SAN JOSE, Calif. -- Patriot Scientific Corp. had spent nearly a decade trying unsuccessfully to establish a new microprocessor architecture when it decided it needed to do some soul-searching. It hit paydirt when that process revealed its real products: patents.

The six-person company netted more than $24 million in 2005 from Advanced Micro Devices, Casio, Fujitsu, Intel and Hewlett-Packard by licensing seven U.S. patents it considers fundamental to CPUs. And it's just getting started.

"Hundreds of companies have been put on notice as potential infringers," said David Pohl, CEO of the Carlsbad, Calif., company, which hopes to collect royalties on sales of all microprocessor-based systems--sales that are estimated at $200 billion a year. "Virtually every electronic product that a consumer or business comes into contact with is touched by this portfolio."

Once its strategy was clear and its portfolio in place, Patriot pared its operations to the bone, outsourced enforcement of its patents to a joint venture and commissioned a study to look at how it might dispose of its CPU business. "This company doesn't need to be manufacturing anything or marketing a product. We can essentially rely on our licensing team to create revenue for us," said Pohl.

Patriot is just one of a rising number of so-called patent-licensing and -enforcement companies. One source said multiple venture funds are forming to bankroll the efforts of these PLECs as they carve out business models in the midst of a gold rush in intellectual property (IP).

New breed of innovator

The PLECs are part of a broader group of emerging patent companies that see themselves as innovators, creating new ways to buy and sell patents--including the first major patent auction, to be held in San Francisco in April. Such efforts will generate high-margin businesses and champion the rights of small companies and lone inventors, proponents say.

"The highest-margin part of our industry is the invention. We don't want to compete where there are increasingly slim margins, in manufacturing and distribution," said Brent Frei, a vice president at Intellectual Ventures (Bellevue, Wash.), a startup founded by the former chief technology officer of Microsoft Corp.

Intellectual Ventures aims to write and buy patents to create and commercialize powerful patent portfolios. "A cool set of patents in itself is an incredible product. Our founder, Nathan Myhrvold, is fond of saying IP is the next software," said Frei.

Too much of the patent power is locked up with big corporations today, said William Reber, a former director of technology for Motorola who has been working as a lone inventor since 2002 and hopes to sell 53 of his patents in the April auction organized by Ocean Tomo LLC (Chicago).

"If they create a new market for IP, that's a whole new trajectory for commercializing patents," said Reber, who foresees a day when productless invention companies like Intellectual Ventures might play a role similar to today's fables chip companies.

"Once inventors are unshackled from corporations that own you 24 hours a day, a whole lot more brainpower becomes available," said Reber, who has patents on camera phones, biochips and bar codes.

Others see the new players as trolls raising nuisance suits or otherwise trying to cash in on innovation without adding real value. Such entrepreneurs are fueling a rush on a U.S. Patent Office already swamped in applications, struggling with delays and confronting concerns about the quality of patents it issues, they say.

"We think work that results in real products coming to market is the right system to reward. People who go around buying up patents is not the right system to reward," said David Simon, chief patent counsel for Intel Corp., which is now involved in about 30 patent infringement suits, a number growing at a rate of about one a month.