Note 11 - Fair Value Measurements

12 Months Ended

Dec. 31, 2022

Notes to Financial Statements

Fair Value Disclosures [Text Block]

11. FAIR VALUE MEASUREMENTS

ASC 820, “Fair Value Measurements” establishes a fair value hierarchy that prioritizes the inputs to valuation methods used to measure fair value.  The three levels of the fair value hierarchy are as follows:

● Level 1: Quoted prices for identical assets or liabilities in active markets which we can access

● Level 2: Observable inputs other than those described in Level 1

● Level 3: Unobservable inputs

The following table summarizes financial assets and financial liabilities carried at fair value and measured on a recurring basis as of December 31, 2022 and 2021, segregated by classification within the fair value hierarchy (in thousands):

			Fair Value Measurements
	Total		Quoted Prices in Active Markets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
December 31, 2022:
Liabilities:
Secured contingent payment obligation	$	40,708	$	-	$	-	$	40,708
Unsecured contingent payment obligations		5,089		-		-		5,089
December 31, 2021:
Liabilities:
Secured contingent payment obligation		37,372		-		-		37,372
Unsecured contingent payment obligations		5,691		-		-		5,691

For the years ended December 31, 2022 and 2021, respectively, we had no transfers of assets or liabilities between the levels of the hierarchy.

The fair values of our secured and unsecured contingent payment obligations were estimated using a probability-weighted income approach based on various cash flow scenarios as to the outcome of patent-related actions both in terms of timing and amount, discounted to present value using a risk-adjusted rate.  We used a risk-adjusted discount rate of 18.41% at  December 31, 2022, based on a risk-free rate of 4.41% as adjusted by 8% for credit risk and 6% for litigation inherent risk.

The following table provides quantitative information about the significant unobservable inputs used in the measurement of fair value for both the secured and unsecured contingent payment obligations at  December 31, 2022, including the lowest and highest undiscounted payout scenarios as well as a weighted average payout scenario based on relative undiscounted fair value of each cash flow scenario.

	Secured Contingent Payment Obligation									Unsecured Contingent Payment Obligations
Unobservable Inputs	Low			Weighted Average			High			Low			Weighted Average			High
Estimated undiscounted cash outflows (in millions)	$	0.0		$	59.6		$	88.4		$	0.0		$	7.5		$	10.8
Duration (in years)		1.0			2.2			2.5			1.5			2.3			2.5
Estimated probabilities		5	%		17	%		35	%		5	%		18	%		35	%

We evaluate the estimates and assumptions used in determining the fair value of our contingent payment obligations each reporting period and make any adjustments prospectively based on those evaluations.  Changes in any of these Level 3 inputs could result in a significantly higher or lower fair value measurement.