An unseemly piece of gloating arrived in How the World Works' mailbox today, from an outfit called Patriot Scientific Corp. The e-mail started off by citing the $612 million settlement agreed to last Friday between RIM, the makers of the BlackBerry communications device, and NTP, a small software company that had sued RIM for patent infringement.
But that's nothing compared to what Patriot was about to extract from the entire world's computer industry, crowed the e-mail. Patriot "co-owns and markets core microprocessor architecture technology patents which affects every computer manufactured since 1994 and semiconductors which run faster than 120 MHz.
"The $612 million settlement last week will seem small compared to more than 150 computer/semiconductor manufacturers and consumer electronics companies worldwide now being sued or put on notice for industry wide patent infringement that is validated by recent licensing or court settlements by Intel, AMD, HP, Casio and last week Fujitsu."
Ah, the sweet smell of patent litigation in the morning. Does anything make one prouder to be an American? There are few things that How the World Works enjoys more than highlighting the good old-fashioned ingenuity and old school know-how involved with a sweeping patent infringment lawsuit, so we decided to look into the story and see what was really going on. What we found, in just a couple of eye-opening hours, was a twisty maze of patent lawsuits that tells you more than you probably wanted to know about the cutting edge of American high-tech capitalism.
The story dates back to the late 1980s, when two Silicon Valley engineers, Russell Fish III, of Mountain View, and "Chuck" Moore, of Woodside, applied for a sequence of patents to a set of related semiconductor designs that they dubbed the "Sh-Boom" microprocessor. But as is so often the case, Moore (who was already famous for writing the bulk of the Forth computer programming language) and Fish failed to turn their processor into a commercially viable product.
In 1991 Fish sold his interest in the patents to a venture capitalist named Helmut Falk. Falk's company, Nanotronics, spent a few million unsuccessfully trying to commercialize the technology, and then sold out to San Diego company Patriot Scientific in 1994.
Patriot Scientific was excited because one of the patents at issue appeared to lay claim to technology that would enable any microprocessor to operate at speeds faster than 120 megaherz. (Your typical Pentium or AMD chip now runs at least 10 or 20 times as fast as that.) The intellectual property represented by the patents, according to one observer, was "a patent litigator's dream." In 2003-04 Patriot started suing companies left and right, receiving a special assist from a licensing deal agreed to by Silicon Valley's No. 2 chipmaker, AMD, which may have been looking to open up a flank attack on Intel. Intel promptly responded by preemptively suing Patriot, which immediately countersued Intel.
So far, so good -- typical Valley shenanigans. But here comes the twist: You see, both Moore and Fish had been assigned ownership of the original patents, and Moore had not sold his interest to Nanotronics/Patriot. He had turned to another company, the aptly named Technology Properties Limited, and assigned his interest to them. Intel promptly agreed to license the disputed technology from TPL, driving Patriot into paroxysms of suspicion.
Next step: TPL and Patriot sue each other. Patriot tries to argue that Fish really was the one who came up with the key processor-speed patent, but by mid-2005 a San Diego judge doesn't seem to be buying the theory.
In short order, Patriot's CEO is asked to resign by its board, and the company cuts a deal with TPL, agreeing to split revenue from all future patent litigation, but giving TPL sole authority to manage the intellectual property. Now, having joined together, and with both Intel and AMD already having safely bought licenses, the consolidated patent holders are free to turn their attention to suing everybody and anybody in the world who integrates a microprocessor that goes past a certain speed into their products. And in the last month, after a few hardware companies agreed to buy licenses to the technology, Patriot's market capitalization surged from around $25 million to $600 million.
Patriot Scientific doesn't appear to ever have produced much of anything, besides a revolving door of CEOs and a generally unsuccessful record of litigation. But the company is mighty proud now to be holding the rest of the industy at gunpoint. Meanwhile, rather than spend millions in litigation, Casio, HP, and Fujitsu are buying peace of mind.
There's something about this business plan that reminds us more of "The Sopranos" than the kind of entrepreneurial innovation American technology start-ups are supposed to be famous for. Who knows what might have happened if all the money spent on lawyers was poured into research and development of new chip designs? But hey, a buck is a buck, right? Sh-boom. Sh-boom.