(FORTUNE Magazine) – FORTUNES HAVE been made and lost over the ownership of ideas. The concept of intellectual property takes on special urgency in high-technology businesses because invention is the industry's stock in trade. From bioengineering to software design, battles over patents and copyrights are heating up as global competition intensifies. The most recent attack: In mid-March, Apple Computer sued Hewlett-Packard and Microsoft, the major supplier of software for IBM desktop computers, charging that they copied the ''look and feel'' of the Macintosh's distinctive user-friendly programming. Determining exactly what the ''look and feel'' of a piece of software amounts to is only one of many tricky questions in the law of intellectual property, upon which millions of dollars hinge. What might be called the sue-the-bastards approach is gaining popularity because it has been increasingly successful. Texas Instruments, for example, has used it to pressure competitors into paying hundreds of millions in license fees it might not otherwise have collected -- $191 million in 1987 alone. TI is patent proud: Prominently displayed in the lobby of corporate headquarters in Dallas are the documents awarding the company rights to the integrated circuit (1964) and the miniature electronic calculator (1974). TI has 35 patent lawyers on the payroll, and it outperforms most companies its size by placing regularly among the top 40 or 50 recipients of U.S. patents. Chairman Mark Shepherd Jr. launched TI's litigious strategy several years ago, after it became clear that the company's income from licenses did not adequately reflect its huge investment in R&D. Although TI held many basic patents for fabricating dynamic random access memory (DRAM) chips, which are used in all sorts of computers, Japanese competitors were gobbling up the market. Yet these same Japanese outfits were making the product under a limited license from TI. With a generation of licensing agreements about to expire, TI decided to get tough in the next round of negotiations. Companies like Fujitsu, Toshiba, and Mitsubishi resisted TI's new demands while continuing to make chips that TI thought infringed its patent. So TI took them to court. As the legal process unfolded, TI looked to have more than a fair chance of winning. Before long, nine Far Eastern manufacturers of DRAMs had submitted to new licensing agreements that cost them five to ten times as much as they had been paying before. As a result, TI could collect a total of $250 million to $300 million in royalties through 1990. That's almost as much as the company's total profit last year. TI's success may well portend the future. Increasingly, U.S. firms are insisting on higher fees and better terms in exchange for licensing technology, and suing any rivals who are reluctant to go along. A few years ago, says Edmund T. Pratt Jr., chairman of Pfizer, ''the patent holder almost always lost.'' But now the suers have an ever more reliable ally in the courts, which are upholding infringement claims more often than they used to. Indeed, the pendulum has swung so decisively in favor of patent owners that more and more mind-boggling sums are being demanded. Polaroid is asking $5.7 billion in damages from Eastman Kodak, which the courts initially found in 1985 had poached on Polaroid's instant camera patents. GM Hughes Electronics Corp. is seeking more than a billion dollars from the U.S. government for alleged infringement of key patents in satellites built under federal contracts. Renewed judicial support for patents has raised again some basic questions about just how far private ownership of innovation should extend. In biotechnology, for example, a 1980 Supreme Court decision affirmed the patentability of genetically altered life forms -- thereby evoking the prospect of privately owned animal species. Rene Tegtmeyer, an assistant commissioner of the U.S. Patent and Trademark Office, says more than 20 applications have been filed for patents on new genetically engineered species, and at least one may be approved soon. Typically, says Tegtmeyer, these ''transgenic'' animals are disease-resistant or gain weight more efficiently than nature's own.

Critics have raised ethical and ecological objections to engineering new species genetically, and patenting such species introduces further complications. Suppose a biologist creates an ideal cow, one that produces vast quantities of milk on just three square feet of pasture a day and doesn't have to be milked at the crack of dawn. Dairy farmers would presumably pay well for such splendid specimens, but what about the calves they produce? Would the farmer have to keep paying royalties on the succeeding generations? Would small farmers, unable to afford bioengineered cows, be forced out of business? Would patented animals thus accelerate the concentration of power in agriculture? And who would keep records and police the payment of royalties on the original cow's progeny? Because these touchy questions remain unresolved, Congress has before it bills that would declare a moratorium on animal patents or ban them outright. GENERALLY SPEAKING, patents protect new, useful, and ''nonobvious'' ideas; copyrights protect the expression of ideas. Computer software is generally covered by copyright, and in recent years the courts have been enlarging that protection. The structure and organization of software programs, along with the precise phrasing of the code, are protected -- but what about the images that a program generates on the user's screen? These are the ''look and feel'' of a program, and a number of pending cases -- besides the Apple lawsuit, others involve the popular Lotus 1-2-3 spreadsheet -- may resolve just how closely one program can resemble another as it appears to the user. Behind the current jousting over intellectual property is a long history of clashes over fundamental ethical and economic questions. ''The basic philosophical and economic arguments concerning patents have not changed substantially for a century or more,'' says professor Donald Chisum, a patent specialist at the University of Washington law school. Patent owners have always insisted that protection for their inventions provides the economic incentive to innovate; their critics contend that patents create monopolies that inhibit competition and raise prices for consumers. Economic studies have yet to show just where the balance should be struck to encourage innovation while making sure that it benefits as many people as possible. In the absence of such evidence, the courts have vacillated. Says Chisum: ''There clearly have been eras when the patent system was in favor and eras when it was out of favor.'' The 1920s were a pro-patent period, but the prevailing view shifted in the Depression and stayed that way for 50 years. ''Patents were seen as a perquisite of big business,'' Chisum explains, ''and big business was thought to have let us down.'' That attitude is now history. Today's patent holders have been emboldened by what amounts to a genuine revolution in governmental enforcement and judicial interpretation. So far the revolution has been confined to the U.S.; elsewhere, patents are often about as effective a defense as the Maginot line. Indeed, the U.S. International Trade Commission estimates that American companies lose at least $40 billion a year from technology theft and product counterfeiting abroad. But within the U.S., manufacturers of everything from microprocessors to motorcycle helmets are finding that the tools are now in place to give them effective patent and copyright protection. In industries that require heavy investment in research and development, patent enforcement is a matter of survival. Says Pfizer Chairman Pratt: ''We estimate that the average cost to develop a new pharmaceutical product is now between $125 million and $150 million. And it takes ten to 12 years.'' Vincent Rauner, a Motorola vice president, reports that research, development, and engineering costs can amount to 25% or 30% of sales in the cellular telephone and microprocessor businesses. Rauner adds that undercapitalized ventures in Asia often scan the horizon for the most attractive opportunities and then copy leading product designs. Motorola claims that several foreign manufacturers of cellular phones threatened to drive it out of the business by doing just that. After the company warned them that they had infringed Motorola patents, Rauner says, four or five signed licensing agreements; negotiations continue with several others. The attraction for such companies, of course, is that they have no burdensome development costs and can concentrate on the most profitable products, leaving to mainstream manufacturers the unpleasant chore of meeting customer demand for lower-margin items. It took some time for the argument to sink in that strong foreign competition derives in large measure from weak intellectual property protection. Once this thought took hold, however, the resulting changes in government policy and judicial interpretation began to shift the balance of power from technologically disenfranchised imitators to technologically | franchised innovators. The most important development, says John Young, president of Hewlett- Packard, was the establishment of the U.S. Court of Appeals for the Federal Circuit, set up by Congress in Washington, D.C., in 1982 as the single appellate court for patent cases. Until then, patent appeals could be heard in any of 12 regional federal courts. The result was forum shopping: Patent holders filed infringement suits where the appeals court was pro-patent; defendants sued to invalidate those patents in other jurisdictions where the court was contrarily disposed. ''The statistics in some courts proved the old adage that 'the only valid patent is one that has not been brought to this court,' '' says Eric Jorgensen, an attorney at Tektronix Inc. Patent lawyers took heart when the new court began upholding patents, and they were further cheered by the Reagan Administration's abandonment of a list of proscribed licensing practices that came to be known as ''the nine no- nos.'' Thus, for example, it was a no-no for a patent owner to restrict a licensee's ability to sell anything that competed with the patented product. Patents, it would now be argued, did not discourage competition. They simply made investment in innovation economically rational. ''A patent is like any other property right,'' contends Charles Rule, assistant attorney general for antitrust. ''These property rights provide incentive for investment and innovation.'' With the threat of antitrust action subsiding and the courts upholding more patents, their value in licensing negotiations began to rise. F. Thomas Dunlap Jr., general counsel of Intel, began to notice the difference in management reactions to terms negotiated by the legal department. Says Dunlap: ''I think in the past it was always, 'Yes, I think we should take this settlement.' '' But as the value of the patents increased, management was less likely to jump at the first offer. COMPANIES ALSO began making serious use of Section 337 of the Tariff Act of 1930, which excludes imports to the U.S. where there is evidence of ''unfair trade practices.'' By filing patent infringement petitions with the U.S. International Trade Commission, American corporations can seek to keep out products built abroad with U.S.-patented production processes. Companies soon discovered other advantages to filing with the ITC: While patent lawsuits can drag on for years -- the Kodak-Polaroid case has been in the courts since 1976 -- the ITC is required to rule within 18 months. For a small company, says Donald L'Heureux, vice president of legal affairs at Bell Helmets Inc., there is also the lure of lower cost. That's one reason Bell turned to the ITC when it concluded that its patents for ventilated motorcycle helmets had been infringed by three Japanese rivals. L'Heureux says the ITC filing cost Bell less than $100,000, a substantial savings over suing. Bell settled its dispute before the ITC decided the claim. L'Heureux says the threat of an ITC exclusion order was very effective in getting a quick, favorable resolution. For all the progress they've made, proponents of intellectual property protection recognize that many of their gains are subject to reversal. Lawyers, after all, are inexhaustibly imaginative in devising means to circumvent -- or change -- the law. And in the legal game of cat and mouse between the technologically vested and unvested, the mice are regrouping. Phoenix Technologies Ltd., for example, has managed to hold off IBM's redoubtable legal army despite the fact that Phoenix is largely responsible for the hordes of IBM-compatible personal computers that cut deeply into IBM's market share. Phoenix designs systems software that emulates a critical function of the original IBM PCs and is used in the clones built by Tandy, AT& T, and Hewlett-Packard, among others. Phoenix has eluded the claws of the Big Blue cat with some good -- and expensive -- legal advice. During 1983 and 1984, Phoenix President Lance Hansche reckons, the Norwood, Massachusetts, company ''spent more on legal fees than to pay our technical employees.'' Phoenix was advised that it could avoid copyright infringement by employing the ''clean room'' technique. This stratagem required Phoenix to divide its engineers into two groups. Those called the ''virgins'' were recruited for their ignorance of IBM PCs and their software. Every effort was subsequently made to preserve them in that innocent state. Meanwhile a second group studied the IBM system, eventually producing a ''black box'' definition of the software. This, in shameless oversimplification, tells what electronic outputs are produced by the software in response to given electronic inputs. The virgins were instructed in what the system did, but not in how it did it. They were charged with devising an original way to achieve the same results. Hansche says that when they had finished, he called IBM's lawyers to ask for a meeting in which Phoenix could explain its innovative methodology in hopes of avoiding an infringement suit. Hansche says he was told such a meeting could not take place because IBM does not ''certify'' its competition. Since IBM hasn't sued yet either, Hansche says he is confident the clean-room technique is legal and has applied it to software design for clones of IBM's new PS/2 family of personal computers. Outside the U.S., theft and counterfeiting are rampant in countries with weak or nonexistent patent and copyright laws. Stephen Levy, a past president of the American Electronics Association, says the problem abroad ranges from outright counterfeiting (''You can buy Lotus 1-2-3 on the streets of Taipei for $15,'' vs. $299 or so in the U.S.) to more subtle parasitic techniques. To monitor these, Levy says his firm, Bolt Beranek & Newman, and many others involved with technology have stepped up intelligence gathering abroad. Pfizer employs detectives around the globe, according to Chairman Pratt; they often pose as buyers of counterfeit drugs in order to catch the bad guys red-handed. As a result, Pfizer says it now has ''tens'' of pending court actions against counterfeiters. Pfizer has considerable incentive to put the counterfeiters out of business. Pratt says his scientists invested ten years in developing Feldene, a popular antiarthritis drug. But by the time Pfizer got clearance to sell Feldene in Argentina, about five local copies were already on the market -- perfectly legally, since Argentina does not recognize U.S. product patents. Harrumphs Pratt: ''Not only do they steal it, they get preferential treatment from their government in getting approval. I mean, they're just doing us in.'' PRATT RECENTLY headed a private industry advisory committee that lobbied hard to have intellectual property issues placed for the first time on the agenda of the current round of General Agreement on Tariffs and Trade (GATT) negotiations. Having won the support of Japan and Europe, the U.S. will now lock horns with the likes of Argentina, Brazil, and India in an effort to forge more uniform international patent protection and anticounterfeiting measures. But since the GATT negotiations are unlikely to yield instant reform, it may be a while yet before U.S. patents get the respect in Buenos Aires that they have won in Washington.