By Philip Elmer-DeWitt
October 8, 2012

FORTUNE — “And boy have we patented it,” Steve Jobs declared to laughter and applause when he unveiled the iPhone in January 2007.

The back story behind that declaration, according to The Patent, Used as a Sword, a front-page article in Monday’s New York Times, was a decision Jobs made five months earlier after Apple (AAPL) was forced to settled a patent infringement suit filed by Creative Technology.

Creative, a Singapore-based multinational that made several early MP3 players, including the NOMAD and the ZEN, had in 2001 submitted a U.S. patent application for a portable media player user interface. The patent was awarded in 2005 and in May 2006, Creative sued Apple for patent infringement in the iPod.

“Creative is very fortunate to have been granted this early patent,” Jobs said after settling with Creative for $100 million.

Based on interviews with former Apple lawyers, including Nancy Heinen, the Apple (and before that, NeXT) general counsel who was thrown under the bus in the 2006 stock option backdating scandal, the Times‘ Charles Duhigg and Steve Lohr tell the story of what happened next:

It was 2006, and Apple was preparing to unveil the first iPhone. Life inside company headquarters, former executives said, had become a frenzy of programming sessions and meetings between engineers and executives. And, increasingly, patent lawyers.

Just months earlier, Apple reluctantly agreed to pay $100 million to Creative Technology…

Privately, Mr. Jobs gathered his senior managers. While Apple had long been adept at filing patents, when it came to the new iPhone, “we’re going to patent it all,” he declared, according to a former executive who, like other former employees, requested anonymity because of confidentiality agreements.

“His attitude was that if someone at Apple can dream it up, then we should apply for a patent, because even if we never build it, it’s a defensive tool,” said Nancy R. Heinen, Apple’s general counsel until 2006.

Soon, Apple’s engineers were asked to participate in monthly “invention disclosure sessions.” One day, a group of software engineers met with three patent lawyers, according to a former Apple patent lawyer who was at the meeting.

The first engineer discussed a piece of software that studied users’ preferences as they browsed the Web.

“That’s a patent,” a lawyer said, scribbling notes.

Another engineer described a slight modification to a popular application.

“That’s a patent,” the lawyer said.

Another engineer mentioned that his team had streamlined some software.

“That’s another one,” the lawyer said.

“Even if we knew it wouldn’t get approved, we would file the application anyway,” the former Apple lawyer said in an interview. “If nothing else, it prevents another company from trying to patent the idea.”

The disclosure session had yielded more than a dozen potential patents when an engineer, an Apple veteran, spoke up. “I would like to decline to participate,” he said, according to the lawyer who was at the meeting. The engineer explained that he didn’t believe companies should be allowed to own basic software concepts.

It’s a major story that looks at software patents from both sides. You can read it here.

The article is Part 7 in the Times‘ ongoing iEconomy series. Four of the earlier pieces singled out Apple — some think unfairly — for outsourcing jobs, for exploiting cheap Chinese labor, for avoiding U.S. taxes and for how little it pays employees in its retail stores.

You May Like