InterDigital Inc

NASDAQ:IDCC

Earnings Call Transcript 2020-Q3

[Operator]

Good day, and welcome to the InterDigital, Incorporated third Quarter 2020 Earnings Call. Today's conference is being recorded.

At this time, I would like to turn the conference over to Tiziana Figliolia. Please go ahead sir.

[Tiziana Figliolia, IR]

Good morning everyone and welcome to InterDigital's third quarter 2020 earnings conference call. With me this morning are Bill Merritt, our President and CEO; and Rich Brezski, our CFO. Consistent with last quarter's call, we will offer some highlights about the quarter and the company, and then open the call up for questions.

Before we begin our remarks, I need to remind you during this call, we will make forward-looking statements regarding our current beliefs, plans, and expectations, which are not guarantees of future performance and are subject to risks and uncertainties that could cause actual results and events to differ materially from results and events contemplated by such forward-looking statements.

These risks and uncertainties include those set forth in our earnings release and our Annual Report on Form 10-K for the year ended December 31st, 2019, and from time-to-time in our other filings with the Securities and Exchange Commission. These forward-looking statements are made only as of the date hereof, and except as required by law, we undertake no obligation to update or revise any of them, whether as a result of new information, future events, or otherwise.

In addition, today's presentation may contain references to non-GAAP financial measure. Reconciliations of these non-GAAP financial measures to the most directly comparable GAAP financial measures are included in our second quarter 2020 financial metrics tracker, which can be accessed on our homepage www.interdigital.com, by clicking on the link on the left side of the homepage that says Financial Metrics Tracker for Q3 2020.

Finally, with COVID-19 the participants on this call are all in different locations. If there is a technical issue, I’ll just ask everyone to be patient while we exercise a pullback option.

With that taken care of, I'll turn the call over to Bill.

[Bill Merritt, President and CEO]

Thanks Tiziana. Good morning everyone and thank you for joining us on the call this morning. I hope all of you are staying well and successfully finding a way through these interesting times.

As for the company, we're certainly finding our way just fine. We had an excellent quarter, and frankly, have had a fantastic year so far despite managing our way through the COVID crisis. That includes steady progress on the licensing front, where in October, we signed our ninth license agreement since Q3 2019.

That includes a larger license on the wireless side and a number of small licenses, where the amounts in play result in less friction, but where we nonetheless stick scrupulously to our FRAND commitments.

Rich will provide an update on our strong financial results. I want to spend time highlighting two areas, where Interdigital's leadership is showing through this year, namely licensing practices and long-term technology development, in this case, 6G.

As for the first, it's been a truly remarkable year in terms of the pendulum swinging back toward the middle in patent regulatory environment. Now, I say the middle for a reason, throughout my time in Interdigital, we have always approached licensing the same way and it just needs to be fair and not undermine the great cooperative and innovative work done by engineers around the world.

Those engineers, including ours, bring their best inventions in a form that historically was blind to culture, race or geography, what mattered was the quality of the invention, innovation.

As a result -- and the result is the best products for customers created in a highly cooperative yet competitive environment with amazing speed. Licensing should not undermine that incredible process. So, a company should be transparent and morally consistent about their licensing practices.

A company should have reasonable and fair discussions on licensing with the intent of actually getting deals done. When there is a dispute around licensing terms, there should be an efficient and fair process for resolving that dispute, also, if the patent holder abuses its patent position, there should be a penalty, but also when a product manufacturer, refuses to negotiate in good faith, there should be a penalty for that, too.

In short, our deal is simple. Create incentives for good behavior, create penalties for bad behavior, driving companies to resolve licensing disputes in good faith on fair terms in a reasonable time frame, further incentivizing innovation for the benefit of all consumers.

2020 saw great progress on this front. After years of being almost a lone wolf in the wilderness on some of these topics, we saw a significant number of judicial decisions that bought fairness, pragmatism, and realism to wireless licensing.

Let me recap them. In the U.K., we saw the Supreme Court affirm that to avoid an injunction, while they needed to take a worldwide license under the Unwired Planet portfolio. In doing so, the court recognized that forcing the SEP holder to sue the infringer on every patent in every country is fundamentally unfair, referring to it, in fact, as madness. They also found that the process would not be unfair to Huawei as its only obligation would be to pay for the use of patents on fair terms determined by the court.

In Germany, a court found that by refusing to engage in good faith in a license discussion. A product manufacturer can correctly be labeled an unwilling licensee and may lose their right to a FRAND license. In an Indian case involving Interdigital, a Delhi High Court enjoined Xiaomi from enforcing the terms of an anti-suit injunction against Interdigital. As part of its decision, the Indian Court noted significant intentional suppression of facts and misrepresentations made by Xiaomi to the court.

In a U.S. case involved in Qualcomm, the Ninth Circuit found that antitrust law has little application to FRAND disputes, which are fundamentally contract disputes and should be treated as such.

Most recently, the German courts have issued multiple injunctions against Daimler for sale of infringing vehicular products, where Daimler had the opportunity to secure a license on FRAND terms but declined to do so.

We also saw the U.S. Department of Justice discard a prior competition policy that's effectively protecting infringers of FRAND encumbered patents and instead adopt the policy that properly balances the interest of patent holders and implementers.

Collectively, these decisions represent a global sea change in terms of the enforceability of standards related patents. They are also a direct result of the leadership we have brought to bear, whether it was around in advocating arbitration, transparency or as a last resort, strategic litigation.

In their collective weight, we expect these decisions to force companies to behave more rationally and to negotiate in good faith. And while it is still early in terms of the impact, they should start to reduce the need to litigate. This should hopefully lead SEP disputes from moving from the first hit on your Google search on patents to somewhere lower on the stack and ensure that the licensing process does not undermine the success of the technology development process that has given us the incredible devices we all carry today.

Of course, there's still work to do to achieve this end result, in particular, with the Chinese manufacturers. As we have seen on so many fronts, the Chinese manufacturers want to play by their own rules.

So, some of them, like Xiaomi, continue to resist licensing at reasonable royalties. But now, perhaps more than at any time before, we have the tools and the international support to better deal with these unwilling licensees. For example, we have litigation ongoing in the U.K. against Lenovo, where the outcome should be a worldwide license on FRAND terms.

Also against Lenovo in the U.S., we have the U.S. DOJ supporting our motion to dismiss Lenovo's unsupported antitrust claims. We have litigation ongoing with Xiaomi to ban their sales of willfully infringing products in India. And we also have domestic and international support against China's blatant and unlawful attempt to control the determination of cellular patent license rates.

All these tools will be very useful in securing licenses from these companies on fair and reasonable terms. Indeed, I think a good part of the momentum we are seeing today in licensing programs, including the signing of Huawei, ZTE and others, is a direct result of this new atmosphere.

Separately, on 6G, and yes, I said 6G, the company in Northeastern University were organizers of a recent 6G symposium, the purpose of which was to talk about lessons learned from 5G and what 6G should be all about. It's one of the things I love about this company, our long-term view. Well, apparently, others love the company's view as well.

The virtual event gathered speakers from around the world, including Ajit Pai, the FCC Chairman, with whom I had the opportunity to have a fireside chat during the conference.

Dr. Mazin Gilbert, AT&T's Senior VP for Advanced Technology gave a keynote address on his vision for 6G. And a host of movers and shakers from the leading companies and research institutions in the industry provided their insight on what 6G can do, including the sustainability and environmental impact of this new technology and how it can impact the sustainability goals of other industries.

Amazingly, over 4,500 people registered for the event and thousands attended the various panels and key notes, including roughly 250 people from government and the military and over 400 leading academics. On what we know and what we can measure, that is 10 times more than any other 6G event that has been organized to-date.

Like the change in the licensing landscape, the speakers, the quality of the presentations, and the number of attendees, speak to Interdigital's technology leadership and the high reputation it holds in the industry.

We are thrilled to shape the next-generation of technology just like we have shaped every prior generation of wireless and video technologies. In sum, while it has been a challenging year for all the reasons we know, it has been a really fine year so far for the company.

With that, let me turn the call over to Rich.

[Rich Brezski, CFO]

Thanks Bill. From the beginning of Q4 2019 to the end of Q3 2020, we have signed eight patent license agreements, including agreements with Huawei and ZTE. These new agreements helped drive a 21% year-over-year increase in recurring revenue in Q3, which, in turn, drove a quadrupling of our operating income to over $15 million.

As Bill noted, we also added a 9th new license, when we signed another small mobile contract early in Q4. While many of the new licenses we have signed over the last year have been smaller CE deals, our total revenue from consumer electronics in the little more than two years since we acquired the Technicolor portfolio, it is now over $40 million.

At that same time, we are excited that this only represents a small fraction of the CE opportunity, and we look forward to progressing toward our goal of $150 million of annual recurring revenue from CE. We'll provide our expectations for Q4 revenue in a few weeks after we have received our Q3 royalty reports.

But as a final comment on revenue, we expect that for the 12-month period beginning October 2021, we will recognize an additional $7 million of revenue per quarter under an existing contract, where an early termination provision has lapsed.

Moving on to operating expenses, we managed to keep our expenses flat despite our prior expectations for an increase driven by litigation and revenue sharing. As it played out, our litigation expenses were also flat, and our revenue share expenses were a little over $1 million.

Excluding these two items, we achieved $1.5 million sequential -- excuse me, sequential reduction in all other operating expenses. Looking forward to Q4, we are expecting that activity in our litigations could drive an overall increase in operating expenses of about $5 million over Q3 levels.

As a final comment on the P&L, we had a largely onetime benefit of over $18 million in the quarter, due to an amendment of a prior year tax return and the reversal of a tax reserve. This drove a negative effective tax rate for both the quarter and year-to-date periods.

We expect an additional much smaller benefit in Q4, but overall, we expect a positive effective tax rate in Q4, in line with our long-term expectations of roughly 15% to 17%.

Finally, we delivered another strong quarter from a cash flow perspective with over $85 million in free cash flow, bringing the year-to-date total up to $117 million.

I'll now turn it back over to Tiziana.

[Tiziana Figliolia, IR]

Thank you, Rich, and thank you, Bill. We will now open the call for questions.

[Operator]

Thank you. [Operator Instructions]

We'll go to our first question, and that is from Ian Zaffino with Oppenheimer. Please go ahead with your question.

[Ian Zaffino, Oppenheimer]

Hi. Great. Thank you very much. The question will be on the video side. Maybe if you could talk about some of the developments that is going on there, establishing pools or maybe some of the negotiations with existing customers to start getting paid on the video side? Thanks.

[Bill Merritt, President and CEO]

Sure. So, as you noted in your question, now there's, I'd say, a variety of efforts underway. There's the -- so we have the opportunity within the Madison partnership, and that's the one that's licensing effort directed at TDs. I'd say that's more of a one-on-one type approach to licensing. There is opportunity to do some consortium based licensing in China that we're also pursuing. And that was actually successfully done by Technicolor in the past. So, that's one part of the program.

There's on HEVC, that's separate from -- it's a separate effort by the company. Today, that's a one-on-one effort, but that's certainly one where there could be an opportunity to work within a pool and so that's an option that we would have there.

Also on the -- I'd say on the consumer electronics side, there may be an opportunity to do a broader-based approach with respect to Wi-Fi. So, there's some efforts in that regard. And I think all of that reflects, I think, the continuing maturity of the licensing -- the licensing business.

It is one where that has gone from sort of one-on-one being the mainstay approach in licensing to where you can do pools, you can do strategic relationships with those set of companies, you can still do one-on-one licensing. And so, we kind of maintain a lot of flexibility on licensing, and we'll go after. We'll use the tool that makes the best sense at the time.

[Ian Zaffino, Oppenheimer]

Okay, great. And then just as a follow-up. Have you guys taken any other actions on the Chinese manufacturers just yet other than Xiaomi? And then maybe an update on Lenovo?

[Bill Merritt, President and CEO]

Yes. So, the main litigation today is, it's -- as you said, it's -- we have the actions with Xiaomi ongoing, and we have the actions, although they're not Chinese, with Lenovo. On the Lenovo side, sort of two different forms of significance. I'd say the U.K. form is the primary form.

As I noted in my comments, that's the intent there is to secure a worldwide license with Lenovo on fair terms. And there's a couple of technical trials that will take place first. And then there'll be a FRAND trial as the third trial. I think the litigation schedule is laid out in our financial reports and it's a good, solid schedule. I mean, it's on a reasonable -- I think a very reasonable timeframe.

There's -- I'd say everything else is kind of a little bit of a skirmish, right? So, you have what's going on in the U.S. There the primary items to date have been, as I noted in my remarks, there's -- we moved to dismiss the antitrust claims, and that was recently argued, and we'll see where the judge lands on that and there's been some other motion practice within the case as well.

But I'd say that case, while every litigation is important at the end of the day, from a time frame and it's standpoint, it's behind the U.K. case. And the U.K. case, if successful, will be dispositive of the issue.

[Ian Zaffino, Oppenheimer]

Okay, great. Thanks for the color.

[Bill Merritt, President and CEO]

Thank you.

[Operator]

Thank you. We'll move on to our next question and that is from Eric Wold with B. Riley Securities. Please go ahead with your question.

[Eric Wold, B. Riley Securities]

Thank you. Good morning guys. So, a couple of questions. I guess, one, kind of following up on the kind of the litigation question, but kind of more on kind of a broader sense. I'm trying to get a sense of kind of how a win with one of the entities would impact kind of future efforts if those efforts are necessary. As an example is, I guess, assuming you get a successful win against Lenovo in the U.K. and the judge getting a global license direct per what the courts are kind of pushing towards.

What does that infer to kind of future efforts in those courts? Does the court basically then look at that and say, we're not going to hear similar cases and to make those similar cases go quicker? So, I'm trying to get to how that would impact other cases besides Lenovo itself, in that example.

[Bill Merritt, President and CEO]

Sure. So -- and I think the case you picked is a good example of one where establishing precedent -- not the precedent could have different impacts, but establishing precedent is very important. So, we believe we brought a strong case in the U.K. and that we have -- as part of that, we have very, very solid patents, and we have a very, very solid evidence around our license agreements.

And so the results, we believe, should be a very solid license agreement with Lenovo with a defined rate. Now, how does that play into other licensees. Well, a couple of things, right? So, if we were to bring another case in the U.K. against someone else. I don't have enough experience in U.K. practice to know for sure what the impact is.

But it's one of those things where it would be at least very helpful, right? Because it would be -- it's the same patent, the same portfolio. So, it would be the other party would need to figure out how do they end up in a different place right, than that. So, it starts to create a benchmark, and it's a judicially determined benchmark, which is, I think, very solid. So, it's useful in that forum.

Second, in other forums, so if we were to have -- so as an example, we've disclosed about the case the fact that we have rate cases going on in China. Well, if -- like they did last time, the Chinese use some -- come up with very incorrect and curious results, right? That benchmark is really important to demonstrate that, that was a very biased decision by Chinese courts was useful there.

Things like the antitrust issues that we're dealing with in Delaware. What the situation you have there is that the 9th Circuit has basically disposed of antitrust claims in these types of context.

The Third Circuit got some old precedents that we're -- we need to distinguish from. So -- but if we're successful there, we can maybe put forward very, very strong arguments. That really takes that complication out of future litigations.

And there -- the point of all this, at the end of the day is, the reason people litigate is that there's enough uncertainty that it supports the cost of litigation. Once you start to strip the uncertainty out of litigation, you say, it's not going to be antitrust case. It's a contract case. It's all about the rates.

And Interdigital has got judicially determined benchmarks. The uncertainty narrows dramatically. And therefore, the incentive to litigate drops dramatically. And that's why I mentioned that.

So, I think we're at the point where you could have actually, as we do today, we have a little bit of a flurry of activity on the litigation side. But it's -- I think our intent is to clear out the uncertainty. And if we need to do that through litigation, that's fine, because when we come out the other end, we think between the change in the regulatory environment and whatever we prove up in these cases, we will create a much more certain environment and much less incentive to litigate.

[Eric Wold, B. Riley Securities]

That's helpful. Thank you. And then I just need some focus on the LG license coming up for expiration/over renewal at the end of this year. Can you -- not looking for your comments on your discussions with them per se around renewal. But can you maybe just give a broader sense of how their -- the relationship has evolved since the 2017 signing in terms of relevance of your cellular IP and the technical IP, the video IP to their product set?

[Bill Merritt, President and CEO]

Sure. So, a couple of things on LG, right? So they've been a licensee since 2005. I think that's right. So, outstanding licensee, and so we would expect them to continue to be a licensee.

Doesn’t mean there can't be a gap in the license that happens from time-to-time. We'll -- we try to work to see if that doesn't happen, but if it doesn't happen, it's not a big deal at the end of the day.

In terms of the way we -- the opportunities for approaching LG, their business, their mobile business is a bit smaller than it was last time. They still have a lot of commitment to that business. They have a new product line that's come out. And so I think there's a lot -- there's still -- it's a business they want to stay in, but they're operating at lower levels in terms of unit level than they had before.

We have a different set of assets to bring to the table. We have the same assets as last but on in terms of 3G and 4G portfolio, but of course, now we have the 5G portfolio to talk about and the HEVC portfolio to talk about. So, that brings more value to the table.

As we've mentioned before, there's also the separate negotiations with them around televisions. So there's either the opportunity to work those deals separate or there could be an opportunity to bring them together.

And I'd say, bring it back to the -- the question you asked before, and LG understands it's operating in a different litigation environment than what existed three or four years ago, where there's a very efficient path to a license. And so I think that we can -- our job with them is to demonstrate that there's very little uncertainty here. That the range of rates that we have are -- is pretty well-established for our license agreement.

And that there's little or no incentive to litigate. And that there's always as well, opportunities to work with our licensees on R&D and other things. And I'd say the other thing that's different from where we were last time is we have a much bigger R&D profile than we did before and therefore, more things that we can do with them.

So, I think it's a better position that we're in this time than the last time. As I said, we've been very successful with maintaining them as a licensee. So, that's certainly our intent.

[Eric Wold, B. Riley Securities]

Last question. Zero -- essentially, zero shares you purchased year-to-date. Is that more a function of the uncertainty around COVID and just preserving the balance sheet with that uncertainty or is it more around preserving a balance sheet around litigation efforts?

[Rich Brezski, CFO]

Yes. So, I'll take that, Eric. It's a little bit the former like a lot of other companies in an uncertain environment, to value cash. But the secondary impact, but I don't think this is anything different than I have been saying over the summer. Would be keeping some dry powder for any opportunities that may come up in this kind of unusual set of circumstances.

[Eric Wold, B. Riley Securities]

All right. Thanks Rich and Bill. Appreciate it.

[Operator]

Thank you. And we'll move on to the next question, and that is from Charlie Anderson with Colliers Securities. Please go ahead with your question.

[Charles Anderson, Colliers Securities]

Yes, good morning and thanks for taking my questions. I just wanted to follow up on, Rich, I think in your prepared remarks, you talked about an incremental $7 million, and there was a reference to October of 2021. So, I wonder if you could just elaborate on that, all the puts and takes involved in what's happening there? And then I've got a follow-up.

[Rich Brezski, CFO]

Yes, I'll try to elaborate. As you know, Charlie, with our agreements, there's a strong confidentiality provision. So, I'm limited and to the extent I can do so. But the first thing I do is refer you to our 2019 10-K. We have descriptions of our larger agreements in there. And certainly, we had a situation before with Samsung, where there was a rate to terminate early, and that wasn’t exercised. So we have sometimes similar provisions and other agreements.

Now that that has lapsed and was unexercised. For this particular agreement, we have better insight to the full term of the agreement and our original accounting model. In this particular case, it could not assure that it would lapse. There's a pretty high standard for that. Now, that it has lapsed, the impact of that will be from October 2021 for that 12-month period, we'll have another $7 million a quarter.

[Charles Anderson, Colliers Securities]

Okay. Did that effectively change the term of the agreement, Rich?

[Rich Brezski, CFO]

So, it didn't change the term from our perspective. Even though this wasn't necessarily how we accounted for it. Again, because of the threshold of probability you need to meet. What we had signed was an agreement that runs a certain term and there was an option to terminate a year early in this case. So, that option no longer exists.

[Charles Anderson, Colliers Securities]

Okay, perfect. And then I noticed your variable royalties were up significantly year-over-year after being down in the first half of the year. I know it was sort of the reverse on tech solutions. You were down after being up. Just curious if that was reflective of what's happening in the market or was that sort of true-up activity related to what happened in the first half?

[Rich Brezski, CFO]

Yes. So, it's a little bit -- we mentioned the agreements that we signed year-over-year. A number of them were smaller variable agreements. So, that's a factor. There's always a little bit of a true-up factor. So, I'd say it's a combination of the two, but certainly, the new agreements was a part of that.

[Charles Anderson, Colliers Securities]

Okay, great. And then last one for me, Bill. Clearly, what we're seeing in China is a bid to take market share from Huawei given all their export issues or export restrictions. It feels like there's a land grab going on out there, and I imagine that extends to not just China, but outside of China from some of the parties that you don't have under license. I'm sort of curious have viewed this as an interesting sort of strategic window in time to engage with them relative to other periods. Thanks.

[Bill Merritt, President and CEO]

Sure. Yes. So, I think you're exactly right, Charles. I think there is certainly -- while we had lost a lot of share outside of China. And companies like Xiaomi have seized that opportunity. And so places like Europe and -- have become really significant growth opportunities for them. And that's -- the interesting thing there is that when their growth is coming in a place where the IP systems are really strong.

And obviously, that's a communication that we make to them, which is your -- they had some growth in China, but mostly their growth is going to be outside China. And they're going to need to secure a license to maintain that growth because, otherwise, as we have the right to do, we will seek to enjoy the sales in jurisdictions where it's appropriate.

So, I think it's -- Xiaomi is certainly picking up share Oppo is picking up share outside of China. It's a little -- what's going on inside China is a little less clear, but I think that will also shake out over time. So, I mean the other opportunity with these companies is, it's speculative to some degree, what share they would actually pick up.

And so sometimes, when you have some forecast uncertainty, it's actually a convenient time to do licenses because you can kind of -- both sides can kind of look at forecasts different ways and you can arrive at a number that makes sense for each side, right? And so, I'd say that there is that opportunity now. Once the forecasts become more solidified, then there's less flexibility you have in terms of that forecast uncertainty.

[Charles Anderson, Colliers Securities]

Perfect. Thank you guys so much.

[Bill Merritt, President and CEO]

Yes, Charles.

[Operator]

Thank you. [Operator Instructions]

We'll move on to our next question, and that is from Scott Searle with ROTH Capital. Please go ahead with your question.

[Scott Searle, ROTH Capital]

Hey, good morning. Thanks for taking my questions. Hey, Rich, just a quick clarification on the tax benefit. I think you said $18 million combination over the third quarter and the current quarter. Can you give us an idea about how much of that on a normalized basis, we would -- we saw in the third quarter?

[Rich Brezski, CFO]

Yes. So, let me clarify, the $18 million is all in Q3. We expect that there could be a little bit of a -- we're calling it a onetime item, but the way that you kind of recognize your provision for the year, you have to look at The Street and over time elements. We expect a smaller, a much, much smaller benefit in Q4.

And at the end of the day, it's really an estimate. So, there could be a little bit of a true-up one way or the other related to that estimate. So, on the whole, when we look forward to Q4, we kind of expect to be in the range of what we always talk about is our long-term rate, which is 15% to 17%.

[Scott Searle, ROTH Capital]

Got you. Thank you. And maybe to follow-up on Charlie's question related to variable per unit royalties being higher in the quarter. I think you referenced earlier in the call that now you've gotten up to $40 million in total CE revenue since acquiring Technicolor. Can you give us an idea what CE looks like in the third quarter?

And maybe remind us what the time frame is of getting back to that $150 million in annualized revenue on the CE front. And maybe as part of that, give us a quick update in terms of IoT and Avanci.

[Rich Brezski, CFO]

Yes. So, CE for the quarter was a little more than $3 million. So, I've talked about -- if you look at it annualized, I talked about roughly being 10% towards that $150 million goal. I think on an annualized basis, we're maybe a little bit shy of that. The reason we get to $40 million over the -- slightly more than two years, since we signed is -- you get some past sales in that $40 million number.

So overall, I'm looking at it more as the positive signs that we're getting deals done, we're validating the rate in the market. The new deals really didn't start until, I think, December or fourth quarter of last year. So, it took a period of time for us just to kind of get established with the new portfolio. The he, we don't as you know, put specific time lines out there, obviously, we'd like to be as quickly as possible.

But at the end of the day, as we always say, and this is true in mobile, and it's true in CE. The most important thing when we look at value is getting the right deal. And if it takes a little bit longer than trying to get the maximum benefit of those past sales when we get the deal done.

So, we hope to make additional progress there. And it's going to require them to significantly move the needle. We'll require some of the larger manufacturers, particularly in TD and kind of -- we want to continue to do the smaller deals, but certainly add the larger ones as well.

There was a second part to your question, I think where we are with IoT and --

[Scott Searle, ROTH Capital]

Correct, IoT and Avanci? Yes.

[Bill Merritt, President and CEO]

Yes. Well, I don't have those numbers at my fingertips, but they're contributing, but still at smaller levels. That's another area where the larger opportunity lies in front of them.

[Scott Searle, ROTH Capital]

Got you. And lastly, just two quick ones to follow-up. Could you give us a time frame now with India and Xiaomi? What is the current time line to have some sort of conclusion or moving towards a resolution?

And lastly, given the current presidential implications, the existing administration has been very supportive and aggressive from enforcing intellectual property in China. Any thoughts in terms of if there's a change within the White House, does it change any way in terms of how we're engaging with China as it relates to intellectual property and otherwise? Thanks.

[Bill Merritt, President and CEO]

Sure. So, I'll take the second question first. So, we don't really -- China is not a partisan issue. It has become a bipartisan issue. I think that -- credit to the Trump administration, they really did make it clear to everyone that China really had no intent of embracing the world in a cooperative way and opening up a completely free market and everything else and so I think everyone is aware of that now.

And so, I would expect the Biden administration or if it were to be that, to continue those -- that approach. Of course, the Trump administration would do the same. They may do it in different ways. They may use different tools. But I think at least what we're seeing is everyone pretty well lined up in terms of need to combat China.

Broadly, on the patent side, I think the patent narrative that the negative patent narrative that carried for a while has some like China, the cover was blown off that too, this whole mom-and-pop coffee shop thing that Google and others used for a while. Doesn't play anymore. And in fact, even as you are seeing Google, Facebook and others who are big anti patent companies are now -- they don't carry the favor of either side of the aisle. So, I don't see that changing much either.

So -- and I'd say last if it were to be a Biden administration, we have Chris Coons, who's a good friend of the company since we are a Delaware based company. I think we would certainly -- and a very, very big supporter of patents could be -- could have influence on the overall administration from that side.

In terms of timelines for litigation, there is -- both with respect to -- with Xiaomi, there's, of course, the cases in India, there's cases in China. They'll move along at their respective paces.

The China case, when it gets going, likely will move quickly, even though it shouldn't, but that's just the way they operate over there. But I'm not really sure of the impact of that at the end of the day. The cases in India, I think, the rough estimate is a couple of years or so.

And the end result there can be either an injunction or a license. So, I think with -- yes. As we've always said, litigation, they're not really there so much to get to the end. You're there to create clarity around information, to create pressure points and a variety of other things.

But the ultimate goal is actually negotiating something. And so -- and as an example, one of the tools that we have today, we didn't have before is, to the extent that Xiaomi does not operate in good faith and negotiating towards a license, it has a lot of risk in Germany, because Germany has come out and said, if you don't negotiate in good faith, you lose your right to a license.

And I think Eric brought it up before, Xiaomi has a lot of growth opportunity in Germany. And so litigation is just a tool. We have more tools now than ever, and we just -- our job is to use those tools in the most effective way to get to a solid license agreement with the customer.

[Rich Brezski, CFO]

Yes. Just to add on to Bill's comments. Again, if you look at Huawei and ZTE, they were both in litigation that we started last year, and we were able to sign them at the end of last year and then earlier this year. So, it's not like these things always run their full course. They are fundamentally a means to an end.

[Scott Searle, ROTH Capital]

Great. Thanks so much guys. Stay healthy and safe.

[Bill Merritt, President and CEO]

You too.

[Operator]

Thank you. We'll take our next question and that is from Anja Soderstrom with Sidoti & Company. Please go ahead with your question.

[Anja Soderstrom, Sidoti & Company]

Hi everyone. Good morning. Thank you for taking my questions. So, just a follow-up on the litigation cases as well. It feels like there's been a lot of good development. Do you feel like the attitude against -- among your counterparties have changed during this timeframe.

[Bill Merritt, President and CEO]

I think, as I said before, right? I think what litigation is going to do over the next couple of years is actually bring clarity to things. And I'd say with some of the licensees, prospective licensees, they actually don't want to be a litigation. They want to see if they can find an answer in the right terms.

There's other parties that may want to see if they can get a free look at the litigation before they do anything. And we've got to make sure that they understand that there is no opportunity for a free look. The parties that are in litigation, I think where they -- while they may -- at one point, think that it was strategically advantageous for them to do something.

Our job is over time to convince them that it wasn't. So, it's one of these things where -- to sort of like independent observer looking in at the litigation environment, you can look at it as a bit chaotic.

I actually look at it as this is the time when things are really going to get sorted out. So, we'll see. I'd say there's been some shift in attitude, other places not. But I think you'll see more shift in attitude as the cases move forward and more clarity is brought to bear.

[Anja Soderstrom, Sidoti & Company]

Okay. Thank you. And then just one housekeeping question on the CapEx. What drove that up for the quarter?

[Rich Brezski, CFO]

I don't think there was any -- I'm not thinking of anything too specific other than just the timing of things. So, I don't think I have anything to add at the moment.

[Anja Soderstrom, Sidoti & Company]

Okay. Thank you. That was all for me. Thank you.

[Operator]

At this time there are no further questions. I will now turn the call back over to our speakers for any closing comments.

[Tiziana Figliolia, IR]

Thank you, Ryan and thank you all for joining us today. This concludes our call. We look forward to giving you an update next quarter.

[Operator]

Thank you, ladies and gentlemen. This concludes today's conference. All participants may now disconnect.