This Annual Report on Form 10-K contains "forward-looking statements" that involve risks and uncertainties, as well as assumptions which, if they never materialize or prove incorrect, could cause our results to differ materially from those expressed or implied by such forward-looking statements. The statements contained in this Annual Report on Form 10-K that are not purely historical are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the "Exchange Act". Forward-looking statements are often identified by the use of words such as, but not limited to, "anticipate," "believe," "can," "continue," "could," "estimate," "expect," "intend," "may," "will," "plan," "project," "seek," "should," "target," "will," "would," and similar expressions or variations intended to identify forward-looking statements. Forward-looking statements include statements regarding our business strategies and business model, products, benefits to our clients, future financial results and expenses, and patent acquisition spending. These statements are based on the beliefs and assumptions of our management based on information currently available. Such forward-looking statements are subject to risks, uncertainties and other important factors that could cause actual results and the timing of certain events to differ materially from future results expressed or implied by such forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those identified below, and those discussed in the section titled "Risk Factors" included in Part I, Item 1A of this Annual Report on Form 10-K.

Furthermore, such forward-looking statements speak only as of the date of this report. Except as required by law, we undertake no obligation to update any forward-looking statements to reflect events or circumstances after the date of such statements.

Overview
We help companies reduce patent-related risk and expense by providing a subscription-based patent risk management solution that facilitates more efficient exchanges of value between owners and users of patents compared to transactions driven by actual or threatened litigation.

The core of our solution is defensive patent aggregation, in which we acquire patent assets that are being or may be asserted against our current or prospective clients. We then provide our clients with licenses to our patent assets to protect them from potential patent infringement assertions. We also provide our clients access to our proprietary patent market intelligence and data.

Our business model aligns our interests with those of our clients. We have not asserted and will not assert our patents, which enables us to develop strong and trusted relationships with our clients. Our clients include companies that design, make or sell technology-based products and services as well as companies that use technology in their businesses.

For the year ended December 31, 2012, revenue grew to $197.7 million from $154.0 million for the year ended December 31, 2011. During 2012, 2011 and 2010, our client count increased by 28, 40, and 49 clients, respectively, bringing our total client network to 140 as of December 31, 2012. At December 31, 2012, we had deferred revenue of $104.4 million.

We believe that our acquisitions of patent assets are a key driver of the value that we create for our clients. We measure patent asset acquisition spend on both a "gross" and a "net" basis, whereby the "gross spend" represents the aggregate amount spent including amounts contributed by our clients in syndicated and structured acquisitions above and beyond their subscription fees and the "net spend" represents only the net incremental investment of our own capital. For the year ended December 31, 2012, our gross and net acquisition spend totaled $251.8 million and $116.4 million, respectively, for which we completed 30 acquisitions of patent assets. From our inception through December 31, 2012, we have completed 120 acquisitions of patent assets with gross and net acquisition spend of $623.5 million and $406.3 million, respectively.

Insuring against the costs of NPE litigation is a natural extension of our core defensive patent acquisition service. In 2012, we started to offer NPE patent infringement liability insurance, which is a liability insurance policy for US-based operating companies that covers certain costs associated with patent infringement lawsuits by NPEs. The insurance product complements our core defensive patent acquisition service, enabling policyholders, who must be members of our client network, to better manage and mitigate the risk of NPE patent litigation. For the year ended December 31, 2012, the effect of the insurance policies that have been issued was not material to our results of operations or financial condition.

Key Components of Results of Operations
Revenue
Historically, the vast majority of our revenue has consisted of fees paid by our clients under subscription agreements. We expect that subscription fee revenue will increase with the growth of our client network. Subscription revenue will be positively or negatively impacted by the financial performance of our clients since their subscription fees are typically reset yearly based upon their most recently reported annual financial results. In 2012 we launched our insurance product and we started to recognize revenue from insurance premiums. Although we expect this revenue to increase as we sell more policies in the future, for the year

ended December 31, 2012, revenue from insurance premiums was not material to the Company's results of operations. From time to time, we also recognize revenue from the sale of licenses and advisory fee income in connection with structured acquisitions. In the future, we may receive other revenue and fee income from newly introduced products and services. While we expect to continue to experience revenue growth, we do not believe that our rate of growth since inception is representative of anticipated future revenue growth.

Cost of Revenue
Cost of revenue primarily consists of amortization expenses related to acquired patent assets. Acquired patent assets are capitalized and amortized ratably over their estimated useful lives. Also included in the cost of revenue are expenses incurred to maintain our patents and prosecute our patent applications and amortization expense for acquired intangible assets and internally developed software. With the launch of our insurance offering in 2012, cost of revenue also includes premiums ceded to reinsurers and loss reserves. For the year ending December 31, 2012, such amounts were not material. We expect our cost of revenue to increase in the future as we add additional patent assets to our existing portfolio to support our existing and future clients and as our insurance business grows.

Selling, General and Administrative Expenses Selling, general and administrative expenses consist of salaries and related expenses, including stock-based compensation expenses, costs of marketing programs, legal costs, professional fees, travel costs, facility costs and other corporate expenses. We expect that in the foreseeable future, as we seek to serve more clients and develop new products and services, selling, general and administrative expenses will increase.

Provision for Income Taxes
Income taxes are computed using the asset and liability method, under which deferred tax assets and liabilities are determined based on the difference between the financial statements and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to affect taxable income. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. Based on available information, we believe it is likely that our deferred tax assets will be fully realized. Accordingly, we have not applied a valuation allowance against our net deferred tax assets.

Critical Accounting Policies and Estimates Our consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, costs and expenses and related disclosures.

We believe that, of our significant accounting policies, which are described in Note 2 of our consolidated financial statements, the following accounting policies involve a greater degree of judgment and complexity. Accordingly, these are the policies we believe are the most critical to aid in fully understanding and evaluating our consolidated financial condition and results of operations.

Revenue Recognition
Our primary source of revenue is fees paid by our clients under subscription agreements. We recognize revenue, net of any discounts or other contractual incentives, when all of the following conditions are met:
• there is persuasive evidence of an arrangement;

• delivery of the subscription or services has commenced;

• the collection of related fees is reasonably assured; and

• the amount of related fees is fixed or determinable.

If a subscription agreement contains contingent or non-standard performance criteria to be met, we defer recognizing revenue until the satisfaction of such conditions. If a subscription agreement contains a discount or other contractual incentive, we recognize revenue net of any such amounts.

Executed agreements are used as evidence of an arrangement. Our subscription agreements are typically non-cancelable by either party and require us to provide membership services over a specific subscription term. Given that delivery occurs with the passage of time, and that our subscription service comprises a single deliverable, we recognize subscription revenue ratably over the term of the subscription agreement. Our cash collectability is reasonably assured as our clients are generally required to pay their subscription fees before we provide the service or within a very short time period thereafter. We assess whether the fee is fixed or determinable based on each client's respective agreement.

Our clients generally receive a term license to, and a release from, all prior damages associated with patent assets in our portfolio. The term license to each patent asset converts to a perpetual license at the end of a contractually specified vesting period provided that the client is a member at such time. We do not view the conversion from a term license to perpetual license to be a separate deliverable in our arrangements with our clients because the utility of, access to and freedom to practice the inventions covered by the patent asset are no different between a term and perpetual license. We do not view providing longer term access to the patent asset as a new deliverable separate from the term license.

In some instances, we accept a payment from a client to finance part or all of the acquisition of patent assets. We refer to such transactions as structured acquisitions. We refer to a structured acquisition where we accept payment from several clients as a syndicated acquisition. The accounting for structured acquisitions is complex and requires significant judgment on the part of our management. In structured acquisitions that result in the purchase of a patent license by a client, we may recognize revenue on a gross basis related to such purchase. In circumstances where we substantively act as an agent to acquire patent assets from a seller on behalf of clients who are paying for such assets separately from their subscription agreements, we may treat the client payments on a net basis. When treated on a net basis, there is no revenue recognized and the basis of the acquired patent assets excludes the amounts paid by the contributing clients based on our determination that we are not the principal in these transactions. In these situations, where we substantively act as an agent, the contributing clients are typically defendants in an active or threatened patent infringement litigation filed by the owner of a patent. Our involvement is to assist our clients to secure a dismissal from litigation and a license to the underlying patents.

Key indicators evaluated to reach the determination that we are not the principal in the transaction include, among others:
• the seller is generally viewed as the primary obligor in the arrangement, given that it owns and controls the underlying patent(s) and thus has the absolute authority to grant and deliver any release from past damages and dismissal from litigation, as well the general terms of the license granted;

• we have no inventory risk as the clients generally enter into their contractual obligations with us prior to or contemporaneous with our entry into a contractual obligation with the seller;

• we generally have limited pricing latitude as client contributions are based on the sales price set by the seller;

• we are not involved in the determination of the product or service specification and have no ability to change the product or perform any part of the service in connection with these transactions, as the seller owns the underlying patent(s); and

• we have limited or no credit risk or substantially mitigated credit risk, as each respective client has a contractually binding obligation to make a contribution, such clients are generally of high credit quality and in many instances we collect the client contribution prior to making a payment to the seller.

In certain structured transactions, we may recognize revenue upon the sale of licenses to specific patent assets and/or upon completion of the rendering of advisory services.

Amortization of Patent Assets
We capitalize the fair value of acquired patent assets as intangible assets. Because each client generally receives a license to the vast majority of our patent assets, we are unable to reliably determine the pattern over which our patent assets are consumed. As a result, we amortize each patent asset on a straight-line basis. The amortization period is equal to the asset's estimated economic useful life. We estimate the economic useful life based upon the period of time over which we expect these assets to contribute directly or indirectly to our future cash flows, generally from 24 months to 60 months. We take into account various factors in making estimates regarding the useful life of our patent assets, including the remaining statutory life of the underlying patent, the applicability of the assets to future clients, the vesting period for current clients to obtain perpetual licenses to such patent assets, any contractual commitments by clients that are related to such patent assets, our estimate of the period of time during which we may sign subscription agreements with prospective clients that may find relevance in the patent assets, the vesting period for which such prospective clients earn the right to a perpetual license in the asset and the remaining contractual term of our existing clients at the time of acquisition. The assessment of many of these factors requires significant management judgment, and changes to these judgments could affect the amortization period of our patent assets and our results of operations. In certain instances, where we acquire patent assets and secure related committed cash flows from clients that extend beyond the statutory life of the underlying patents, the useful life for the additional patent rights may extend beyond the statutory life of the patents. We periodically evaluate our estimates to assess any adjustments that may be required to the remaining useful life of our patent assets.

Accounting for Stock-Based Awards
We account for stock-based compensation under Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") 718, Compensation-Stock Compensation ("ASC 718"). ASC 718 requires that compensation expense for all equity-settled awards made to employees and directors be measured and recognized based on estimated grant date fair values. Our

equity awards include stock options and restricted stock units ("RSUs"). Stock-based compensation expense for RSUs granted to employees and directors is measured based on the fair market value of our common stock on the date of grant.

The fair value of stock options granted is estimated on the date of grant using the Black-Scholes option pricing model. This model requires inputs such as expected term, expected volatility and risk-free interest rate. These inputs are subjective and generally require significant analysis and judgment to develop. For all stock options granted to date, we calculated the expected term using the SEC simplified method. We have limited information on our own past volatility and we have a limited operating history. Therefore, we have estimated the volatility data based on a study of publicly traded industry peer companies. For purposes of identifying these peer companies, we considered the industry, stage of development, size, and financial leverage of potential comparable companies. The estimated forfeiture rate is derived primarily from our historical data, and the risk-free interest rate is based on the yield available on U.S. Treasury zero-coupon issues similar in duration to the expected term of our stock options. We recognize the fair value of our equity awards on a straight-line basis over the requisite service period during which the award vests, which is generally four years.

The weighted-average assumptions used to estimate the fair value of stock options granted for the years ended December 31, 2012, 2011 and 2010 are as follows:

                                Year Ended December 31,
                               2012         2011      2010
Risk-free interest rate        1.11 %       1.44 %   2.00 %
Expected volatility              61 %         59 %     59 %
Expected dividend yield           -            -        -
Expected term - (in years)      6.0          6.4      6.2

Accounting for Income Taxes
We account for income taxes using the asset and liability approach, which requires the recognition of deferred tax assets or liabilities for the tax-effected temporary differences between the financial reporting and tax bases of our assets and liabilities and for net operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The measurement of deferred tax assets is reduced, if necessary, by the amount of any tax benefits that, based on available evidence, are not expected to be realized.

The calculation of our tax liabilities involves dealing with uncertainties in the application of complex tax laws and regulations in a multitude of jurisdictions across our global operations. ASC 740 provides that a tax benefit from an uncertain tax position may be recognized when it is more likely than not that the position will be sustained upon examination, including resolutions of any related appeals or litigation processes, on the basis of the technical merits. ASC 740 also provides guidance on measurement, derecognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition.

We recognize tax liabilities in accordance with ASC 740 and we adjust these liabilities when our judgment changes as a result of the evaluation of new information not previously available. Because of the complexity of some of these uncertainties, the ultimate resolution may result in a payment that is materially different from our current estimate of the tax liabilities. These differences will be reflected as increases or decreases to income tax expense in the period in which new information is available.

The tax expense or benefit for extraordinary items, unusual or infrequently occurring items and items that do not represent a tax effect of current-year ordinary income are treated as discrete items and recorded in the interim period in which the events occur.

Our effective tax rate could be adversely affected by changes in federal, state or foreign tax laws, certain non-deductible expenses arising from stock-based awards and changes in accounting principles. During 2012, the Internal Revenue Service completed its examination of our federal income tax returns for the 2009 and 2008 tax years. In addition, during 2012, the State of California Franchise Tax Board also completed its examination of our California income tax returns for the 2009 and 2008 tax years. The examination did not have a material impact on our consolidated financial statements. The 2008 through 2012 tax periods remain open to examination by the federal and most state tax authorities. For our foreign jurisdictions, the 2009 through 2012 tax years remain open to examination by their respective tax authorities.

Accounting for Business Combinations
We apply the provisions of ASC 805, Business Combinations ("ASC 805"), in the accounting for our business acquisitions. ASC 805 requires companies to separately recognize goodwill from the assets acquired and liabilities assumed, which are at their acquisition date fair values. Goodwill as of the acquisition date represents the excess of the purchase price over the fair values of the assets acquired and the liabilities assumed.

We use significant estimates and assumptions, including fair value estimates, to determine fair value of assets acquired and liabilities assumed and when applicable the related useful lives of the acquired assets, as of the business combination date. When those estimates are provisional, we refine them as necessary during the measurement period. The measurement period is the period after the acquisition date, not to exceed one year, in which we may gather new information about facts and circumstances that existed as of the acquisition date to adjust the provisional amounts recognized. Measurement period adjustments are applied retrospectively, if material. All other adjustments are recorded to the consolidated statements of operations.

Results of Operations
The following table sets forth selected consolidated statements of operations
data for each of the periods indicated (in thousands). Our historical results
are not necessarily indicative of our results of operations to be expected for
any future period.
                                                      Year Ended December 31,
                                                  2012          2011          2010
Revenue                                        $ 197,688     $ 154,044     $ 94,874
Cost of revenue                                   82,323        67,371       43,602
Selling, general and administrative expenses      53,590        40,593       23,917
(Gain) loss on sale of patent assets, net           (177 )           -          536
Operating income                                  61,952        46,080       26,819
Other income (expense), net                          117          (723 )     (2,764 )
Income before provision for income taxes          62,069        45,357       24,055
Provision for income taxes                        23,112        16,225       10,184
Net income                                     $  38,957     $  29,132     $ 13,871

The following table sets forth, for the periods indicated, consolidated statements of operations data as a percentage of revenue.

                                                  Year Ended December 31,
                                                 2012         2011      2010
Revenue                                          100  %       100  %   100  %
Cost of revenue                                   42           44       46
Selling, general and administrative expenses      27           26       25
(Gain) loss on sale of patent assets, net          -            -        1
Operating income                                  31           30       28
Other income (expense), net                        -            -       (3 )
Income before provision for income taxes          31           30       25
Provision for income taxes                        12           11       11
Net income                                        19  %        19  %    14  %


Years Ended December 31, 2012 and 2011
Revenue

Cost of Revenue
Our cost of revenue for the year ended December 31, 2012 was $82.3 million compared to $67.4 million during the same period a year ago, an increase of $15.0 million, or 22%. The prior period amount includes a $4.0 million charge related to a payment made in lieu of a contingent obligation. Excluding this amount, cost of revenue for the year ended December 31, 2012 increased by $19.0

million, or 30%. The increase was primarily attributable to an $18.1 million increase in patent amortization expense as result of an increase in our patent assets.

Selling, General and Administrative Expenses Our selling, general and administrative expenses for the year ended December 31, 2012 were $53.6 million compared to $40.6 million during the same period a year ago, an increase of $13.0 million or 32%. The increase was primarily due to a $7.0 million increase in personnel-related costs, including stock-based compensation, attributable to increasing our headcount to 125 employees as of December 31, 2012, compared to 110 employees at December 31, 2011, a $2.3 million increase in our facility-related costs and depreciation due to leasing of additional office space and increased infrastructure costs associated with the growth of our business; a $1.2 million increase in our professional fees due to the growth of our business and incremental costs associated with being a public company and a $1.8 million increase in legal expenses primarily due to the $2.1 million cost recovery that was recognized for the year ended December 31, 2011 as a result of an incomplete syndicated acquisition that had been expensed in 2010. We expect that in the foreseeable future, selling, . . .