By Michael Borella --
On June 12, Tesla CEO Elon Musk announced that the company "will not initiate patent lawsuits against anyone who, in good faith, wants to use our technology." This move was hailed by some as a win for those who support reform of an allegedly broken patent system.
But the truth is more complicated.
Tesla is not dedicating its patents to the public. Instead, Tesla appears to be promising not to sue potential infringers of its patents so long as those parties maintain "good faith." Tesla's press release does not define what Mr. Musk means by good faith, nor does it set forth any licensing procedures for a party wanting to use Tesla's patented technology. Consequently, should a competitor sue Tesla for infringement, Tesla has probably maintained the ability to assert its patents in a countersuit. Perhaps of more concern is what happens if Tesla sells its patents. Are good faith users then subject to lawsuits?
Further, Mr. Musk announced on a later conference call that the company will continue to pursue patents and put them "into what is essentially an open source category." So Tesla is not exiting the patent game, just employing a different strategy.
It is not uncommon for holders of a proprietary technology to share it with competitors in order to grow a market. Many standards bodies exist for such a purpose, and require that participants license their standards-essential patents on a fair and non-discriminatory basis.
Tesla has found itself in a difficult situation. While it holds about 42% of the electric car market, that segment is less than 1% of the overall vehicle market. In order for Tesla to grow and become more successful, the adoption of electric cars needs to be more widespread. For instance, if Tesla ends up holding 20% of an electric car market that is 10% of the overall vehicle market, its effective market share will have roughly quintupled.
And Tesla does need electric car technology to become mainstream in order to succeed. Its flagship Model S starts at $69,900, well above what the vast majority of car owners worldwide can afford. One of Tesla's stated goals is to sell a $30,000 electric car. But to do so it requires a worldwide ecosystem of parts suppliers, mechanics, charging stations, and other partners. Tesla needs economies of scale, especially for its battery technology, which is a significant portion of the cost of a Model S. Allowing others a limited dip into its patent portfolio will help make this a reality.
As an ostensible reason for Tesla's move, Musk claimed that patents "serve merely to stifle progress, entrench the positions of giant corporations and enrich those in the legal profession, rather than the actual inventors." He did not address, however, why the technology industry as a whole continues to grow, as evidenced by recent record-breaking stock values, billion-dollar acquisitions, and successful initial public offerings, despite this purported stifling of progress.
There is no doubting the brilliance and leadership of Mr. Musk, who is also the founder of Paypal and Space X. Casting the policy change as an indictment of the patent system has been lauded by the technology industry media and their mainstream counterparts. But Musk's proclamation is also a savvy business move, well-calculated to help Tesla grow its business. Any benefit to other companies is a side-effect.
Michael, your analysis is spot-on. As for Musk's ostensibly anti-patent stance, ask yourself this: if Tesla hadn't applied for and obtain so many patents, would it have been as successful as it has been in raising capital to fund its operations?
Posted by: Dan Feigelson | June 16, 2014 at 12:31 AM
bread and circuses and nothing new under the sun...
Posted by: Skeptical | June 16, 2014 at 06:59 AM
Michael,
Musk's announcement is a publicity stunt. Why? Most of his patents are invalid. I have read over 50 news stories about his stunt, and not one reporter considered this at all. Tesla has large numbers of patents that cite next to no prior art - a classic warning flag of crap. I doubt highly most would survive a well-funded court challenge or IPR. So what is he donating?
Greg Aharonian
Posted by: Greg Aharonian | June 16, 2014 at 08:56 AM
"Perhaps of more concern is what happens if Tesla sells its patents. Are good faith users then subject to lawsuits?"
Do you suppose that an estoppel would travel with the sold patent? Or an implied license? If Tesla sells a patent, the buyer would normally take only what Tesla had when it sold.
Posted by: Richard Stern | June 16, 2014 at 10:57 AM
Greg: "Musk's announcement is a publicity stunt. Why? Most of his patents are invalid."
Hardly unusual. It's also true of Myriad.
Posted by: Greggy Weggy | June 16, 2014 at 11:20 AM
Richard Stern,
That seems to beg the question.
I think people are recognizing that - in certain parlance - the Tesla patents retain the right of reverter, and any "goodwill" use may - or may not - be equivalent to life estates.
Remember, a mere license (without more) usually does not bind a purchaser and the pre-sale owner has the right of revocation at any time (again, without more, as in writing to the contrary).
Posted by: Skeptical | June 16, 2014 at 11:35 AM