Some of the frequently asked questions that WiLAN receives from investors are addressed below.
Questions related to the Appeals Court Ruling in LG case
Q: On December 11, 2012 the United States Court of Appeals for the Federal Circuit (the "CAFC") issued a decision that affirmed a lower court ruling that granted, to LG, Summary Judgment of non-infringement of WiLAN’s V-Chip patent (the "V-Chip Patent"). What is WiLAN’s initial reaction to the decision by the CAFC?
WiLAN disagrees with the decision reached by the CAFC. WiLAN has discussed this patent with the inventor Professor Tim Collings and with its own legal experts and continues to steadfastly believe that LG televisions infringe the method taught in the patent. Accordingly WiLAN is extremely surprised and disappointed with this decision.
Q: Can WiLAN appeal the CAFC's decision?
WiLAN has a number of possible avenues for addressing this decision and is considering its options at this point. WiLAN does plan to take some form of action. Investors should understand that disclosure of certain information related to the strategies and tactics that WiLAN may use to address certain matters in our licensing programs could telegraph our next steps to third parties. Telegraphing our next steps could negatively impact the company and its shareholders. To protect our ability to act in the best interests of the company and its shareholders, we cannot comment on all of the options that we are considering, or planning to implement.
Q: Will the CAFC ruling impact the revenue that WiLAN is currently receiving from V-Chip licensees?
WiLAN does not expect revenue from these agreements to be impacted by the CAFC ruling.
Q: Does the CAFC decision impact the validity of WiLAN’s V-Chip Patent?
No. The CAFC decision does not impact the validity of the WiLAN’s V-Chip Patent.
Q: The United States Patent and Trademark Office (the “USPTO”) completed a re-examination of WiLAN’s V-Chip Patent. The re-exam confirmed the validity of all the claims in the patent along with more than 30 new claims (the “Re-examined Patent”). How is the CAFC decision relevant to the Re-examined Patent?
As the original summary judgment ruling by the lower court considered only the original form of the V-Chip patent and the re-examination of the V-Chip patent by the USPTO was not completed until after WiLAN filed its appeal, there was no way to get the Re-examined Patent before the CAFC.We are now actively licensing the Re-examined Patent.
Q: What do you think the effect of the CAFC ruling will be on the overall TV and Display licensing program?
WiLAN does not believe that this ruling should have a serious impact on its TV licensing program. WiLAN now has over 1000 issued and pending patents in its TV program, a number of which it believes are infringed by TVs sold throughout the world including by LG. WiLAN is not dependent on any one patent. WiLAN has recently initiated litigation on two patent families unrelated to the V-Chip patent family against Toshiba and LG. Moreover, WiLAN’s V-Chip Patent is far from finished. It is also important to remember that the lower court in this case suggested that if and when U.S. ratings tables are updated, if ever, LG TVs may infringe the patent regardless of the court's ruling.The ruling by the lower court said "This additional information would not be pre-programmed into any device, including LG's, and the method described in the '402 patent therefore would have to be employed to "update" the device with the new information, of which the device necessarily would have "no advanced knowledge." Accordingly, any such addition could very well fall within claim 7's method, and might infringe if it were not otherwise appropriately licensed."
Q: Was WiLAN satisfied with its counsel’s work in this case?
WiLAN has a lot of experience with this type of litigation and believes its counsel did a very good job in this case.
Q: Any final comments related to the CAFC decision?
In a nutshell WiLAN views this decision as a surprising setback but also believes the V-Chip program and moreover the TV and Display program are still very viable licensing programs. Regardless of the ruling, licensees should still see significant value in taking licenses to WiLAN’s TV and Display portfolio.
Questions related to investor communication & marketing
Q: WiLAN frequently makes in-person presentations to institutional investors. Does WiLAN make similar presentations to retail investors?
Yes, a normal part of WiLAN’s ongoing investor relations program is to present to retail investors and investment advisors on occasion. The most recent event was held in Calgary, Alberta on November 27th, 2012 where WiLAN’s CEO made a successful presentation to a large group of investment advisors and retail investors.
Questions related to WiLAN's business
Q: How does WiLAN generate revenue?
WiLAN generates revenues from licensing intellectual property represented by patents in its portfolio.
Q: Who licenses WiLAN’s intellectual property?
More than 260 companies, including Broadcom, Cisco, Fujitsu, Infineon, Intel, LG, Motorola, Nokia, Panasonic, RIM, Samsung and Sharp have licensed certain WiLAN technologies.
Q: How are royalty rates in license agreements determined?
Royalty rates reflect many factors including the significance of the patented inventions to the performance of the product, the profitability of the products in question, the number of patents that are applicable, the volume of products that infringe, the geographies into which infringing products are sold, the prospective licensees future sales plans and the prospective licensees’ financial status. Of course, since royalty rates are negotiated with each licensee, the opinions of the licensee are important too. In all cases, WiLAN strives to achieve royalty terms that are not overly burdensome to the cost of the licensed product but still offer a fair return to the company.
Q: How is WiLAN paid by its licensees?
Payment terms may be a one-time lump-sum payment, a series of fixed payments over a specified period, or running royalties based on a price per-unit. WiLAN is prepared to be flexible: if a licensee would prefer to sign something other than a running royalty agreement, WiLAN will consider other models if they make business sense.
Q: How much is WiLAN paid by its licensees?
The amount paid by a licensee generally depends on the volume of products sold by the licensee and the royalty rate applicable to each product.
Q: How does WiLAN use litigation?
WiLAN will, from time to time, use litigation to pursue compensation from companies that profit from the use of our technologies but which refuse to negotiate a reasonable license agreement.
Litigation typically spans multiple years. Investment in a given litigation can generate a considerable return, but as in all litigation there are risks. These risks are described in WiLAN’s current Annual Information Form which is available at www.sedar.com.
Questions related to the buying or selling of WiLAN shares by insiders
Q: When are insiders permitted to buy or sell WiLAN shares?
Through regular company-imposed blackout periods, WiLAN insiders are prevented from trading in shares or disposing of shares resulting from an option exercise.
Trading of WiLAN securities by insiders is subject to WiLAN’s insider trading policy. This policy instructs WiLAN employees and members of its Board of Directors to not buy or sell WiLAN shares during blackout periods or during other periods in which they are in possession of undisclosed material information.
Generally speaking, blackout periods begin two weeks before the end of a fiscal quarter and end the day that financial results for a given fiscal quarter are released.
It is important to know that company management may be blacked out from trading during times over and above the preset blackout periods because they are in possession of material undisclosed company information. Historically this restriction has resulted in many months of additional blackout periods.
Upcoming blackout periods (dates are subject to change):
March 16, 2013 to May 8, 2013 inclusive
June 15, 2013 to August 8, 2013 inclusive
September 14, 2013 to November 6, 2013 inclusive
December 14, 2013 to March 6, 2014 inclusive
Q: Is it a cause for concern if a WiLAN insider sells WiLAN shares?
WiLAN strongly encourages its officers and directors to hold WiLAN shares and has implemented policies that encourage share ownership at a meaningful level. However, insiders may occasionally sell shares as part of an option exercise or simply because of their cash needs. Investors should not interpret such sales as a lack of confidence on the insider’s part. Insiders frequently sell a small portion of their shares but still maintain a significant investment in the company.
WiLAN insiders and the Board often have limited time windows during which they are allowed to buy or sell shares. This is because the company imposes trading blackouts on insiders when they are in possession of material undisclosed information or near the time of the release of financial information.
As a result of these blackouts, an insider may only have a certain period of days or weeks during a year during which he or she can buy or sell WiLAN shares.
Share options are granted to WiLAN employees at the market price at the time of the grant. If the stock rises in value the employee can choose to exercise the option and sell the resulting shares to realize a gain. This is a form of compensation that is intended to align the option holder with shareholders since both will benefit from a rise in the share price.
Blackout periods can be particularly problematic with respect to share options. Since share options typically have a limited term, an employee may have to exercise the options and sell the resulting shares in order to avoid having the options expire during a blackout period.
From time to time, employees may find themselves with a large number of in-the-money options that are nearing their expiry date. It is often preferable for the employee to exercise a portion of those options and to sell the resulting shares before the expiry date, rather than wait until expiry and then be forced to exercise and sell the whole block of shares. Generally, a smaller sale of shares can be absorbed more easily in the routine trading of the market than a large block, which could cause a significant decrease in the share price.
Investors should not interpret an exercise of a share option and resulting sale of the share as a lack of confidence in the company, since this is the way this form of compensation is generally intended to operate. In fact, the need to fund income tax liabilities that automatically arise when share options are exercised may make it a problem if the employee does not sell a portion of the shares that result from exercising share options.
Like any investor, WiLAN employees and members of its Board are responsible for ensuring their financial well-being and that of their families. Responsible financial planning usually requires an investment strategy that ensures a proper investment portfolio diversification. Having a significant percentage of a portfolio invested in one single investment is generally not recommended. However for some employees, including members of the management team, the value of their company holdings can represent a large percentage of their overall investment portfolio. As the value of WiLAN shares increases this portion can become too large. This may necessitate reducing their WiLAN holdings when permitted by WiLAN’s insider trading policy, to restore the proper asset balance of their portfolio. Again, this does not reflect a lack of confidence in the company or mean that the share price will not increase in the future.