My take on Tesla

Tesla Motors and its CEO Elon Musk made news in the patent and intellectual property world a few months ago with a company blog post entitled “All Our Patent Are Belong To You” (the error in the title is Musk’s, not mine). The post was most simply an indictment of the patent system.

The blog post waxes poetic about how the global threat from the internal combustion engine was far greater than any exclusionary benefit the electricity-powered Tesla might derive from its patents. Of patents he wrote, “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.” Boldly, he declared, “Tesla will not initiate patent lawsuits against anyone who, in good faith, wants to use our technology.”

But wait! Let’s dissect this a bit. Musk is one of the shrewdest businessmen alive today.  He doesn’t do anything without considering how the move benefits his companies. Just recently, Musk convinced Nevada lawmakers to pony up about $1.3 billion in tax breaks to help build his battery plant. Is Nevada getting a significant equity position in Tesla for their investment? The answer is no!

Have we all forgotten the battery swap promise? About a year and a half ago at a stockholder presentation with Musk presiding, a Model S was driven onto the stage and magically, its depleted battery was replaced with a fresh one in about a minute. The actual swap, however, occurred underneath the stage away from the prying eyes of the press and audience. Where are the promised battery swap stations? Well, California changed its laws concerning electric vehicles and the battery swap capability was no longer necessary for Tesla to receive desired tax credits, so it quietly disappeared. 

Ultimately, the great Tesla patent giveaway is for Tesla’s benefit. It boosts the company’s image among core supporters, and it might even give other auto manufacturers and suppliers pause before suing Tesla for infringement of their patents. Think of the PR nightmare, especially among the electric car faithful, of suing the company that magnanimously made all its patents available to everyone.

Of course, the patents themselves aren’t important to Tesla as they once were or might have been if someone else entered their space earlier and as aggressively. Tesla is now the 900-pound gorilla with knowhow, economies of scale, easy access to dollars, and market clout. Musk indicates in his blog the original reason Tesla pursued patents was to dissuade large entrenched competitors from entering Tesla’s space, but that this belief “couldn’t have been more wrong” because the competitors didn’t. Perhaps the converse is true: The patents helped dissuade competitors from entering the electric car market in the first place.

What is good for Tesla isn’t necessarily good for everyone else. Do patents really stifle innovation and award attorneys to the detriment of inventors as Musk contends? There are no doubt dozens if not hundreds of small – even tiny – companies across the country trying to develop new motor and battery technologies often funded by angels and venture capital. Do you think the founders and employees of these companies would toil to create the proverbial better mouse trap or that the angels would invest millions if the companies couldn’t prevent the resulting inventions from being used by the major industry players, including Tesla, without reasonable compensation? The ability for small players to protect their innovation spurs development, not the opposite.

Then there is the real question: Did Tesla actually free its patents to be used by all?  Musk’s statement was carefully worded. He didn’t say that Tesla would not sue someone who uses its technology, but that it would not sue someone who wants to use it in good faith. What does “good faith” mean? Does the fact that Musk wrote “wants to use” instead of just “uses” mean a company must get Tesla’s blessing before using Tesla’s patents? What isn’t said is whether Tesla will require a license before they let someone use their patents or whether it will require the user to pay Tesla a royalty. Making Tesla’s patents available for licensing isn’t all that unique: Many companies make their patents available for licensing.

Would you be surprised to learn that since Musk declared patents a hindrance to innovation on June 12, the company has had at least 13 patents issued, and that the issue fees were paid to the U.S. Patent office AFTER the blog post and Tesla’s monumental policy change?

I think the one thing we can reasonably conclude from Musk’s post is that the patent plaques that adorned the lobby at the company’s headquarters have been taken down.  Perhaps the blog post should be rewritten with a new title, “We Remodelled Our Lobby.” For some reason, I think such a post would not have received much attention.