Editor,

Far from being a lost cause, the IP-licensing business is a permanent part of our industry. It's not always the sexiest part of the computer or chip-making business but it's vital nevertheless. It's part of the lubricant that keeps the wheels of progress turning.

We can more charitably compare IP (intellectual property) licensing firms to a team of architects. Architects are trained professionals who design all types of buildings, from skyscrapers to tract homes. The architects design the buildings but they don't actually swing the hammers. Instead, they sell their blueprints to developers or construction companies who do the actual building.

Likewise, IP companies design chips but leave the construction to outside experts -- the chip companies. One person can't design a skyscraper from top to bottom including all the windows, doorknobs, heating & ventilation systems, electrical connections, and plumbing. It's also pretty much impossible for one person to design an entire 10-million-transistor chip.

At the very least you need a team of engineers all sharing the workload. And even they rely on their previous experience and reuse their past circuit designs. And they rely on EDA tools they didn't design themselves. And the programmers for this new chip will use compilers and debuggers they didn't personally design.

To paraphrase Isaac Newton, we all stand on the shoulders of giants. All engineering is built upon the ideas and structures that came before. We all rely on existing intellectual property.

So we've established the necessity. What about the business model? Like any business, IP licensing can be ridiculously profitable or a miserable failure. There's no business concept that guarantees success (except perhaps Nigerian banking). You can fail at any business if you run it badly, but that doesn't indicate a flawed business model.

Some IP firms charge a single up-front fee for access to their intellectual property. This is how software companies like Microsoft normally work. You pay once and you ''own'' a copy of the product. (Technically, as we all know, you don't really own it in the usual sense; you have a license to use it.)

Other IP firms charge a royalty per use; this is how many RTOS companies and music publishers operate. Some IP firms charge both up-front fees and royalties. Adjusting these pricing knobs is what the marketing people at IP companies do. It's their responsibility to find a price that customers will pay for the software, circuit design, or compiler.

And the most important thing, of course, is to produce a product the market wants, whether it's a skyscraper, music download or a microprocessor.

Jim Turley
CEO and president
Patriot Scientific
jturley@ptsc.com