Tesla Motors Open-Sources Patents – What It Could Mean for Entrepreneurial Ventures June 16th, 2014Patents/IP MMM Articles ELON MUSK & TESLA SAY: “ALL OUR PATENT ARE BELONG TO YOU.” Tesla Motors Open-Sources Patents – What It Could Mean for Entrepreneurial Ventures By: John R. Harris In a blog post on June 12, 2014, Elon Musk said that he removed the wall of Tesla patents from the lobby of their headquarters in Palo Alto, in the “spirit of the open source movement.” Mr. Musk added that, “We believe that applying the open source philosophy to our patents will strengthen rather than diminish Tesla’s position in this regard.” What does this mean for patents? No more patents for Tesla or other entrepreneurial ventures? (If you are wondering about the bad English in the title, that’s actually the title of Musk’s blog. It is a throwback to a Sega video game meme from the 1990s, which has an alien invader announcing the dire fate of a space fleet: “All your base are belong to us …”.) Is Musk signaling the end of patents for Tesla? For entrepreneurial ventures? Perhaps, but I doubt it. Patents are too entrenched and important for many reasons to completely throw them out. The open source movement, while noble and well-meaning in many respects, is difficult for many business organizations to adopt and use. The concepts of property and ownership of property – real property, personal property, and intangible property like patents and trademarks – are too firmly entrenched in market-based societies and governments. After all, the U.S. Constitution sanctions patents in Article 1, Section 8 … “The Congress shall have power … To promote the progress of science and useful arts, by securing for limited times to authors and inventors the exclusive right to their respective writings and discoveries.” This is the legal basis of the U.S. patent system. It would take a constitutional amendment to change this fundamental legal framework of patents and copyrights, which derives directly from Article 1, Section 8. It has proven difficult enough to get patent reform through the Congress. Witness the recent failed effort at so-called “anti-troll” patent reform, which stalled in Congress due to significant philosophical disagreements about the nature of reforms needed for the patent system. A focused, single-topic patent reform directed at trolls and litigation behavior got easily sidetracked. A constitutional amendment on something like this would be even more difficult, if not practically impossible in the current political environment. I do not intend to justify or even argue the pros and cons of patents and other forms of intellectual property in this article. Admittedly, I have made my entire career about intellectual property and have a pro-patent bias. I am well familiar with where the proverbial bodies are buried in the patent system, and the need for patent reform. After 35 years of law practice as an IP attorney, I have my own ideas on how that should be done. I have many clients that know and express frustration with “bad” patents, the need for patent reform, and the problems with so-called patent trolls. Perhaps Mr. Musk, being in Silicon Valley, has been privy to the fallout from the patent wars between Apple and Samsung with respect to mobile device and smartphone technology. Perhaps his investors are prompting him to “think different”, like Steve Jobs once told Apple customers. There are several things to consider in Musk’s decision to make “all their patent belong to us” and open-source his electric cars. In some respects, this decision is very clever – “hey, Tesla is open source!” It is a popular to be open source. Perhaps being open source will make Tesla more attractive to the world’s most talented engineers,” as he references in his blog. And note that Mr. Musk has not directly stated that he is not going to file or obtain any more patents. He said, “We believe that applying the open source philosophy to our patents will strengthen rather than diminish Tesla’s position in this regard.” This suggests that he is merely making these patents available for use. By open-sourcing its patents, perhaps Tesla is signaling that it will not sue some people, who might want to use some of Tesla’s technology in a manner that expands the market, in some circumstances. After all, Musk’s blog says, “Tesla will not initiate patent lawsuits against anyone who, in good faith, wants to use our technology.” What does he mean by “in good faith”? Using Tesla technology “in good faith” could mean several different things, ranging from mere restraint from suing, to licensing, to disclaimers, to outright public dedication of the patents. At least, it sounds like he is giving something up for some greater purpose. The idea of “standardizing” (as through patent standards setting organizations or “SSOs”) or giving away products for free for the greater purpose of expanding markets has become an increasingly common business practice. Even many patent-intensive companies have decided that it is best in the long run to dedicate or license their patents to a patent pool. The idea is to get more people in the market, more products, cheaper products – and thereby expand the market. Such companies necessarily expect that they have the structure, culture, and savvy to profit by an expanded market. Some save their patent fights for the highly distinguishing features of their products, not on the core concepts. So, maybe Tesla is simply trying to look like it is giving away something free. But if Mr. Musk is signaling that he and other big-time entrepreneurs are going to throw out the patent baby with the bathwater, I should remind that everybody cannot do like Elon Musk at the beginning of a venture. Elon Musk has the privilege of being smart and successful – but he has also positioned himself as an entrepreneurial celebrity – he gets attention, you listen, you think, and you have to give him credit for that. It is a part of his entrepreneurial street cred. That’s why I doubt that patents are going to suddenly disappear from the entrepreneurial scene just yet – Elon Musk gets big time attention, people listen, and then say, “Well, what am I going to do? Just give up filing patents? Make all my patents belong them too?” That is probably not a wise decision for most technology ventures. Which leads me to my reminder and conclusions: patents have many viable uses for entrepreneurial ventures. The patent system is firmly established and leads to certain eventual rewards when it works properly. And yes, further reforms are needed and some bad behaviors need curbing. Certain patent enforcement behaviors that lead to the term “troll” require further attention – which the courts believe they can address without help from Congress. Here are some things to keep in mind when thinking about patents, open source, and what to do if you are a tech entrepreneur: (1) Patents assist in enterprise value creation – there will be a value attributed to the enterprise if patents are acquired, due to their potential for enforcement. Good patents add more value than bad patents or no patents. 2) Patents give the option – but not the obligation – for assertion against competitors via litigation. Although patent litigation can be expensive and difficult (as Mr. Musk said and knows), litigation can and has been very successful blocking competitors, seeking damages from those who try to take unfair advantage. So, Mr. Musk might actually retain his option to go after those who do not “in good faith” use Tesla’s technology – whatever that means to Tesla. (3) Patents allow a venture to establish ownership of technology and inventions. Sometimes it is just nice to say, and have a legal document that says, “Our company owns this technology, we came up with it, we should get some credit for being its creator.” (4) Patents provide a mechanism to avoid the IP of competitors and others and forge in new directions. After all, one of the primary purposes of the patent system is to “promote the progress of science and the useful arts”. The publication and issue of patents serves to disseminate technical knowledge and guides companies in navigating to their own innovation destination. (5) Patents provide a vehicle and opportunity – again not an obligation – for revenue generation through licensing and sale of the IP. The legal documentation of patents facilitates contracting between parties and a definitional mechanism as to what is the IP and rights involved, so that parties can engage in commerce with respect to innovations. (6) Patents provide a way to make a market for innovation and allow monetization. Like item number 1 above, the patent system facilitates a market mechanism for debt collateral, as well as outright sale of a technology reflected in a patent portfolio. (7) Patents facilitate technology collaboration – companies often combine efforts with strategic partners for joint development and business, and engage in “open innovation.” Patents allow each party to a collaborative venture to define what it brings to the table, determine who will do what in the joint venture, and negotiate how the collaborative venture should be organized and operated. (8) Patents are usually the foundation of SSOs – patent pools are the typical mechanism by which competitors in a technology space formally agree to collaborate in a market, without undue risk from antitrust laws. SSOs have distinct and well-defined operating principles that drive collaboration, cooperation, and market participation. Without patents, some SSOs could simply not exist. (9) Patents have become a fact of life in a global economic community. Most countries in the world, at least those with a functioning economy, have a patent system. People around the world began adopting patent principles many years ago. Without patents in some countries, a global company is open to many unfair trade practices with few weapons to fight back. So, I doubt that Elon Musk has declared the end of patents, once and for all. I’m sure we’ll hear more from Musk and Tesla about their open source initiative. It is one of the first large-scale industrial attempts at open sourcing applied to industries outside of software. Whether this idea will catch on with other companies or industries, it is too early to say. But we can thank Mr. Musk not only for a creating a really nifty product – the Tesla – but also, now, for stimulating thinking about patents and their drawbacks and purposes at a grander scale. The information presented and contained within this article are provided by MMM as general information only, and do not, and are not intended to constitute legal, employment or tax advice. Any opinions expressed within this article are solely the opinion of the individual author(s). For more information, contact John Harris: firstname.lastname@example.org.