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12/02/2011 | 04:59 pm
Patriot Scientific Corporation Frequently Asked Questions
Q: Regarding the settlement reached between Patriot and the TPL Group in October 2011, why were further details not released regarding the settlement terms?
A: In order for Patriot and TPL to reach a settlement, it was necessary to agree that certain aspects of the settlement for which disclosure was not otherwise required remain confidential. Confidentiality was not our preference, however settling on terms that we believed to be favorable to the interests of Patriot's shareholders was our priority and we believe that we achieved that goal despite our inability to share some of the other details. We hope that by settling we have removed one obstacle faced by the license program.
Q: There were many serious claims levied against TPL by Patriot. How can Patriot simply abandon these claims without moving forward with the litigation?
A: We considered several factors in deciding to settle with TPL, including the significant cost and duration of litigation, the remainder of the MMP Portfolio's patent lives and the disruption to the licensing program. Although no settlement is ever perfect, we believed that the achievements afforded by the settlement were in the best interests of the licensing program and therefore Patriot's shareholders.
Q: Some people have identified a certain licensee as the impetus for the lawsuit initiated by Patriot against TPL. How was that specific issue addressed?
A: All aspects of the settlement beyond that which was disclosed in the Company's October 7, 2011 filing with the SEC made on Form 8-K are confidential.
A: While we believe that by settling we have removed a significant obstacle faced by the license program, we also believe the licensing program is influenced by several factors, some of which are more fully described in the Risk Factors section of our annual report on Form 10-K for the year ended May 31, 2011, and the quarterly report on Form 10-Q for the period ended August 31, 2011. We encourage the investing public to review these risk factors.
Q: On Chuck Moore's Colorforth web-site he made several statements that described Patriot's settling its lawsuit with TPL to be averse to his interests. Did Patriot act inappropriately with Mr. Moore?
A: Both Patriot's and Mr. Moore's lawsuits with TPL involve issues that in some manner pertain to the MMP Portfolio. However, Patriot's and Mr. Moore's legal actions and the underlying issues are separate and distinct. Patriot's settling with TPL did not pose a conflict of interest in our dealings with Mr. Moore, and Patriot's conduct with Mr. Moore has always been professional and above-board. For the benefit of the licensing program we would like to see TPL and Mr. Moore reach a settlement, however, Patriot's primary obligation was and is, to its shareholders.
Q: Why aren't all MMP Portfolio licenses announced?
A: Not all MMP licenses are announced. We believe that as a general rule the licensing program is enhanced by the publicity associated with the announcement of a new licensee. However, one reason why a license may not be announced is the licensee may require confidentiality as a condition to the license agreement. This may become more commonplace as companies are increasingly approached by agents representing intellectual property portfolios. Companies don't necessarily want to advertise that they may have been targets for patent infringement settlements.
Q: Why aren't the licensee fees and terms for MMP licenses made public?
A: TPL's rationale for not disclosing licensing terms is to avoid this information setting minimum or upper limits on future licensing deals, which would make it harder for TPL in future negotiations with prospective licensees. Potential licensees would have access to this information through Patriot's public filings. While we understand the desire of our shareholder's to have this detailed information, we have to agree with TPL that it is probably in the best interests of the licensing program not to disclose license details.
Q: What is the current status of the USPTO re-examinations of the MMP Portfolio patents?
A: There have been seventeen reexamination challenges made on the MMP Portfolio. Most recently challenges against US`749 and US`148 were successfully defended with Reexamination Certificates issued confirming all significant claims, while also adding new claims. We are currently awaiting and anticipate the issuance of a Reexamination Certificate for US'584, thus concluding all outstanding requests against the MMP Portfolio. Also notable was the USPTO's denial in August of a reexamination reconsideration petition asserted against US`336.
Q: Why has there been a substitution of counsel in the Northern California infringement litigation against Acer, HTC and Barco?
A: Unfortunately we cannot answer this question at this time other than to say it is in the furtherance of a legal strategy that we expect will benefit the infringement litigation and overall licensing program.
Q: What is the future direction of Patriot? Are additional M&A transactions planned? Is returning cash to the shareholders an option?
A: Patriot is not currently pursuing any acquisition opportunities. It has, and continues to, divest of interests in activities that have required continued uses of cash. While we believe Patriot currently has a relatively strong cash position, we continue to take measures to preserve resources so that we are as prepared as possible to support our interests in the MMP Portfolio and meet all challenges, both known and unforeseen. At this time a very important event in determining Patriot's future will be the outcome in the current Northern California infringement litigation. A significant step in that process will be the Markman hearing which is currently scheduled for January 2012. While Patriot has not ruled out returning cash to its shareholders, no action in this regard is expected to be undertaken until significant uncertainties surrounding the business, litigation, and the licensing program are resolved.
Q: What are the plans for PDSG? Why has it only had limited success thus far?
A: We have explored several go-to market strategies for PDSG. Over the past two years this has included an aggressive effort to identify partners that already had access and inroads to the market place. Given limited success we followed this effort with the exploration of a merger between PDSG and a specific systems integrator, and then most recently we again modified our market approach by reconfiguring the offering and removing many significant barriers to purchase including providing cloud based services under a SaaS model with generous evaluation options and minimal subscription duration commitments. All this has been done while curtailing cash burn and careful monitoring of the future investment requirements. We believe that this is an appropriate time to explore options in the market place focusing on strategic buyers that can have their market strategies enhanced by the unique and increasingly comprehensive attributes of the CDX-4 product suite and its ability to facilitate secure, standards based information sharing. As we announced on October 11, 2011, we have engaged a third party investment banker and have begun identifying and reaching out to potential acquirers and we hope to achieve a conclusion to this process relatively quickly.
Q: Why don't we ever hear about Holocom? Does Patriot still have an investment interest in Holocom?
A: Patriot continues to hold a preferred stock position in Holocom. Patriot's expectations are for its interest to eventually be realized upon a transactional event driving liquidity.
Q: Why is there such a lack of transparency at Patriot?
A: The perception that there is a lack of transparency stems largely from the nature of the licensing business. It begins with the fact that most prospective licensees do not proactively seek MMP Portfolio licenses. This can create a potentially contentious environment where the rights of the Portfolio often need to be aggressively negotiated with each licensor. Any information beyond what is not absolutely essential or required by law for public disclosure can be damaging to this effort. Similarly, litigation over infringement, like most any litigation engaged in by corporations, is generally not commented on until specific events are concluded. Also, even in the best of times the licensing business has had an episodic element to it. Unless and until a reasonable basis for forecasting future results becomes apparent, it would be inappropriate for us to make such speculations. While we understand shareholder frustration over transparency, Patriot has had to work within these confines. Unfortunately, this can lead to perceptions that there is an overall unreasonable or inappropriate lack of transparency. This is not to say that we aren't doing our best to increase transparency and will continue to do so, including assessing and differentiating information that truly needs to remain confidential and that which does not. Finally, there are several important factors that should be known which contribute to the success of the licensing business and we have been careful to enumerate these in the Risk Factors section of our annual report on Form 10-K for the year ended May 31, 2011, and the quarterly report on Form 10-Q for the period ended August 31, 2011. These are not boiler plate comments and we encourage you to read them carefully.
Q: When is the date for the next stockholders' meeting?
A: The Company plans to hold a physical meeting in Carlsbad California on Friday, February 10th, 2012 for stockholders of record as of December 16th, 2011.
Q: What is the status of the majority voting resolution approved at the last stockholders' meeting?
A: As you are aware, last year at our 2011 Annual Meeting of Stockholders, our stockholders voted on a proposal (Proposal No. 3) which requested that our Board of Directors initiate a process to amend our governance documents to provide for majority voting with respect to the annual election of our Board of Directors. While this proposal was approved by the requisite vote at our 2011 Annual Meeting of Stockholders, the proposal was non-binding upon our Board of Directors and therefore its implementation is at the discretion of our Board of Directors. After careful consideration, the Board of Directors has decided to retain the plurality voting standard and not implement the proposal. The principal factors upon which the Board made its decision include the fact that a substantial majority of public companies still use the plurality standard due to the increased likelihood of a failed election or the potential that stockholders would not elect a director that is needed to satisfy a regulatory or experience requirement. We expect the topic of stockholder proposals to be addressed during the upcoming stockholder meeting.
Q: Does Patriot continue to purchase shares in the open market?
A: Yes, Patriot regularly purchases shares in the open market within the purview of the safe harbor of Rule 10b-18 of the Securities Exchange Act of 1934.
Q: Are there significant stock option grants outstanding at the Board and management level for Patriot?
A: No. There are currently 1,800,000 options granted all of which are underwater and which represent less than half of one percent of all outstanding shares.
Q: Is there significant insider trading in Patriot's stock?
A: There is not significant trading activity on the part of Patriot's officers and Board. When trading activity does occur, our officers and Board members are required to self report this activity with the Securities and Exchange Commission on Form 4, Statement of Changes in Beneficial Ownership.
Safe Harbor Statement: Statements herein which are not purely historical, including statements regarding Patriot Scientific Corporation's intentions, hopes, beliefs, expectations, representations, projections, plans or predictions of the future are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. The forward-looking statements involve risks and uncertainties including, but not limited to, the risks and uncertainties relating to the future of our MMP joint-venture and our wholly owned subsidiary PDSG. It is important to note that the company's actual results could differ materially from those in any such forward-looking statements. Factors that could cause actual results to differ materially include, but are not limited to, risks and uncertainties associated with the effect of changing economic conditions, trends in the products markets, variations in the company's cash flow, market acceptance risks, patent litigation, technical development risks, and seasonality. Our business could be affected by a number of other factors, including the risk factors listed from time to time in the company's SEC reports including, but not limited to, its most recent annual and quarterly reports filed on Forms 10-K and 10-Q. The company cautions investors not to place undue reliance on the forward-looking statements contained herein. Patriot Scientific Corporation disclaims any obligation, and does not undertake to update or revise any forward-looking statements made herein.