14 June 2014

Tesla ‘Open Sources’ a Wall of Patents

Tesla Model SIn a blog post yesterday, Tesla Motors’ founder and CEO Elon Musk announced that the company had taken down a ‘wall of patents’ in the lobby of its Palo Alto headquarters, and ‘will not initiate patent lawsuits against anyone who, in good faith, wants to use our technology.’

I have mixed feelings about this manoeuvre.  On the one hand, I am sure it is absolutely the right move for Tesla.  Elon Musk is nobody’s fool, so if he has decided that a wall of patents is delivering no value to the company as a barrier to competition, then who am I to argue?

On the other hand, I am troubled by Musk’s claiming of the ‘high ground’ in making this grand symbolic gesture (and yes, I will explain why I think it is ‘symbolic’).  His claim that Tesla is freeing its patents ‘in the spirit of the open source movement’ has had predictable results in the usual anti-patent circles: amongst others, a piece at Ars Technica asserts that ‘Tesla will use patents to subvert patent system’, while the Electronic Frontier Foundation opines that this is ‘a welcome alternative to current trends’.

What a lot of idealistic rot this is!  Tesla is a business.  It wants to succeed and make money.  More specifically, it wants to succeed in making the world’s first true mass-market electric vehicle over the next three years or so.  And to make this a reality, it also proposes to build a lithium-ion power cell ‘Gigafactory’ in order to take advantage of massive economies of scale to bring costs down.  The site for this $5bn construction project has reportedly become a political football, with Texas, Arizona, New Mexico and Nevada all vying to host the factory.

Tesla’s Desire For ‘Competition’

Tesla currently has a rather unusual problem for a technology business – a crippling lack of competition!  As virtually the only player in the business of producing economically viable electric vehicles, it has the luxury end of the market tied up.  In 2013 in the US, Tesla’s Model S outsold the Mercedes-Benz S-Class, the BMW 7 Series, the Audi A8, the Lexus LS and the Porsche Panamera.  Targeting the high-end of the market, considering that it is not currently possible to produce electric vehicles that are competitively priced at the lower end, has proven to be a superb business strategy. 

But without economies of scale that will bring component prices down, there is no way Tesla will be able to produce a price-competitive mass-market vehicle.  And the company just does not have the critical mass to create and serve the requisite market by itself.

As Musk admits:

Given that annual new vehicle production is approaching 100 million per year and the global fleet is approximately 2 billion cars, it is impossible for Tesla to build electric cars fast enough to address the carbon crisis. By the same token, it means the market is enormous. Our true competition is not the small trickle of non-Tesla electric cars being produced, but rather the enormous flood of gasoline cars pouring out of the world’s factories every day.

So Musk is engaging in an application of game theory.  What Tesla wants is to foster some ‘coopetition’: on the one hand, competition that will stimulate demand for electric vehicle technologies; on the other, cooperation in the development of ‘a common, rapidly-evolving technology platform’.  Enforcing patents that, to date, its prospective competitors have shown no sign of infringing, works against this goal.

And while there are benefits in growing the market for electric vehicle technologies in general, I cannot help thinking that it would not hurt at all if there were to be a much wider market than just Tesla for the output of that proposed $5bn Gigafactory.

Is There a Threat Behind the Promise?

There is, however, a misrepresentation, and an important caveat, in Musk’s announcement.  The misrepresentation is in the title, ‘All Our Patents Are Belong to You’.  No, they do not.  All Tesla’s patents still belong to Tesla!  It is not surrendering them, or ceasing to maintain them.  In fact, as Ars Technica also reported, in a conference call following his announcement Musk confirmed that Tesla will continue to aggressively file for electric-car-related patents – as a defensive measure, of course! 

And this is where the caveat comes in: Tesla is promising only that it ‘will not initiate patent lawsuits against anyone who, in good faith, wants to use our technology.’

So what does Musk mean, exactly, by ‘good faith’?  I can only suppose that he expects anybody wishing to exploit Tesla’s patented technologies to ‘sign on’ to his vision of developing a common technology platform.  That does not sound much like an ‘open source’ philosophy – rather, it would constitute a form of conditional licence.

For this reason, I consider Tesla’s ‘big announcement’ this week to be largely symbolic.  Indeed, physically removing the patent certificates that were, until now, proudly displayed in the company’s lobby is an act of open symbolism!  The strategy behind the move is not simply about doing the ‘right thing’ in the spirit of openness.  It is about exploiting Tesla’s IP position to try to control the direction of development in the industry, to enable the company to grow and to achieve its strategic and technology goals.

Conclusion – It’s Just IP Strategy!

Targeting strategic goals for growth and development is just what every sophisticated company does with its IP.  Tesla differs from many others only in that it wants to encourage, rather than restrict, competition for its patented technologies.  But, at the end of the day, Tesla is just like any other IP owner in that it wants to control its own destiny, rather than letting its competitors do so.

Unfortunately, in claiming the high ground, Tesla may be setting a false standard to which other companies might feel pressured to aspire, even though their circumstances may be very different.

Tesla may also be making a rod for its own back.  Just as the encroachment of commercial reality has resulted in Google finding itself more often embarrassed than praised over its informal motto, ‘don’t be evil’, the day may come when Tesla is forced to take more assertive action to support its strategic interests.  It may then learn that hell hath no fury like an idealist disillusioned!

Image credit: Shal Farley, via Wikimedia Commons.


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