Monday, March 20, 2006

PLECs; Highest margin part of our industry is the invention

EETimes -->

SAN JOSE, Calif. -- Patriot Scientific Corp. had spent nearly a decade trying unsuccessfully to establish a new microprocessor architecture when it decided it needed to do some soul-searching. It hit paydirt when that process revealed its real products: patents.

The six-person company netted more than $24 million in 2005 from Advanced Micro Devices, Casio, Fujitsu, Intel and Hewlett-Packard by licensing seven U.S. patents it considers fundamental to CPUs. And it's just getting started.

"Hundreds of companies have been put on notice as potential infringers," said David Pohl, CEO of the Carlsbad, Calif., company, which hopes to collect royalties on sales of all microprocessor-based systems--sales that are estimated at $200 billion a year. "Virtually every electronic product that a consumer or business comes into contact with is touched by this portfolio."

Once its strategy was clear and its portfolio in place, Patriot pared its operations to the bone, outsourced enforcement of its patents to a joint venture and commissioned a study to look at how it might dispose of its CPU business. "This company doesn't need to be manufacturing anything or marketing a product. We can essentially rely on our licensing team to create revenue for us," said Pohl.

Patriot is just one of a rising number of so-called patent-licensing and -enforcement companies [PLECs]. One source said multiple venture funds are forming to bankroll the efforts of these PLECs as they carve out business models in the midst of a gold rush in intellectual property (IP).

New breed of innovator

The PLECs are part of a broader group of emerging patent companies that see themselves as innovators, creating new ways to buy and sell patents--including the first major patent auction, to be held in San Francisco in April. Such efforts will generate high-margin businesses and champion the rights of small companies and lone inventors, proponents say.

"The highest-margin part of our industry is the invention. We don't want to compete where there are increasingly slim margins, in manufacturing and distribution," said Brent Frei, a vice president at Intellectual Ventures (Bellevue, Wash.), a startup founded by the former chief technology officer of Microsoft Corp.


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