CARLSBAD and CUPERTINO, Calif., Oct. 7, 2011 /PRNewswire/ -- Patriot Scientific Corporation (OTCBB:PTSC.ob - News) and The TPL Group today announced that they have jointly reached an agreement to resolve and settle all claims and issues between them regarding their Joint Venture for the commercialization of the MMP Portfolio. The agreement includes mutual payments and mutual releases which will end the uncertainty associated with appeals and ongoing delays within the court system, and lay a solid foundation for future cooperation between the parties and their combined pursuit of the business of the MMP Portfolio.

From the 1st amended complaint

1. Incompetence of TPL’s management to run its business affairs causing it to squander and continue to squander over $45 million and its ensuing misconduct towards its JV Partner, Patriot, improperly designed to force Patriot to finance TPL’s on going losses.

2. TPL breached its fiduciary duties to Patriot by improperly commingling its expenses that it charged to their joint venture and by engaging in licensing activities designed to profit through over valuation of its own separate technology at the expense of the interests of the joint venture and Patriot.

3. TPL was paid its 15% totaling approximately $40 million and then some, out of the MMP licensing revenues derived to date

4. After the 15% TPL shared equally with Patriot 50% of distribution. Patriot believes that TPL has not paid Moore his share of their side of the net revenue and that Moore’s share of their side is 55%

5. TPL commenced on a spending binge. TPL grew its operations to support non MMP portfolios and technologies. TPL’s non MMP activities have not been profitable. Patriot is informed and believes TPL lost over $43 million on non MMP products, activities and technologies

6. By 2009 TPL’s cash woes worsened but it failed to scale back non MMP activities.

7. As such, it has and does continue to this date to experience a substantial “burn” which has rendered it insolvent. Patriot is informed and believes that TPL owes third parties in excess of $30 million.

8. In August 2009 TPL contended that in house work related to resisting patent re-exams were “extra” and outside the scope of its 15% off the top MMP licensing revenue. Its position was wrong and never agreed to by Patriot. Nonetheless, Patriot then agreed without any consideration to temporarily infuse additional cash into the JV beyond that called for under the parties’ agreements

9. This was done expressly based on assurance that TPL would drastically scale back its expenses and “burn” and would remain viable and based on projected MMP licensing revenue

10. Patriot (at TPL’s request) agreed to reduce the parties’ commitments under the terms of the PDS Operating Agreement to otherwise continuously maintain $8 million in capital. Also at TPL’s request, Patriot did not require PDS to make capital calls on its members.

11. Rather than accepting and expressing gratitude for relief from those obligations, TPL continued to seek funds from Patriot to support non MMP activities and its extraordinary overhead. Patriot has now refused to continue to support TPL financially any more than is legally required.

12. TPL’s response has been to threaten to shut down the licensing program. Further to try to coerce Patriot to loan it more money, TPL has focused on a new strategy of improperly diverting licensing revenue to itself through its licensing division Alliacense, contrary to its authority under the ComAg

13. MMP licenses were undervalued and Patriot has been damaged

14. TPL violated its duties to Patriot by exploiting for personal benefit the conflict in simultaneously licensing MMP and non MMP licenses with third party MMP infringers by charging the JV expenses of outside counsel devoted to pursuit of its own portfolios and other TPL intellectual property.

What I found to be most interesting was at the end of the complaint where it reads “Patriot Prays as follows”. In the original complaint PTSC prays for (damages, injunctions, accounting of expenses, etc) which is what the company has mentioned in their SEC filings (8K & 10Q). However, the 1st amended complaint added one more request (Below) which has, to my knowledge, never been stated by the company.

For a declaration of Patriot’s right to declare the ComAg terminated. (bolded and underlined by me)

Wouldn’t it be interesting to know the substance of the settlement in view of the 1st amended complaint.