Market Approves of Patent Rackets

Whether you think the $612 million Blackberry settlement is a victory for intellectual property rights or legalized extortion, the invisible hand of capitalism applauds the patent racket. How else can one explain the increasing fortunes of Patriot Scientific? The company holds patents that claim to affect ???every computer manufactured since 1994 and semiconductors which run faster than 120 MHz.???

An absurd claim? Perhaps, but in 2006 the company saw its market capitalization explode from $25 million to $600 million, a 24-fold increase. Its stock price has leaped from just 8 cents a share in 2005 to as high as $2 a share this year. Such growth is even more remarkable considering that the company, founded in 1987, never turned a profit until the third quarter of 2005.

Did Patriot Scientific release a hot product or unveil a breakthrough technology in the past year? Nope. Its new-found wealth comes entirely from patent-related settlements and licensing fees. For instance, Intel, AMD and HP paid a total of $24 million to Patriot Scientific. AMD also invested in the company.

Patriot Scientific also recently announced licensing deals with Fujitsu and Casio for undisclosed sums. And the company isn???t stopping there. It has sued NEC, Matsushita and Toshiba, and has notified 150 other companies that manufacture microprocessors for copy machines, cars, DVD players, and PDAs about potential infringement.

It seems to me that if AMD, Intel, and others were so inclined, they could???ve joined forces to crush Patriot Scientific through an endless series of suits and countersuits. At the same time they could???ve rallied the tech world to push for much-needed patent reform. Given the ongoing outcry over the RIM patent fight, there???s certainly enough momentum.Instead, they quietly paid up. Why? One reason might be that Patriot Scientific???s patents are absolutely valid. What???s more likely is that the Intels and HPs of the world know the patent system works for them more than it works against them. Tech giants routinely amass a staggering number of patents[1,2,3] , which they can use offensively and defensively against big competitors and small innovators. By paying off Patriot Scientific, they maintain the status quo, which for these guys is just good business.