2018 December 31, 2017
Principal $ 316,000
$ 316,000
Less:
Unamortized interest discount (18,611 ) (27,863 )
Deferred financing costs (1,969 ) (3,011 )
Net carrying amount of 2020 Notes $ 295,420
$ 285,126



	Three months ended September 30,
	2019						2018
	2024 Notes		2020 Notes		Total		2024 Notes		2020 Notes		Total
Contractual coupon interest	$	2,000	$	356	$	2,356	$	—	$	1,185	$	1,185
Accretion of debt discount	3,088		1,004		4,092		—		3,124		3,124
Amortization of deferred financing costs	276		104		380		—		347		347
Total	$	5,364	$	1,464	$	6,828	$	—	$	4,656	$	4,656



	Nine months ended September 30,
	2019						2018
	2024 Notes		2020 Notes		Total		2024 Notes		2020 Notes		Total
Contractual coupon interest	$	2,600	$	2,468	$	5,068	$	—	$	3,555	$	3,555
Accretion of debt discount	4,189		6,739		10,928		—		9,252		9,252
Amortization of deferred financing costs	374		717		1,091		—		1,042		1,042
Total	$	7,163	$	9,924	$	17,087	$	—	$	13,849	$	13,849

For the Nine Months Ended September 30,
2018 2017
Contractual coupon interest $ 3,555
$ 3,555
Accretion of debt discount 9,252
8,710
Amortization of deferred financing costs 1,042
1,043
Total $ 13,849
$ 13,308

8. 10. VARIABLE INTEREST ENTITIES



~~PENNSYLVANIA~~ Pennsylvania		82-4936666
(State or Other Jurisdiction of Incorporation or Organization)		~~82-4936666~~ (I.R.S. Employer Identification No.)



Common Stock, par value $0.01 per share	~~33,842,244~~31,132,944
Title of Class	Outstanding at October ~~30, 2018~~29, 2019




	PAGES
Part I — Financial Information:
Item 1 Financial Statements (unaudited):	3
Condensed Consolidated Balance Sheets — September 30, ~~2018~~2019 and December 31, ~~2017~~2018	3
Condensed Consolidated Statements of Income — Three and Nine Months Ended September 30, ~~2018~~2019 and ~~201~~20187	4
Condensed Consolidated Statements of Comprehensive Income — Three and Nine Months Ended September 30, ~~2018~~2019 and ~~2017~~2018	5
Condensed Consolidated Statements of Shareholders Equity — Three and Nine Months Ended September 30, 2019 and 2018	6
Condensed Consolidated Statements of Cash Flows — Nine Months Ended September 30, ~~2018~~2019 and ~~2017~~2018	68
Notes to Condensed Consolidated Financial Statements	79
Item 2 Management’s Discussion and Analysis of Financial Condition and Results of Operations	3530
Item 3 Quantitative and Qualitative Disclosures About Market Risk	4741
Item 4 Controls and Procedures	4741
Part II — Other Information:
Item 1 Legal Proceedings	4942
Item 1A Risk Factors	4942
Item 2 Unregistered Sales of Equity Securities and Use of Proceeds	5042
Item 4 Mine Safety Disclosures
Item 6 Exhibits	5243
SIGNATURES	5344
~~EX-10.3~~
~~EX-10.4~~
~~EX-10.5~~
~~EX-10.6~~
~~EX-10.7~~
~~EX-31.1~~
~~EX-31.2~~
~~EX-32.1~~
~~EX-32.2~~
~~EX-101 INSTANCE DOCUMENT~~
~~EX-101 SCHEMA DOCUMENT~~
~~EX-101 CALCULATION LINKBASE DOCUMENT~~
~~EX-101 LABELS LINKBASE DOCUMENT~~
~~EX-101 PRESENTATION LINKBASE DOCUMENT~~


	SEPTEMBER 30, 2018			DECEMBER 31, 2017			SEPTEMBER 30, 2019			DECEMBER 31, 2018
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	508,829		$	433,014		$	735,886		$	475,056
Short-term investments	549,521			724,981			211,737			470,724
Accounts receivable, less allowances of $456 and $456	29,769			216,293
Accounts receivable, less allowances of $537 and $693							23,355			35,032
Prepaid and other current assets	102,793			21,506			51,545			43,438
Total current assets	1,190,912			1,395,794			1,022,523			1,024,250
PROPERTY AND EQUIPMENT, NET	10,278			10,673			10,018			10,051
PATENTS, NET	462,965			325,408			448,957			454,567
DEFERRED TAX ASSETS	60,056			84,582			85,437			77,225
OTHER NON-CURRENT ASSETS	63,877			37,963			61,367			60,465
	597,176			458,626			605,779			602,308
TOTAL ASSETS	$	1,788,088		$	1,854,420		$	1,628,302		$	1,626,558

LIABILITIES AND SHAREHOLDERS’ EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt							$	93,131		$	—
Accounts payable	$	17,528		$	10,260		12,713			19,367
Accrued compensation and related expenses	19,384			24,571			26,440			26,838
Deferred revenue	134,197			307,142			171,433			111,672
Taxes payable	98,022			14,881			193			1,508
Dividends payable	11,996			12,156			10,897			11,627
Other accrued expenses	12,425			7,431			19,492			8,383
Total current liabilities	293,552			376,441			334,299			179,395
LONG-TERM DEBT	313,527			285,126			346,397			317,377
LONG-TERM DEFERRED REVENUE	135,465			309,671			107,498			157,634
OTHER LONG-TERM LIABILITIES	30,495			10,034			36,809			34,139
TOTAL LIABILITIES	773,039			981,272			825,003			688,545
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, 71,117 and 70,749 shares issued and 34,442 and 34,622 shares outstanding	711			707
Common Stock, $0.01 par value, 100,000 shares authorized, 71,267 and 71,134 shares issued and 31,133 and 33,529 shares outstanding							712			711
Additional paid-in capital	683,140			680,040			725,891			685,512
Retained earnings	1,436,171			1,249,091			1,409,870			1,435,970
Accumulated other comprehensive loss	(3,436		)	(2,083		)	(105		)	(2,471		)
	2,116,586			1,927,755			2,136,368			2,119,722
Treasury stock, 36,675 and 36,127 shares of common held at cost	1,115,995			1,072,488
Treasury stock, 40,134 and 37,605 shares of common held at cost							1,354,262			1,182,993
Total InterDigital, Inc. shareholders’ equity	1,000,591			855,267			782,106			936,729
Noncontrolling interest	14,458			17,881			21,193			1,284
Total equity	1,015,049			873,148			803,299			938,013
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	1,788,088		$	1,854,420		$	1,628,302		$	1,626,558


	FOR THE NINE MONTHS ENDED SEPTEMBER 30,						FOR THE NINE MONTHS ENDED SEPTEMBER 30,
	2018			2017			2019			2018
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	58,615		$	119,047		$	2,999		$	58,615
Adjustments to reconcile net income to net cash provided by operating activities:
Adjustments to reconcile net income to net cash used in operating activities:
Depreciation and amortization	47,024			42,809			56,907			47,024
Non-cash interest expense	10,684			9,753
Non-cash interest expense, net							13,586			10,684
Non-cash change in fair-value							710			—
Gain on asset acquisition and sale of business							(22,690		)	—
Change in deferred revenue	9,822			90,056			875			9,822
Loss on extinguishment of debt							5,488			—
Deferred income taxes	(27,673		)	(7,853		)	(8,014		)	(27,673		)
Share-based compensation	4,875			13,901			6,017			4,875
Impairment of long-term investment							3,312			200
Loss on disposal of assets	8,176			—			119			8,176
Other	198			(4		)	623			(2		)
(Increase) decrease in assets:
Receivables	36,861			(171,662		)	11,659			36,861
Deferred charges and other assets	(63,783		)	(13,316		)	(2,181		)	(63,783		)
Increase (decrease) in liabilities:
Accounts payable	5,640			(3,198		)	(2,547		)	5,640
Accrued compensation and other expenses	(5,618		)	(1,798		)	6,428			(5,618		)
Accrued taxes payable and other tax contingencies	91,796			20,606			(1,315		)	91,796
Net cash provided by operating activities	176,617			98,341			71,976			176,617
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of short-term investments	(142,562		)	(813,267		)	(92,270		)	(142,562		)
Sales of short-term investments	317,447			678,119			355,649			317,447
Purchases of property and equipment	(1,882		)	(942		)	(3,062		)	(1,882		)
Proceeds from sale of business							10,000			—
Capitalized patent costs	(23,845		)	(26,306		)	(26,123		)	(23,845		)
Acquisition of patents	(2,250		)	—			—			(2,250		)
Acquisition of business, net of cash acquired	(142,985		)	—			—			(142,985		)
Long-term investments	(6,686		)	(3,201		)	—			(6,686		)
Net cash used in investing activities	(2,763		)	(165,597		)
Net cash provided by (used in) investing activities							244,194			(2,763		)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from exercise of stock options	6,362			82			2			6,362
Payments on long-term debt							(221,091		)	—
Proceeds from issuance of convertible senior notes							400,000			—
Purchase of convertible bond hedge							(72,000		)	—
Payment for warrant unwind							(4,184		)	—
Prepayment penalty on long-term debt							(10,763		)	—
Proceeds from hedge unwind							9,038			—
Proceeds from issuance of warrants							47,600			—
Payments of debt issuance costs							(8,375		)	—
Proceeds from non-controlling interests							10,333			—
Dividends paid	(36,472		)	(31,107		)	(33,683		)	(36,472		)
Taxes withheld upon restricted stock unit vestings	(8,479		)	(22,236		)	(4,316		)	(8,479		)
Repurchase of common stock	(43,508		)	—			(171,269		)	(43,508		)
Net cash used in financing activities	(82,097		)	(53,261		)	(58,708		)	(82,097		)
NET INCREASE (DECREASE) IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH	91,757			(120,517		)
NET INCREASE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH							257,462			91,757
CASH, CASH EQUIVALENTS AND RESTRICTED CASH, BEGINNING OF PERIOD	433,014			404,074			488,733			433,014
CASH, CASH EQUIVALENTS AND RESTRICTED CASH, END OF PERIOD	$	524,771		$	283,557		$	746,195		$	524,771
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid	4,740			4,740
Income taxes paid, including foreign withholding taxes	24,459			29,173
Non-cash investing and financing activities:
Dividend payable	11,996			12,149
Non-cash acquisition of patents	—			12,800
Accrued capitalized patent costs, property and equipment, and acquisition of patents	(1,513		)	(548		)



	December 31, 2017			Static Fixed-Fee Agreements			Static Prepayments			Elimination of Quarter-Lag Reporting			Significant Financing Component			Related Tax Effects and Other Balance Sheet Impacts			Total Adjustments			January 1, 2018
Accounts Receivable	$	216,293		$	6,000		$	—		$	10,948		$	—		$	(171,727	)	$	(154,779	)	$	61,514
Deferred Tax Assets	84,582			—			—			—			—			(52,199		)	(52,199		)	32,383
Taxes Payable	(14,881		)	—			—			—			—			8,655			8,655			(6,226		)
Deferred Revenue	(616,813		)	99,466			85,146			—			3,235			171,727			359,574			(257,239		)
Retained Earnings	(1,249,091		)	(105,466		)	(85,146		)	(10,948		)	(3,235		)	43,544			(161,251		)	(1,410,342		)


b.	Non-current patent royalties for the three and nine months ended September 30, 2018 consist of past patent royalties and royalties from static agreements. For the three and nine months ended September 30, 2017, non-current patent royalties consist of past patent royalties.



	September 30, 2018									December 31, 2017
	As Reported ASC 606			Adjustment			ASC 605			As Reported (ASC 605)
Accounts Receivable, net	$	29,769		$	206,079		$	235,848		$	216,293
Deferred Tax Assets	60,056			46,098			106,154			84,582
Other Non-current Assets	63,877			(5,500		)	58,377			37,963
Taxes Payable	(98,022		)	(16,438		)	(114,460		)	(14,881		)
Deferred Revenue	(269,662		)	(341,816		)	(611,478		)	(616,813		)
Retained Earnings	(1,436,171		)	111,577			(1,324,594		)	(1,249,091		)



	Revenue
Remainder 2018	$	60,272
2019	237,339
2020	236,089
2021	169,039
2022	85,228


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.



	2014 Repurchase Program
	# of Shares	Value
2018	549	$	43,508
2017	107	7,693
2016	1,304	64,685
2015	1,836	96,410
2014	3,554	152,625
Total	7,350	$	364,921



2018	Per Share		Total		Cumulative by Fiscal Year
First quarter	$	0.35	$	12,124	$	12,124
Second quarter	$	0.35	$	12,192	$	24,316
Third quarter	0.35		11,996		36,312
	$	1.05	$	36,312

2017	Per Share		Total		Cumulative by Fiscal Year
First quarter	$	0.30	$	10,404	$	10,404
Second quarter	0.30		10,413		20,817
Third quarter	0.35		12,149		32,966
Fourth quarter	0.35		12,156		45,122
	$	1.30	$	45,122



	Fair Value as of September 30, 2018
	Level 1		Level 2		Level 3		Total
Assets:
Money market and demand accounts (a)	$	415,614	$	—	$	—	$	415,614
Commercial paper (b)	—		131,987		—		131,987
U.S. government securities	—		328,440		—		328,440
Corporate bonds, asset backed and other securities	—		198,251		—		198,251
Total	$	415,614	$	658,678	$	—	$	1,074,292
Liabilities:
Contingent consideration resulting from the Technicolor Acquisition	—		—		18,616		$	18,616
Long-term debt resulting from the Technicolor Acquisition	—		—		18,107		$	18,107
	$	—	$	—	$	36,723	$	36,723


(b)	~~Includes $109.2 million~~As of September 30, 2019 and ~~$15.7 million of~~December 31, 2018, zero commercial paper ~~that is~~was included within cash and cash ~~equivalents as of September 30, 2018 and December 31, 2017, respectively.~~equivalents.



Level 3 Fair Value Measurements
		Contingent Consideration Liability		Technicolor Acquisition Long-term Debt
Balance as of December 31, 2017	$	—	$	—
Technicolor Acquisition - July 30, 2018		18,616		17,717
Reduction for payments		—		—
Interest expense accretion		—		390
Changes in fair value recognized in the condensed consolidated statements of income		—		—
Balance as of September 30, 2018	$	18,616	$	18,107



		As of July 30, 2018
Cash	$	158,898
Contingent consideration liability		18,616
	$	177,514		`
Less: Transaction-related receivable		(20,200	)
Net fair value of consideration transferred	$	157,314

Allocation:				Estimated useful life (Years)
Net tangible assets and liabilities:
Restricted cash	$	15,913
Other current assets		5,600
Other non-current assets		3,116
Current liabilities		(6,219	)
Long-term debt		(17,717	)
Other long-term liabilities		(3,767	)
Total net tangible assets and liabilities	$	(3,074	)

Identified intangible assets:
Patents⁽¹⁾	$	154,000		9 - 10
Goodwill⁽²⁾		6,388
Total identified intangible assets	$	160,388

Total fair value of consideration transferred	$	157,314



Goodwill balance as of December 31, 2017	$	16,033
Technicolor Acquisition		6,388
Goodwill balance as of September 30, 2018	$	22,421



	Statements of Income and Statements of Comprehensive Income Impact
	Year Ended
	December 31,	December 31,	December 31,
	2016	2017	2018
Net loss attributable to noncontrolling interest - As Reported	$3,521	$3,579	$4,393
Net loss attributable to noncontrolling interest - As Revised	$5,261	$5,506	$5,556

Net income attributable to InterDigital, Inc. - As Reported	$309,001	$174,293	$63,868
Net income attributable to InterDigital, Inc. - As Revised	$310,741	$176,220	$65,031

Net income per common share, Basic - As Reported	$8.95	$5.04	$1.85
Net income per common share, Basic - As Revised	$9.00	$5.09	$1.89

Net income per common share, Diluted - As Reported	$8.78	$4.87	$1.81
Net income per common share, Diluted - As Revised	$8.83	$4.93	$1.84

Total comprehensive income attributable to InterDigital, Inc. - As Reported	$308,665	$172,724	$63,929
Total comprehensive income attributable to InterDigital, Inc. - As Revised	$310,405	$174,651	$65,092



	Statements of Income and Statements of Comprehensive Income Impact
	Three Months Ended				Six Months Ended	Nine Months Ended
	March 31,	June 30,	September 30,	December 31,	June 30,	September 30,
	2017	2017	2017	2017	2017	2017
Net loss attributable to noncontrolling interest - As Reported	$978	$955	$811	$835	$1,933	$2,744
Net loss attributable to noncontrolling interest - As Revised	$1,483	$1,427	$1,226	$1,370	$2,910	$4,136

Net income attributable to InterDigital, Inc. - As Reported	$33,756	$52,499	$35,536	$52,502	$86,255	$121,791
Net income attributable to InterDigital, Inc. - As Revised	$34,261	$52,971	$35,951	$53,037	$87,232	$123,183

Net income per common share, Basic - As Reported	$0.98	$1.51	$1.02	$1.52	$2.50	$3.52
Net income per common share, Basic - As Revised	$1.00	$1.53	$1.04	$1.53	$2.53	$3.56

Net income per common share, Diluted - As Reported	$0.93	$1.46	$1.00	$1.48	$2.39	$3.40
Net income per common share, Diluted - As Revised	$0.95	$1.48	$1.02	$1.49	$2.42	$3.43

Total comprehensive income attributable to InterDigital, Inc. - As Reported	$33,711	$52,457	$35,442	$51,114	$86,168	$121,610
Total comprehensive income attributable to InterDigital, Inc. - As Revised	$34,216	$52,929	$35,857	$51,649	$87,145	$123,002



	Balance Sheets and Statements of Shareholders' Equity Impact
	December 31,	December 31,	March 31,	June 30,	September 30,	December 31,
	2016	2017	2018	2018	2018	2018
Retained earnings - As Reported	$1,120,766	$1,249,091	$1,428,437	$1,426,888	$1,436,171	$1,426,266
Retained earnings - As Revised	$1,127,380	$1,257,632	$1,437,283	$1,435,994	$1,445,622	$1,435,970

Total InterDigital, Inc. shareholders’ equity - As Reported	$739,709	$855,267	$1,019,047	$1,020,469	$1,000,591	$927,025
Total InterDigital, Inc. shareholders’ equity - As Revised	$746,323	$863,808	$1,027,893	$1,029,575	$1,010,042	$936,729

Noncontrolling interest - As Reported	$14,659	$17,881	$16,685	$15,755	$14,458	$10,988
Noncontrolling interest - As Revised	$8,045	$9,340	$7,839	$6,649	$5,007	$1,284

Total equity - As Reported	$754,368	$873,148	$1,035,732	$1,036,224	$1,015,049	$938,013
Total equity - As Revised	$754,368	$873,148	$1,035,732	$1,036,224	$1,015,049	$938,013


•	third quarter 2019 "Other Income (Expense), Net" includes an $8.5 million gain on sale of our Hillcrest product business, as well as a $3.3 million loss resulting from the partial impairment of one of our strategic long-term investments.


	September 30, 2018		December 31, 2017		Increase / (Decrease)			September 30, 2019		December 31, 2018		Increase / (Decrease)
Cash and cash equivalents	$	508,829	$	433,014	$	75,815		$	735,886	$	475,056	$	260,830
Restricted cash included within prepaid and other current assets	15,942		—		15,942			9,229		13,677		(4,448		)
Restricted cash included within other non-current assets								1,080		—		1,080
Short-term investments	549,521		724,981		(175,460		)	211,737		470,724		(258,987		)
Total cash, cash equivalents, restricted cash and short-term investments	$	1,074,292	$	1,157,995	$	(83,703	)	$	957,932	$	959,457	$	(1,525	)


	September 30, 2018			December 31, 2017		Increase / (Decrease)			September 30, 2019			December 31, 2018			Increase / (Decrease)
Current assets	$	1,190,912		$	1,395,794	$	(204,882	)	$	1,022,523		$	1,024,250		$	(1,727	)
Less: current liabilities	293,552			376,441		(82,889		)	334,299			179,395			154,904
Working capital	897,360			1,019,353		(121,993		)	688,224			844,855			(156,631		)
Subtract:
Cash and cash equivalents	508,829			433,014		75,815			735,886			475,056			260,830
Restricted cash included in current assets									9,229			13,677			(4,448		)
Short-term investments	549,521			724,981		(175,460		)	211,737			470,724			(258,987		)
Add:
Current deferred revenue	134,197			307,142		(172,945		)	171,433			111,672			59,761
Adjusted working capital	$	(26,793	)	$	168,500	$	(195,293	)	$	(97,195	)	$	(2,930	)	$	(94,265	)


2024 Notes						2024 Notes
Market Price Per Share	Shares Issuable Upon Conversion of Convertible Notes	Shares Issuable Upon Exercise of Warrants	Total Treasury Stock Method Incremental Shares	Shares Deliverable to InterDigital upon Settlement of the Hedge Agreements	Incremental Shares Issuable ^(a)	Shares Issuable Upon Conversion of the 2024 Notes	Shares Issuable Upon Exercise of the 2024 Warrant Transactions	Total Treasury Stock Method Incremental Shares	Shares Deliverable to InterDigital upon Settlement of the 2024 Note Hedge Transactions	Incremental Shares Issuable ^(a)
	(Shares in thousands)					(Shares in thousands)
$75	191	—	191	(191)	—
$80	455	—	455	(455)	—
$85	687	—	687	(687)	—	215	—	215	(215)	—
$90	894	114	1,008	(894)	114	476	—	476	(476)	—
$95	1,078	339	1,417	(1,078)	339	710	—	710	(710)	—
$100	1,245	543	1,788	(1,245)	543	921	—	921	(921)	—
$105	1,395	727	2,122	(1,395)	727	1,111	—	1,111	(1,111)	—
$110	1,532	894	2,426	(1,532)	894	1,284	25	1,309	(1,284)	25
$115	1,657	1,046	2,703	(1,657)	1,046	1,442	238	1,680	(1,442)	238
$120	1,771	1,186	2,957	(1,771)	1,186	1,587	433	2,020	(1,587)	433
$125						1,721	613	2,334	(1,721)	613
$130						1,844	779	2,623	(1,844)	779


	For the Three Months Ended September 30,									Components of Increase/(Decrease)									Three months ended September 30,
	2018		2017		Total Increase/(Decrease)					Due to ASC 606			Operational			Total			2019			2018		Total Increase/(Decrease)
Variable patent royalty revenue	$	13,645	$	10,081	$	3,564		35	%	$	5,242		$	(1,678	)	$	3,564		$	4,683		$	13,645	$	(8,962	)	(66	)%
Fixed-fee royalty revenue	60,272		73,653		(13,381		)	(18	)%	(20,309		)	6,928			(13,381		)	63,736			60,272		3,464			6	%
Current patent royalties (a)	73,917		83,734		(9,817		)	(12	)%	(15,067		)	5,250			(9,817		)
Non-current patent royalties (b)	128		8,832		(8,704		)	(99	)%	—			(8,704		)	(8,704		)
Current patent royalties ^a																			68,419			73,917		(5,498		)	(7	)%
Non-current patent royalties ^b																			(370		)	128		(498		)	(389	)%
Total patent royalties	74,045		92,566		(18,521		)	(20	)%	(15,067		)	(3,454		)	(18,521		)	68,049			74,045		(5,996		)	(8	)%
Current technology solutions revenue (a)	1,034		4,759		(3,725		)	(78	)%	(1,197		)	(2,528		)	(3,725		)
Current technology solutions revenue ^a																			3,724			1,034		2,690			260	%
Patent sales ^b																			750			—		750			—	%
Total revenue	$	75,079	$	97,325	$	(22,246	)	(23	)%	$	(16,264	)	$	(5,982	)	$	(22,246	)	$	72,523		$	75,079	$	(2,556	)	(3	)%


~~(a)~~a.	Recurring revenues ~~consist~~are comprised of current patent royalties, inclusive of Dynamic Fixed-Fee Agreement royalties, and current technology solutions revenue.


~~(b)~~b.	~~Non-current~~Non-recurring revenues are comprised of non-current patent royalties, ~~for the three months ended September 30, 2018 consist of~~which primarily include past patent royalties and royalties from static ~~agreements. For the three months ended September 30, 2017, non-current~~agreements, as well as patent ~~royalties consist of past patent royalties.~~sales.



	Increase/ (Decrease)
Technicolor Acquisition-related costs	$	11,540
Other	(1,204		)
Consulting services	(1,852		)
Performance-based incentive compensation	(1,484		)
Personnel-related costs	(1,291		)
Total increase in operating expenses	$	5,709



	Increase/ (Decrease)
Technicolor Acquisitions: Recurring costs	7,596
Intellectual property enforcement and non-patent litigation	1,989
Other	356
Technicolor Acquisitions: Transaction and integration costs	(3,351		)
Total increase in operating expenses	$	6,590



	Increase/(Decrease)
Technicolor Acquisition-related costs	$	15,261
Intellectual property enforcement and non-patent litigation	4,227
Depreciation and amortization	1,598
Performance-based incentive compensation	(6,781		)
Consulting services	(4,789		)
Personnel-related costs	(3,817		)
Commercial initiatives	(1,701		)
Patent maintenance	(1,438		)
Other	(1,075		)
Total increase in operating expenses	$	1,485



	Increase/(Decrease)
Technicolor Acquisitions: Recurring costs	$	28,187
Personnel-related costs	4,178
Other	921
Technicolor Acquisitions: Transaction and integration costs	(2,390		)
Total increase in operating expenses	$	30,896


•	Our expectation that the amortization of dynamic fixed-fee royalty payments will reduce our September 30, 2019 deferred revenue balance over the next twelve months;



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)
July 1, 2018 - July 31, 2018	83,900	$	81.54	83,900	$	162,562,816
August 1, 2018 - August 31, 2018	153,799	$	81.37	153,799	$	150,044,482
September 1, 2018 - September 30, 2018	186,517	$	80.26	186,517	$	135,070,343
Total	424,216	$	80.92	424,216	$	135,070,343



Period	Total Number of Shares Purchased (1)	Average Price Paid Per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (2)	Maximum Number (or Approximate Dollar Value) of Shares That May Yet Be Purchased Under the Plans or Programs (3)
July 1, 2019 - July 31, 2019	—	$	—	—	$	96,813,533
August 1, 2019 - August 31, 2019	—	$	—	—	$	96,813,533
September 1, 2019 - September 30, 2019	—	$	—	—	$	96,813,533
Total	—	$	—	—	$	96,813,533