Patent related income

9 Months Ended

Sep. 30, 2014

K)	Patent related income. Patent related income in 2014 and 2013 consists of the following:

Three and nine months ended September 30, 2014. On July 21, 2014, we entered into an agreement to sell a portion of our patent portfolio pertaining to DSL diagnostic technology for $2.6 million to an unrelated third party. The proceeds from the sale were reduced by $0.5 million of transaction costs, which consisted primarily of fees from the law firm that assisted us in the sale. The transaction closed on August 1, 2014 and a gain of $2.1 million was included in our financial results for the three and nine months ended September 30, 2014.

The DSL diagnostic technology in the patents we sold in August 2014 was related to our DSL Service Assurance business that we shut down in 2012 and 2013 and reported in discontinued operations in those periods. We do not consider our patent related activities to be a component of the operating business from which the underlying technology was derived, but rather as a component of corporate general and administrative expenses. Accordingly the gain on the sale of these patents was reported in income from continuing operations pursuant to ASC 360, Impairment or Disposal of Long-Lived Assets, and Rule 5-03 of Regulation S-X.

Nine months ended September 30, 2013. In the nine months ended September 30, 2013, we recorded $0.8 million of income from a patent arrangement. We entered into an arrangement with an unaffiliated third party in 2010 under which we assigned certain patents in return for royalties on proceeds from patent monetization efforts by the third party. Such third party has engaged in various patent monetization activities, including enforcement, litigation and licensing.

We continue to have a contractual relationship with this third party. However, we are unable to predict how much more income we might receive from this arrangement, if any, because:

i)	The claims in one of the patents we assigned were rejected by the United States Patent Office (“USPTO”) in May 2013. The USPTO’s Patent Trial & Appeal Board (“PTAB”) affirmed the USPTO decision in June 2014. The PTAB decision is currently under appeal to the Federal Circuit, and

ii)	Notwithstanding the outcome in the Federal Circuit, we do not know whether any patent monetization efforts by the third party will be successful.