Unwired Planet Inc. (UPIP), the patent licensing company that has had four different executives in charge in the last four years, is hoping its next CEO will be the one to really increase shareholder value.

Reno, Nevada-based Unwired Planet is currently run by Chairman and Principal Executive Officer Philip Vachon, though the company has hired the executive search firm Egon Zehnder to find a new CEO with intellectual property experience. Vachon was appointed in July 2013.

Eric Vetter, who had been president, chief financial officer and chief administrative officer, resigned in November shortly after the company announced some amendments to a much criticized deal in which it purchased a portfolio of 2,150 patents from Ericsson. The company on Feb. 12 announced that his interim replacement Mark Thompson, from The Brenner Group, also will be stepping down.

Before Vachon, Unwired Planet, which previously went by the names Openwave Systems Inc., Unwired Planet and Libris Inc., was run by CEO Michael Mulica from October 2011 to May 2013. Before Mulica, the former Openwave Systems was run by Kenneth Denman from Nov. 2008 to Sept. 2011.

“They haven’t been able to find a CEO,” said Mark Argento, an analyst at Lake Street Capital Management, who rates Unwired Planet a “buy” and has a $5 target on the stock.

Shares of Unwired Planet have lost more than two-thirds of their value in the past year and currently trade at around 77 cents a share, giving the company a market value of $86.1 million. The shares have traded between 77 cents and $2.44 over the past year.

“They’re smart licensing guys but they don’t know how to scale a monetization model,” Argento said. “They were hoping to generate licensing revenue or to get bought.”

Unwired Planet officials didn’t return several telephone calls seeking comment for this article.

Vetter also couldn’t be reached for comment.

Unwired Planet had cash and cash equivalents of $73.77 million as of Dec. 31, 2014, down from $93.88 million as of June 30, 2014, for a cash burn rate of $10 million per quarter.

The company had net revenue of $2.5 million and a net loss of $23.08 million, or 21 cents, in the six months ended Dec. 31, 2014, compared with zero net revenue and a loss of $14.48, or 14 cents, a year earlier.

In the meantime, the patent monetization space has gotten a whole lot harder than it used to be with companies like Vringo Inc. (VRNF) and VirnetX Holdings (VHC) experiencing adverse rulings from the Court of Appeals for the Federal Circuit, either throwing out awards or invalidating patents.

“The space is in such turmoil and the Ericsson deal is prohibitive to them being able to monetize the assets,” Argento said.

Ericsson gets “paid a gross amount that’s not net of expenses and there’s just not enough money to be made after paying the contingency lawyers.”

Unwise purchase?

Unwired Planet announced its purchase of the portfolio of patents including standard and essential patents for 3G and 4G and LTE systems from Ericsson in February 2013.

Under the agreement Ericsson stands to get 20% of the first $100 million, 50% of the next $400 million and 70% of any amounts above $500 million.

Unwired Planet amended the agreement twice on Feb. 27, 2014 and on Sept. 16, 2014.

Under the amended agreement, Unwired Planet is not entitled to royalty payments that are currently being received by Ericsson under third party license agreements on any patents included in the portfolio.

Unwired Planet agreed to consideration to Ericsson of a nontransferable, limited license to Unwired Planet’s patents and a right to receive an amount equal to a percentage of future gross revenues generated by a combined patent portfolio including both the Ericsson patents and Unwired Planet’s mobility patents.

Unwired Planet has until September 2017 to elect to reduce Ericsson’s fee share percentage in the third tier for a price of $5 million per percentage point reduction. The maximum fee share reduction it may elect is limited to twenty percentage points, which would require payment to Ericsson of $100 million.

The agreement also contains a number of restrictions on Unwired Planet’s future activities.

For instance, Unwired Planet is required to provide advance notice to Ericsson of potential future acquisitions that do not involve wireless patents, and Ericsson has the option to participate in such acquisitions upon mutually agreeable terms and conditions.

Under the agreement, any amounts withheld by governments on account of taxes on license arrangements is included in the calculation of gross revenue for purpose of revenue sharing, meaning it would actually have to take in $120 million in revenue less $20 million of taxes to reach $100 million of gross revenue and then pay Ericsson $20 million of that.

The agreement requires Unwired Planet to use reasonable efforts to reclaim such withholdings, though what that means is not clear.

Unwired Planet said on February 6 that it has recognized gross revenue of $61.2 million and incurred a fee share of $12.2 million from inception of the agreement through Dec. 31, 2014, including $3.1 million in gross revenue and $600,000 in fee share for the six months ended December 31, 2014.

To be sure, the revenue sharing Unwired Planet agreed to with Ericsson looks somewhat onerous when things like legal costs and contingency fees are taken into account.

For the six months ended Dec. 31, 2014 and 2013, Unwired Planet recognized $4.7 million and $2.5 million, respectively, in legal fees and $3.8 million and $900,000 respectively, in out-of-pocket costs in the above agreements.

Contingency fees are usually based upon a percentage of the amount of a settlement or a judgment and are expensed when they are contractually due and payable.

“Contingency fees we have negotiated are based on successful outcomes in litigation, measured in various ways, such as, for example, a percentage of proceeds net of Ericsson’s fee share.

If Unwired Planet brings in $100 million of gross revenue, it will have to give Ericsson $20 million off the top, plus pay legal costs and pay contingency law firms amounts that can be as high as 35%. That means profit margins on such deals will be less than 40%.

In addition, Unwired Planet has accepted an obligation to behave in a manner that is fair, reasonable and non-discriminatory or FRAND.

If Unwired Planet defaults upon its obligations to Ericsson under certain circumstances, Ericsson will be entitled to monetary damages of $1.05 billion.

Unwired Planet also noted that a change of control provision in the agreement may discourage an acquisition of the company, which could affect its stock price.

Indeed, the agreement provides that in connection with a change of control, Ericsson will have the right either to terminate the agreement and receive a cash payment or elect to continue the agreement in full force and effect and not receive the sale payment.

Under the agreement, Ericsson has a lien on all of Unwired Planet subsidiary UP LLC’s assets. In addition, the members of UP LLC, which are subsidiaries of Unwired Planet, have agreed to guarantee the obligations of UP LLC under the agreement and have pledged all of their assets, including the equity interests of UP LLC, to Ericsson to secure such obligations.

In March 2014, Unwired Planet entered into a patent license agreement with a subsidiary of Lenovo Group Ltd. The license fee revenue is being recognized over seven years and the Ericsson fee share is 20% of the gross licensing revenue.

In September, Unwired Planet paid $8.4 million to Ericsson for its share of the Lenovo transaction, the amount of which was accrued for by Unwired Planet on June 30, 2014.

Unwired Planet expects to take in about $38.9 million in licensing revenue from Lenovo over those seven years starting in 2015 and its revenue share obligation to Ericsson is expected to be $7.8 million.

Unwired Planet has said its existing patent portfolio will begin to expire toward the end of 2015, with a material quantity of patents expiring over time beginning in 2016 through 2025.

“If we are unable to develop or acquire new technologies and patents with a longer lifespan, our ability to generate revenues could be substantially impaired following these dates of expiration.”

Meanwhile, perhaps the company’s most attractive attribute is its $1.68 billion and $383 million federal and state net operating loss carry forward assets, which would shield its profits from taxes for a considerable time if it could ever earn that much money.

Unwired Planet in January replaced its existing tax benefits preservation agreement, which was designed to preserve the company’s NOL. The terms were substantially the same as those adopted in the November 2013 agreement.

The new agreement triggers rights issuance if someone or group acquires more than 4.99% of the company’s stock. As such, the new agreement is something of a poison pill that prevents the company from a potential takeout.

To be sure, the NOL is encumbered by rules that may prevent it from being fully used in the event of a takeover, so the poison pill argument is somewhat moot.

In the meantime, Unwired Planet still has the backing of some high profile investors including Indaba Capital Management, a San Francisco-based investment manager that owns about 12 million common shares, or a 10.8% stake and also owns debt.

Andrew Dodge, an Indaba Capital principal, was named to Unwired Planet’s board last fall after David Lockwood stepped down. He didn't return several calls for comment.

Starboard Value Fund also controls a large stake in Unwired Planet. The New York-based firm has some 9.15 million shares, or an 8.3% stake.

Neither Indaba Capital note Starboard would comment for this article.

Other significant investors have included Kingdon Capital Management and Soros Fund Management.

Soros Fund Management no longer has a position in Unwired Planet, according to a Schedule 13G/A filed with the Securities and Exchange Commission Feb. 13.

Officials from Kingdon Capital and Soros Fund Management couldn’t be reached for comment.

Soros isn’t the only one to lose interest in Unwired Planet.

Charles Anderson, an analyst at Dougherty & Co., who used to rate Unwired Planet at “buy,” said in an interview he recently dropped coverage because of a lack of interest in the company and other patent monetization stocks.

“The telephone just wasn’t ringing on this stock,” Anderson said. So, he decided to re-allocate his resources in other names.

He said the investment thesis for Unwired Planet became pushed too far out after the company lost a Markman claims construction ruling on Dec. 12, 2014 in a case against Google Inc.

Unwired Planet sued Google in U.S. District Court in Reno Nevada in September 2012 alleging infringement of 10 patents and eventually bring 32 claims across 7 patents.

“Our initial perception is that these results are disappointingly negative and will materially impact our case,” Vachon said in a statement in December.

Unwired Planet is still evaluating available options.

“The case in Nevada was certainly disappointing,” Anderson said. “To not have a positive Markman ruling meant things were going to be pushed way out.”

For his part, however, Lake Capital’s Argento still sees reasons for optimism that Unwired Planet will find a way to monetize its patent portfolio despite the Ericsson deal.

Unwired Planet “is intriguing because it’s got a big NOL and a bunch of assets,” Argento said.

Although Unwired Planet has a lot more assets to monetize, the terms of the Ericsson deal are such that no third party is willing to partner with them.

The structure of the Ericsson deal “was prohibitive,” Argento said. “It didn’t incentivize third parties enough to want to work with them. It’s a bit a lame duck situation.”

What makes the situation even worse for Unwired Planet, as it struggles to find a suitable CEO with IP experience, “is that smart guys know all this,” Argento said.

“The word is out in the IP space. They’re kind of dead in the water. Anybody who is good already has a day job. There are maybe 5 guys who are worth the risk.”

Asked who they are, Argento said they include Acacia Research Corp.’s (ACTG) Matthew Vella, IP Navigation Group’s Erich Spangenberg, Marathon Patent Group’s Doug Croxall and Uniloc’s Craig Etchegoyen.

“They’re guys who have a history of experience and can turn Unwired Planet around without burdening the cost structure.”

Argento said Unwired Planet may ultimately fall prey to a coming wave of consolidation in the patent monetization business.

"The industry needs to be consolidated. There are some good companies out there who could roll them all up and aggregate the patents and do it without burdening the capital structure. These businesses don't scale well. It’s better to keep them small."

To reach the reporter responsible for this story, please contact Dan Lonkevich at 707 318-7899 or at dan@thepatentinvestor.com