The Concept of Intellectual Property

In April, Apple and Qualcomm settled a lawsuit centered around Qualcomm mobile chip patents with alleged damages over $9 billion dollars. To the general public, and even many attorneys and law students, that may not mean much except that an exorbitant amount of money was at stake. But what does it mean? What is a patent, what is intellectual property in general, what does infringement mean, and why would committing patent infringement result in damages that are downright bananas?

This post is going to focus on intellectual property IP from a conceptual standpoint. Once we understand IP, we can better grasp infringement of intellectual property and how spat between two industrial titans can lead to legal wranglings over billions of dollars with implications for the world economy. While this post won't get into the details of Qualcomm's ongoing lawsuit brought by the Federal Trade Commission, it is worth noting that case also involves how Qualcomm is using its intellectual property, in particular the licensing of its patents.

There is a cynical view that the lawsuit was nothing more than a negotiation tactic used by the companies, Apple squeezing the less indomitable Qualcomm (by comparison) to force it to alter its business model, Qualcomm ransoming its limited monopoly on important technologies to force Apple to pay what it wants. While this may be true and not unusual in industry or even for patents on mobile phones (see Apple and Samsung’s past legal battles)—understanding the underlying concept of intellectual property and its legal basis is instructive for these legal disputes, the value of ideas, and the global economy.

The Apple-Qualcomm battles centered around a patent dispute—Apple alleging that Qualcomm was improperly pricing its patents and withholding rebates, and Qualcomm alleging that Apple was infringing its patents without paying for them.

Intellectual property is a set of legally protected rights in an idea.

Patents are a form of intellectual property that protect inventions: new and useful ideas and the functions aspects of what they do. Copyrights protect creative expression, as opposed to the functional aspects of ideas.

But what is intellectual property more broadly? Intellectual property is a set of legally protected rights in an idea. Owning a patent or copyright is to have ownership of the idea—usually in the form of a limited monopoly by which the owner can exclude others from taking advantage of the idea. Intellectual property is a form of property in that someone can own it, buy it, sell it, and take advantage of the rights wrapped up in it.

But intellectual property differs from personal property and real property in that we can’t see and touch ideas themselves. Although some cultures and many of our ancestors would have found the idea of “owning” a piece land as absurd or even abhorrent, we can at least intuitively understand the idea of owning a piece of land you can put a fence around (real property) or a bicycle you can put your name on with a piece of tape or lock with a combination that only you know.

But you can use the same concepts we have with personal and real property and extend them to the concept of concepts—ideas are inherently abstract, so let’s use the tangible to illustrate the idea of protecting ideas.

Infringement—the use of that idea without permission—is akin to trespassing on that land (or conversion in the case of personal property). The picture below illustrates the concept for us.

Unlike real or personal property, we need an additional mechanism to protect the property for it to have any practical value. Although it’s nice to have the torts of trespass or conversion to protect tangible property and the body of criminal law to prevent theft of those things, we can generally protect tangible property just by exercising control over it—putting a fence around a house or putting a lock on a bike or placing it in the garage.

But what’s unique about ideas as a form of property is that they are easily stolen because they’re intangible and by definition cannot be touched. I can’t keep the chapters of a novel or the schematic for a steam engine (or modem chip) in the garage or behind a fence forever—not if I want to share the idea with the world and profit from it. Someone (well, at least someone with the requisite skills) can copy the contents of the novel or reverse engineer the steam engine, and sell them.

This is where the government comes in. The limited monopoly from which an intellectual property owner derives value from his or idea needs to rely on the government to help exclude others from the idea, by providing a lawsuit to enforce that exclusivity and deter others from walking all over the land i.e. infringing the idea. That is our vicious (but cute) little guard dog in the photo—the extra mechanism to protect the IP.

The goal is to make the dog intimidating enough that others won’t infringe ideas with impunity (people will have the profit motive to create and invent), but not so ferocious that the dog bites harmless passerby or prevents people from going anywhere in the neighborhood (strangling innovation). The intellectual property owner can either sell the hunk of land encompassing the idea to someone, or grant permission to others to use the idea through a license (akin to opening the fence surrounding the idea and granting admission onto the land for others to enjoy it).

The purpose of intellectual property policy is to strike the balance that incentivizes creation and invention in such a way that benefits society overall. The incentive is the ability to extract value from the idea. In order to extract value from the idea, there needs to be sufficient deterrence (through lawsuit damages or other consequences) to prevent others from stealing the idea. We want the dog to be imposing enough to prevent theft of ideas, but not so vicious to prevent would-be creators leaving the house altogether, i.e. strangling innovation. 

The thinking is that others will then build upon the ideas made by others, benefitting society by advancing science or the arts. This is why the government requires inventors to disclose ideas in order to receive patent protection. The government then publishes the idea so that the others can learn from it, and hopefully improve upon it, benefitting society as a whole. 

Whether that proper balance has been struck through policy and practice is up for debate. But the United States does have a long history of innovation and economic success in technological industries where intellectual property is paramount. 

Intellectual property is a much newer legal concept than real or personal property, in no small part because it is a challenging concept to wrap our heads around and enforce. So why have it all? The thinking goes that creators will be more likely to create and inventors will be more likely to invent if they have incentive to do so. This incentive does not exist without the ability of creators to prevent others from using ideas and to profit from them themselves.

We want the dog to be imposing enough to prevent theft of ideas, but not so vicious to prevent would-be creators leaving the house altogether, i.e. strangling innovation. 

So important is the concept of intellectual property, that the founding fathers of the United States saw fit to include it in the U.S. Constitution at Article I, Section 8: Giving Congress the power to "promote the Progress of Science and useful Arts, by securing for limited Times to Authors and Inventors the exclusive Right to their respective Writings and Discoveries."

Depending on your view, the Apple-Qualcomm dispute could be an example of a monopoly on an idea run amok, or an example of a thriving scheme that protects ideas and enables the U.S. to be at the forefront of the implementation of 5G and other technological movements.