The name of the game in designing semiconductors is to build as many functions as possible on to a single microprocessor, producing devices that amount to "a system on a chip". But with 20 million transistors on modern chips, the time needed to design one often exceeds the probable shelf life of the products in which it is to be used.
"This is a productivity gap that cannot be filled by today's designers on their own," explains Jim Tully, a semiconductor analyst at the research company Dataquest. "The only way it can be filled is by slotting in pre-designed blocks of intellectual property (IP) from other designers." Trade in these blocks - often called virtual components or VCs - is "taking off like a rocket", he says, growing by 65 per cent worldwide last year.
An important step has been taken recently to make this trade in virtual components (which may be just lines of code on a diskette or tape) as simple as buying and selling hardware. A Virtual Component Exchange (VCX) will begin some operations next year.
The VCX is based in Scotland, a country better known for producing electronic hardware than for designing it. But it has a powerful set of players among its 10 founding members: semiconductor design companies such as Cadence Design Systems and Mentor Graphics of the US, Arm and Iss from Britain, and semiconductor producers such as Motorola, Toshiba and Siemens.
The VCX is part of the Alba Centre, a semiconductor design campus at Livingston near Edinburgh set up by Scottish Enterprise, the development agency, to complement the establishment in the town of a system-on-a-chip design centre by Cadence which should eventually employ 1,900 people.
"There are many hurdles to be overcome before you can use a block of somebody's else's intellectual property," says Andy Travers, the VCX's interim director. First, he says, a semiconductor design company can spend a long time locating the VC it needs because VC providers, often small companies, are dispersed around the world and present their IP in different ways.
It can take 20 weeks to negotiate a contract between provider and user because there is no standard agreement under which a user can evaluate a VC to assess whether it suits him and then obtain the full use of it under licence. Even after a deal has been concluded the provider of the VC may find it difficult to audit the use the customer makes of it and collect royalties, leaving scope for disputes.
Because it is a new industry, says Tully, "VC providers don't know how much to charge and whether they are getting a good deal or not."
When the VCX gets going, says Travers, user companies will log on to it via the Internet and scroll through lists of tradeable ICs. The VCX will provide the electronic tools for an exchange of virtual signatures to allow the user to have an overview of the IC, followed by a full technical evaluation and a test of its compatibility.
Finally the parties would begin a contracting process, leading to agreement on price, delivery and product support. "All this will be built into the contract in a form provided by the VCX," says Travers. The VCX will set a model for royalty agreements and protection of IP rights, and lay down rules to govern mediation and arbitration.
They can make deals under any legal jurisdiction but could find the Scottish legal system attractive. Jack Harding, president and chief executive of Cadence, says the fact that the Scottish system reaches decisions quickly and does not have a long list of precedents are two reasons his company is setting up in Scotland.
Andy Travers believes the VCX will cut the time it takes to conclude transactions by 50 per cent and achieve a similar reduction in dealing costs. It will not set prices, leaving this to the parties, nor charge a percentage on deals. Instead it will levy membership fees and charge for writing contracts and for the use of its tools and technical support. It is constituted as a not-for-profit organisation.
Jim Tully believes manufacturers such as IBM and Nokia will become involved. "They are realising they are sitting on a mountain of IP embedded in their products and would like to find a way of releasing and commercialising it."