Patriot Scientific der Highflyer 2006

Here are his thoughts on a few things, I did not go all the way back to see if some on allready got this or not...goo luck to all of us ....U.S.N. RETIRED

http://www.edn.com/index.asp?layout=article&articleid=CA6513534 

By Jim Turley, Patriot Scientific -- Electronic Business, 12/17/2007

So you’ve decided to go into the intellectual property (IP) business. You’ve created a new chip design, software program, schematic, business model, one-click purchasing technology, or architectural design. You’re ready to license your brainstorm to a waiting market. The only hurdle remaining is deciding how much to charge.

How do you value intangible IP?

That’s a bit like asking, how cute is your kid? Every inventor believes that his “baby” is unique and priceless, so there’s a natural tendency to overestimate the value of one’s own inventions. Clearly something so precious and rare must be extraordinarily valuable. If it took years of difficult research and development to create, it must have enormous value to others. On the other hand, there are many cases where an engineer has undervalued his invention. Something that came easily to him, he reasons, can’t be worth much to others.
The problem lies with the engineering mindset and the concept of causality.

Let’s start with a hardware example. Your local hardware store buys nails in bulk at wholesale prices and sells them to you at a small profit. Likewise, Apple sells the iPhone for more than it costs to make and Dell sells computers for more than the cost of their components. Simple, right?

Yet Sony sells the PlayStation 3 for less than the cost of its components; Sony actually loses money on each sale. How can they stay in business? In Sony’s case, they make it up on the sale of videogames, which carry a royalty back to Sony. After you buy a certain number of PS3 games, Sony starts making money on you.

The point of all this is that there’s no causal relationship between cost and price. “Cost” is what you expended to create something; “price” is whatever the market will bear, not simply a percentage markup over the cost.

The same is true in the semiconductor business. The price of a chip isn’t necessarily related to its silicon cost. In fact, it’s usually not related. There was a brief period when the Intel ’387 coprocessor chip made more money for Intel than the U.S. Mint made printing dollar bills. It was literally more profitable than printing money.

Likewise, there’s no relationship whatsoever – none – between the amount of work you put into your IP and its value in the market. Just because you spend a lot of time developing something doesn’t mean it’s worth much to other people. An exact scale replica of the Eifel Tower built entirely out of toothpicks would take enormous effort to build yet have little value in the market.

Conversely, an idea that came to you in the blink of an eye can be worth millions. There’s no correlation between effort and value.

Value is in the eye of the beholder. What benefit does your IP bring to your customer? Look at it from their point of view. Does it save them time, avoid a costly alternative, provide compliance with a standard, or impress their customers? What can your customer charge his customers when this IP is included in his products?

Again, value isn’t determined by lines of code or number of logic gates. A short device driver or codec can be more valuable than a large one; a small circuit design is preferable to a bulky one. Size, like effort, doesn’t matter in IP valuation.

Microprocessors, coprocessors, and other software engines are especially tough to value because their real worth isn’t in the hardware. Processors and accelerators are keys to a software vault, and it’s the value of the software that really matters. Intel’s x86 chips are expensive because of the software they unlock, not because PC makers are excited about the chip design. The same goes for USB interfaces, MPEG-4 codecs, and other standards-based IP. Your customers want access to the standard and your IP is merely a means to an end, not an end in itself.

Finally, don’t underestimate the value of support. What most IP customers really want is a good feeling inside that they’ve licensed the right IP. They’re not really evaluating the technical merits of your IP (because they’re probably not qualified to do so). Instead, they’re evaluating your trustworthiness. Will you be around to support them when the inevitable questions or bugs crop up? Will you truly grant them access to the software or standard they want? IP is like insurance: The buyer wants to feel safe and secure before handing over the check. The best IP satisfies the licensee’s emotional, as well as technical needs.

About the author
Jim Turley is CEO of Patriot Scientific Corp., an IP licensing company headquartered in Carlsbad, Calif. Since August, 2001, Turley has managed his own technology consulting and analysis business, The Silicon Insider. Turley is the author of seven books on microprocessor chips, semiconductor intellectual property, computers, and silicon technology. He can be contacted at jturley@psct.com