Bold Strategic Moves 2014

Elon Musk, CEO of Tesla Motors, is letting other manufacturers use the company’s patents free.

6 / 11

Previous Next

Unlock your patents

By Brad Howarth

Tesla Motors unlocked its patents as a strategy to grow the electric car industry.

Best known as the CEO of electric car-maker Tesla Motors and founder of SpaceX, the company that hopes to establish life on Mars, American entrepreneur Elon Musk amazed everyone in June this year when he announced Tesla Motors was apparently giving away the patents to many of its inventions, free, to all comers.

Musk used a blog entry to announce that Tesla Motors would not initiate patent lawsuits against anyone wanting to use its technology “in good faith”.

His reasoning was that the company’s mission to accelerate the development of sustainable transport was being impeded by the intellectual property “landmines” it was leaving in its wake.

Musk wrote: “When I started out with my first company, Zip2, I thought patents were a good thing and worked hard to obtain them.

"And maybe they were good long ago, but too often these days they serve merely to stifle progress, entrench the positions of giant corporations and enrich those in the legal profession, rather than the actual inventors.”

John Dower, a partner at Freehills Patent Attorneys, says much hangs on the stated proviso that the patents only be used “in good faith”.

But Musk gives no definition of what constitutes good faith, and what would breach it.

“That’s given him an escape hatch against a major competitor down the line, by alleging they are not using the patent in good faith,” Dower says.

Tesla retains the right to enforce its patent at a future time, and Musk has not indicated whether he will cease patenting future innovations.

This may lead many would-be beneficiaries to be cautious about using the patent portfolio.

Technology investor and commentator Ian Maxwell says: “The automotive industry ranks third of all industries by number of patents filed and yet patent enforcement in this industry is low due to cross-licensing between the major players.

"It is not clear whether Tesla has executed the licence deals that it may need to design, build and sell its cars, but if it has done so then offering not to enforce its own patents against any party would substantially reduce the value of what the company has to offer in any cross-licence deal."

“As an act of goodwill, Musk’s decision may also serve to protect Tesla from future potential patent issues that it may itself face. Because of Tesla’s low sales volumes, and potential poor publicity, none of them have sued Tesla yet,” Maxwell adds.

“This will give them another reason not to.”

What Musk has done however is lay the seeds for a new market for Tesla’s technology, and in particular his plans for a US$5 billion battery manufacturing plant, dubbed the Gigafactory.
While Tesla is considered to be years ahead of other manufacturers in the electric car market, Maxwell says the cost of batteries is too high to create a mass market of electric cars.

Hence Musk needs the battery plant to create scale.

“The trouble here is that Musk probably can’t build a viable business plan on even the most optimistic version of growth in Tesla’s sales,” Maxwell says.

“So he has needed to pull a rabbit out of the hat and say there will emerge another dozen or so manufacturers of similar cars due to his ‘open source’ plan, and all them will buy batteries from the Gigafactory.”

As for removing Tesla’s protection from competition, Paul Jensen from the University of Melbourne says Musk is gambling that Tesla’s market lead will protect it.

“As a strategy I think it is a really smart one,” Jensen says. “The real trick here is that they are not really fighting over the technology that underpins the car now. It is more about how they are going to spread it across the masses.

“They were very proprietary early on, which was probably the right thing for them to do. And this is probably the right thing for them to do now.”

If Musk is successful and other vehicle manufacturers do sign up, Dower says he may well create the standard technology platform for the world’s electric car industry.

“By open-sourcing the patents he effectively creates a patent-free technology solution that then becomes the industry standard,” Dower says.

“So he can then deliver compatible products and accessories to all points in the supply chain.”