I. Tesla’s open patent strategy
Tesla’ per se open patent strategy[1] can be attributed to a wide range of the company’s short and long-term goals. Some of these may include expectations in market growth & building a better market for electric vehicles, leveraging first-mover advantage because of increased market share, adding more sustainability factors to the business, hiring talented engineers, increased sales for other products like battery etc.
It seems that if there are takers of the Tesla technology (which for now appears that not many companies have adopted Tesla technology post announcement by Tesla of its open patent strategy), Tesla can enjoy benefits of sharing patents that can substantially outweigh the costs of sharing the same (some of which are discussed in the ensuing paragraphs). The patent sharing strategy is not new, and many companies did so in the past too[2].
For the growth in Tesla’s business which caters now to a niche segment, it is essential that necessary infrastructure is available in the market to ease the usage of the product for the customers. For example, there should be sufficient charging station availability; more mechanics need to learn how to repair electric vehicles; customers/ drivers need to learn to drive electric cars; adequate maintenance system should be available. This would be possible only if more and more companies entered the segment of electric cars. Further, like other businesses, the success of electric vehicles will benefit from network effects when they can share knowledge to create a ‘common, rapidly-evolving technology platform.’[3]
Also, if other companies adopt Tesla’s technology, Tesla can leverage on first-mover advantage and become a major player in the market rather than being the only player. This may also enable the company to enjoy a more significant market share. In the words of Musk[4], allowing others to use its technology will increase innovation, and that ‘the world would all benefit from a common, rapidly-evolving technology platform.’ We can also take the example of the Google Android platform; the open-source strategy helped google capture a significant market segment. It was a strategy to ‘create a moat around their Google search castle’ and capture the dominant market share of iOS.
Further, Tesla can also enjoy economies of scale; if other companies adopt the technology of Tesla’s charging network, Tesla can manage to charge networks compatible with their technology for fewer costs[5]. Increasing investments in electricity storage technologies in the automotive industry may lead to more innovation and a drop in the cost of batteries like Lithium-Ion. Jason mentioned he suspect that one of the reasons behind Elon Musk’s open source motivations is that he is looking for large partners to finance and build the many ‘Giga factories’ needed to mass-produce the batteries at scale, which is the single largest component cost of his cars, and the patent portfolio of Tesla is the ‘carrot.’[6] Thus, with the increase in market segment of the electric vehicle market, Tesla may gain additional benefits by having the option of supplying these battery components to its competitors. Moreover, electric vehicles can contribute to grid storage and other services. In the word of Watkins, ‘by encouraging their competitors to develop electric vehicles designed to plug into their electric station network instead of a different charging type, Tesla stands to capitalize on a potential fortune’.[7]
Another aim of the company is to accelerate the advent of sustainable transport. Holding back the patent technology would mean acting against this goal by putting a bar on the usage of intellectual property. Also, by taking benefits of the general agreement on patent open-source, Tesla can open more and potentially large patent pools from others and benefit from unified technology standards.
Like mentioned earlier, it seems that Tesla is using open-source patents to open potential patent pools to create a ‘shared, rapidly evolving technology platform’.
Though all these open patent strategies should have benefited the company, unfortunately, it seems that there are not many takers of it. Although, inspite of this announcement, it appears that Tesla has never abandoned its patent system completely. The use of the ‘good faith’ clause in the ‘Patent Pledge’ is testimony to it – the use of this clause leaves many grey areas, and the companies using Tesla’s patented technology may face challenges later. Hence, Tesla for infringement based on their agreement to use Tesla’s patents in ‘good faith’. Thus, without entering into a contractual licensing agreement with the specific user of Tesla’s technology, it still retains all rights and enforcement opportunities.[8] Further, Tesla still takes patents on its inventions. Some examples include WO2020/028625: a technology that discloses an interactive user interface for a steering wheel that recognises gesture movements made by a user, WO2019/241869: a technology that discloses a new chemical additive for lithium-ion batteries and WO2019/173891: a technology that discloses battery systems based on two-additive electrolyte systems[9]. The reason for this could be that Musk’s statements lack an intention for representations to be held as legally binding or irrevocable. Also, the rider of ‘good faith’ associated with the use of technology leaves many grey areas.
II. What lies ahead for patents
Patents have been the foundation for innovation and protecting inventions to ‘promote the Progress of Science and useful Arts.’[10] More and more companies are realising the importance of patents and are protecting their intellectual property rights by applying for patents. However, some authors did note the fading importance of patents[11] as it cost the company lot of associated legal and compliance costs. There has been a growing trend of forming patent pools too[12]. In this world, where the software industry provides many open-use software licenses and collaborates with competitors, moving towards a patent pool in the tech industry seems a better approach to use technology and reduce the legal cost associated with patents effectively.
To monitor the effectiveness of the patent pool/ open-source system, an idea could be to set up a common body for setting up technical, institutional, normative and governance frameworks for regulating patent pools to ensure the effective use of the open-source patents (i.e., a common technology platform). These could encourage innovation and development and, at the same time, would protect the intellectual property rights of original creators with legally binding agreements. Further, the other advantage of open-source/ patent pools can be the co-development of the shared technology platform and individual participants. Even Google and Canon came together to form the License on Transfer network, which is ‘a new kind of royalty-free cross-license’[13].
Thus, in all, abolishing or phasing out patents would not be possible (as for some sectors like pharma industry patents does plays an important role); however, the adequate mechanism (for ex: effective regional body monitoring patents at the continent level and a global body where these regional bodies can meet and form patent strategy taking continental concerns into perspective) can be taken to make the use of more effective in this age of data and digital economy.
[1] The open policy still comes with rider of ‘good faith’ and can be used by other companies in ‘good faith’ only.
[2] For example: nearly two hundred years ago, the Boston Manufacturing Company, stopped enforcing its patents, allowing competitors to use its innovations; Swedish carmaker Volvo patented the design for the V-type three-point safety belt in 1959 and made it freely available. The new safety belt soon afterwards became the industry standard for vehicles worldwide.
[3] James Bessen, History Backs Up Tesla’s Patent Sharing (2014); see https://hbr.org/2014/06/history-backs-up-teslas-patent-sharing
[4] Abby Abrams, Tesla Opens Its Patents to Everyone (2014); see https://time.com/2865496/tesla-opens-patents/
[5] What Tesla Stands To Gain From Sharing Its Patents, (2014); see https://www.forbes.com/sites/greatspeculations/2014/06/16/what-tesla-stands-to-gain-from-sharing-its-patents/
[6] Jason Perlow, ‘Why Detroit Will Squander Tesla’s Patent Present’, ZDNet, 17 June 2014, why detroit will squander teslas patent present
[7] William J. Watkins, Jr., Rethinking Patent Enforcement: Tesla Did What?, FORBES (July 17, 2014, 1:16 PM), rethinking patent enforce ment tesla did what.
[8] See Yuichi Watanabe, Patent Licensing and the Emergence of A New Patent Market, 9 HOUS. BUS. & TAX L.J. 445, 463 (2009).
[9] Jack Rogan, Does Tesla’s open source patent philosophy mean they are free to use? (2020); see https://www.vennershipley.co.uk/insights-events/does-teslas-open-source-patent-philosophy-mean-they-are-free-to-use/
[11] Michele Boldrin and David K. Levine, The Case Against Patents, Journal of Economic Perspectives—Volume 27, Number 1—Winter 2013—Pages 3–22
[10] U.S. CONST. art. I, § 8, cl. 8
[12] Patent pools usually involve a well-defined field or complementary technology. In these instances, competitors could potentially exercise their patent rights to block competing innovation.
The views in all sections are personal views of the author.
