30 Comments

Summary:

Did the CEO of Tesla really “give away” the company’s patents. No, but he did do something more important.

Elon Musk standing up in Model X. Image courtesy of Gigaom.
photo: Image courtesy of Gigaom.

It’s hard to say what was odder: the headline that sounded like it was written by a little kid, or much of the reaction to it. In case you missed it, the episode in question is this week’s blog post by Tesla CEO’s Elon Musk titled “All Our Patent Are Belong To You,” which has had the tech and automotive world buzzing about what he is up to. (Update: the title is a gamer reference, h/t Shiggity in the comments).

The hype also showed that many people just don’t know all that much about patents. To set the record straight, here is what Musk’s message means from a legal and business perspective.

No, Elon Musk did not “open up” Tesla’s patents

Major news outlets from the LA Times to BusinessWeek declared that Musk had decided to “open up” or “give away” Tesla’s patent. While Musk’s blog post was short on specifics, it’s safe to say he did neither of those things.

For starters, patents are “open” by their nature; that’s how they work. When an inventor submits an application to the patent office, an examiner will lay it open for all to see and then decide if it is new and non-obvious enough to receive a patent. That is the trade-off at the heart of the patent system: inventors are given an incentive in the form of a limited monopoly to share their invention and, in return, society gets to learn how they made it.

So, the hundred-plus patents that Tesla has been awarded are open already. Do a quick search at the patent office and you will see them, including this one for a “Vehicle Charge Connector,” this one for a “Rear vehicle torque box” and this one titled “State of charge range.”

Likewise, Musk did not, as some stated, give away Tesla’s patents to his competitors or anyone else. It doesn’t work that way; you can’t just give away patents like lollipops. You have to formally assign them or else they’re yours until they expire — during which time you can sue anyone who uses them without a license.

Tesla, for now, has not assigned or licensed the patents. Instead, Musk wrote a blog post saying, “Tesla will not initiate patent lawsuits against anyone who, in good faith, wants to use our technology.”

So what does that mean legally?

Who knows. Under contract law, such airy promises don’t really do much unless someone else gives something in return. That means that anyone planning to infringe on those Tesla patents will have to cross their fingers and hope for the best (or perhaps rely on a doctrine called “promissory estoppel” of which I’ll spare you the details).

If Musk is serious about this, and it sounds like he is, he may want to take a page from Google’s “Non-Assertion Pledge” for cloud-related patents, which hasn’t really been tested in law, but sure looks more formal. Likewise, Twitter’s “IPA agreement,” which assures engineers the company won’t later use their work for patent trolling, could be a model for Musk.

And lest anyone think that Tesla just jettisoned all its intellectual property, keep in mind that the company still has a wealth of IP in the form of trademarks, trade secrets and so. This means that if anyone decides to copy Tesla’s cars too closely, Musk (who is no stranger to lawsuits) will probably sue the bejabbers out of them.

Tesla Model S, image courtesy of Tesla.

Tesla Model S, image courtesy of Tesla.

What Musk did do

As some Tesla watchers, including my colleague Katie Fehrenbacher, have noted, the company’s patent strategy is likely tied to its desire to expand the market for electric vehicles, which will in turn benefit Tesla.

One way to do that is to signal to potential competitors that Tesla won’t play nasty by invoking patents to keep them away from its market. The lack of a patent fence could lead to more competitors, which will bring more customers, and perhaps create a virtuous cycle of ever-increasing demand for clean vehicles.

Will the plan work? It’s too soon to say, but it’s certainly worth a try. And, at the very least, Musk’s announcement triggered another cascade of press for Tesla and its Model S, which are already racking up rave reviews.

The most important thing that Musk has done, however, transcends Tesla itself. What he did was send one of the most powerful messages yet that patents are not the same thing as innovation — and that the patent-trolling industrial complex is hurting industry by scaring off billions in VC funding, not helping it. This message has been repeated often by scholars and sites like Gigaom, but it is all the more convincing coming from a man who builds electric cars and rocket ships.

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30 Comments

  1. Tom Hochstatter Saturday, June 14, 2014

    Jeff,
    Thanks for breaking this announcement down and illuminating the real impact of a Tesla PR event. The best news is Musk keeps “patents” in the mainstream news headlines which will help advance more understanding to a broader population.

    Can only hope mainstream (biz) press will dig into the patent business and actually report on it vs. writing some link bait headlines announcing the end of patents…

    Tom Hochstatter
    idealAsset

    1. Tom, I suspect we have different views on the proper role for patents as an asset class, but thanks for the kind words and for taking the time to comment.

  2. Article says “Musk (who is no stronger to lawsuits)..”

    ‘stronger’–>’stranger’ makes more sense.

  3. If you seriously didn’t understand that opening line, shame on you.

    Every gamer on Earth understood it.

    1. Jeff John Roberts Shiggity Saturday, June 14, 2014

      Thanks for the Shiggity, I confess I missed the reference. I’ve updated above.

      1. I wouldn’t necessarily call it a gamer reference, if only because the game it was based on was played by roughly 3 people ever. I’d far more call it an early 2000/ late 90s meme that went nova back when people didn’t know they were called memes.

        The original phrase was, “All your base are belong to us.” Here’s a nice music video from back then that illustrates the point. https://www.youtube.com/watch?v=8fvTxv46ano

  4. The author needs a proof reader!!

  5. Right, with an article like this I would hope you do not use apple stuff.

  6. Jeff – you are boring the hell out of me with your analysis.

  7. I think blog author Roberts might be off the mark here in saying “What [Musk] did was send one of the most powerful messages yet that patents are not the same thing as innovation — and that the patent-trolling industrial complex is hurting industry by scaring off billions in VC funding, not helping it.”

    Actually, what Musk did was send this powerful message:
    1) Market adoption is not the same thing as innovation (nor do they grow at the same rate),
    2) without Tesla’s patents, Tesla would not exist, and
    3) the market is not responding to electric cars because there is a cheaper alternative that does the same thing that our more expensive car does (get you from A to B), and this means most people don’t even consider Tesla when buying a car.

    So this is certain: patents protect innovation, and this fact provides the only basis 1) for Musk to continue growing Tesla in confidence while his competitors cannot steal his IP, and 2) for Musk to even be able to write such an article where he makes a declaration that he is going to “open them up”. In all actuality, the utility of patent protection is the core underlying principle of his entire article, and also of Tesla as a company — Our patents protect Tesla, and it is because we have this protection that we are in a position to open them up to those who can help us grow using our tech, as determined by us, “in good faith”.

    Musk is basically saying this in his article: There are bigger fish that we compete with, and they are not producing enough electric cars and keep pumping out cheaper gas cars. This means people are not in the market for electric cars, and hence, they are not in the market for our cars. So, we need help. We need there to be a desire for consumers to buy electric cars, so in order to help this desire grow in the market, “Tesla will not initiate patent lawsuits against anyone who, in good faith, wants to use our technology.”

    Note how he lays this out: If you, as determined by us, are in good faith, you can use our technology. So what does “good faith” mean?

    It means this: “Use our stuff, just as long as you don’t grow too big using our tech. Why? Because it’s ours, and we have protection. Of course, good faith also means you’ll have to license our patents, so if you make money, we get our fair cut. We just won’t sue you as long as you play nice and pay royalties and licensing fees as we see fit. This is good faith.”

    Why is this an accurate interpretation of Musk’s statement? Because “good faith” is relative to Musk and Tesla’s financial interests; they are the patent holders. Duh.

    Also note how Musk contradicts himself: “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…” Why does he contradict himself? Because, again, without his Tesla-related patents, Tesla would not have any solid footing to stand on. This is why he is not giving the patents away. They do have worth to him and Tesla; hence the “good faith” clause. Telsa was extremely smart to obtain their patents when they did.

    He is basically saying Tesla is hurting because the market is not responding to electric cars, and this “patent PR stunt” is to get people to praise him and Tesla as nice guys, and to persuade others to help them create that market desire.

    1. I think you’re mostly right. Tesla will hang on to their patents. I disagree that “good faith” automatically means they will charge royalties. I think it means they WON’T charge royalties unless (a) you try to claim that the tech was yours in the first place and attempt to sell it, or (b) sell so many EV’s that you start pushing Tesla out of the market. I think Musk is counting on the idea that (b) is highly unlikely in the next decade or two.

    2. Bob Schubring tom Friday, June 20, 2014

      Tesla Motors IS a PR stunt. To build a plug-in hybrid like the Chevy Volt, one must overcome the grueling EPA 50,000 mile emissions test. Meaning that a team of drivers must operate a fleet of prototype cars for 50,000 miles, then deliver the cars to the US EPA Emissions Laboratory in Ann Arbor, Michigan, for testing.

      Tesla cannot afford the cost of it’s own engines in a hybrid car.

      Going for a boutique all-electric-car market, was a quick way to make headlines, pump their stock, and get into the battery business in a big way.

      Armed with a slew of patents, some actual engineering experience backed by user feedback, and some savoir-faire about the actual implementation of ideas that were disclosed in their patents, Tesla Motors can undo the damage to intellectual property protection that GM’s thief-in-chief, Ignacio Lopez de Arriortua, did in the 1990’s. GM’s Lopez systematically blackmailed GM’s suppliers for confidential information, then sold the information to competitors, in return for lower prices on parts sold to GM. After the damage was done, Lopez was fired and prosecuted for allegedly stealing GM secrets and trading them to Volkswagen for a better-paying job. But just like the infamous ignition switch, lots of GM people knew that GM did something wrong…but they kept the stolen trade secrets and did nothing to set things right.

      What Elon Musk has signaled with this curious post, is that they are willing to sell batteries, motors, and actuators to anybody who wants to build a hybrid car. But they won’t sit idly by, if anybody tries to strongarm them into losing money to pad a customer company’s bottom line.

      Auto execs in Detroit and Tokyo should take note: The real threat to their business, will be a Google self-driving car, that drives itself to the charging station for a swig of electric current, then finds itself a parking spot. And comes on command from an Android phone, to meet the human driver at the door. That’s the kind of revolutionary change that makes 50-miles-between-recharges, competitive with every auto now on the market.

      If they want not to be Google Motors, General Motors need to swallow their hubris and make a good faith deal with Tesla Motors, now, to build realistic numbers of hybrid autos. As do Honda, Hyundai, Ford, Fiat Chrysler, and Subaru. Toyota can take over GM’s place as the symbol of stodgy design…their California JV with GM seems to have infected them with a terminal case of corporate myopia, but that’s a blog post in itself.

      Surviving automakers in 20 years, either will build plug-in hybrids that use Tesla’s gigafactory concept to make their batteries, or will invent something better. The status quo is not an option.

  8. Hopefully he will license the battery pack technology to car industry. Even if they develop plug-in hybrids with 100 mile range it’s still better than the I.C.Es.

  9. The concept of open sourcing is viable for software IP (Intellectual Property) where the development tools are relatively inexpensive and widely available. For physical IP such as motor, battery and charging infrastructure patents and other IP, the development and manufacturing tools are NOT generally available, horrendously expensive and could never be made open source. Moreover know-how is an essential component of physical IP and Tesla Motors KnowHow Are NOT Belong To Us.

    Far from fostering innovation I would argue that freeing technology of proprietary use and patent protection can lead to stifling innovation by promoting a ‘good enough’ technology with no incentive by potential competitors to create better mouse traps. In particular the assumption that the highly optimized 125 year old AC Induction Motor and its awkward DC-AC Inverter electronics drive requirements is the best solution for the 21st century electric vehicle drive train is a bound to be flawed. In addition, the need due to fear of thermal runaway, to use batteries comprising thousands of cells each with energy densities of tens of watts will unlikely make sense if viable battery technologies emerge which can safely use batteries comprising individual cells with energy densities of hundreds of watts. And will these new battery technologies if they emerge make optimum use of the existing super charger network infrastructure?

    So, based on the analysis above, Tesla Motors would be the prime beneficiary of freezing electric vehicle technology at this point and restricting innovation to incremental improvements rather than the genuine technology breakthroughs that are needed for electric vehicles to become the dominant automotive platform.

    Geoff Boyd,
    San Jose, CA

  10. >it’s safe to say he did not neither of those things.
    it’s safe to say he did not do either of those things.

    1. Jeff John Roberts DanCar Sunday, June 15, 2014

      Fixed — thanks for flagging, DanCar

    2. “It’s safe to say he did neither.”

  11. “It’s hard to say what was odder: the headline that sounded like it was written by a little kid…”

    You forget, that expression is almost 15 years old now. People that use it are late 20’s, early 30’s. Children wouldn’t know what it means.

    1. What children are reading Gigaom? Not their target market….

  12. spixleatedlifeform Sunday, June 15, 2014

    Shiggity–“All the bad, forbidden words at once”? or, “an expression of the illiterati demonstrating their itinerant* and/or indigent* vocabulary” (*a chicken or egg thing)?

    Fear of offending the delicate of thought is the bastion of the maintenance crew of the elite.

    SPLF

  13. >Under contract law, such airy promises don’t really much unless someone else gives something in return.
    Under contract law, such airy promises don’t really DO much…

    1. Jeff John Roberts jt383852 Monday, June 16, 2014

      thanks, fixed

  14. Gary Dauphin Monday, June 16, 2014

    Plus, there are better charging standards are the way. Do a google search on Vanadium batteries and you will see why.

    So, why not give up access some old technology now? It gives you good PR, and with any luck you can use others to build a national charging infrastructure for you at no cost.

    Smart man.

  15. You are one of the rare news reporters who cares to research his story data, before setting it free. What you have written here is good information.

    I get really irritated with reporters who don’t have a clue about what they’re talking about, and then showering ignorance for us all to try and swallow. I saw a lot of this last year against Tesla, when it’s stock was bubbling.

    Best regards,

    Stanley Dornfeld

  16. Musk is in the process of building a Mega factory for EV batteries, if he can encourage other manufactures to use his batteries, and charging station solution by not enforcing his patent rights, he puts himself in a very good position in the EV market.

  17. Wherever you want to slice the hair is fine! However, I will support anything Musk does to break the back of the low efficiency combustion engine car industry. For if he can break it open and let consumers choose then people like the ones behind the Elio car company can have a shot at releasing thrie products to the American market. http://www.eliomotors.com/

    If I can get my 80 mpg three wheeler in the future because of what Musk does today, then my gratitude will be eternal!

  18. It’s also not a bad way to keep track of what the competition might be interested in doing.

  19. Hoang Ho Consultant Tuesday, June 17, 2014

    E. Musk has no problem defining what he can and cannot do.
    It appears that he believes in himself enough to try anything.
    People stood in Ford’s way too…he had a car/electric.

    Elon Musk, build the best BLIMP?

  20. Robin Grant van den Heever Sunday, June 22, 2014

    I’m pretty sure that any serious company wanting to use Tesla’s patents will enter into a written agreement with them. I also expect that there will be no royalties payable to Tesla for their use, which is essentially at the essence of the announcement.