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No, Tesla is (definitely) not turning its back on the patent system!

posted Aug 22, 2014, 12:08 PM by Julien Pillot   [ updated Aug 22, 2014, 12:09 PM ]

Today seems the perfect day to contrary the worn-out idea that patents actually hinder innovation. Such an awkward but widespread view mainly flows from some recent cases of patents misuse and abuse (patent wars, patent trolls, ...) largely reported in the news and – to some extent – likely to delay productive investments and eventually stifle innovation. However, it should not be forgotten that the very rationale of Intellectual Property Rights (IPR hereafter) is to grant innovators the exclusive right to make, use, or sell an invention for a limited period of time. As every economist does know, such a system rewards innovative firms for disclosing in-house innovations (which are most of the time the outcome of a long and costly research process) and, as a result, contributing to scientific and technological progress. In this way, the legal monopoly power provisionally conferred by the IP system to patent owners is no less than the appropriate incentive to spur global innovation and growth. No matter how damaging and mind-bending are Samsung/Apple lawsuits, some rare cases of patent disputes are by no means unlikely to challenge the global efficiency of the IP system.


But, you say, why such a sudden and imperative need to set the record straight on the virtues of the patent system? Quite simply because my summer readings have once again been affected by an impressive number of papers commenting on what Elon Musk, Chairman and CEO of Tesla Motor, published in June on the company’s blog with the arresting heading : “All our Patent Are Belong To You”. For most of economic experts, media and bloggers, Musk’s words depicted Tesla’s will to make its patent freely available to whomever wants to use them, including rivals. In suggesting that Tesla would let its patents fall in the public domain early, all these knowledgeable commentators of the economic life could not have been more wrong. Seriously, could you see a single reason that a listed company would like to waive its IP rights? Why should a listed firm invest millions of dollars in R&D and patenting without a return? No, Tesla is definitely not denying its IPRs, no matter what self-appointed experts says !


Musk’s announcement is nothing less than a strategic and commercial move whose purpose is to clarify Tesla’s competition policy regarding IP and licensing. In a sense, Musk could have summarised his statement to a single phrase that almost every experts failed to notice : “Tesla will not initiate patent lawsuits against anyone who, in good faith, wants to use our technology”. In this context, “in good faith” means that Tesla Motors will now allow third parties to use its patented technologies on condition that users undertake not to produce replica of Tesla’s cars or to sue Tesla for patent-infringement (assuming that Tesla eventually uses their other patents). Though this announcement, Tesla actually openly invites third parties to enter into cross-licensing agreements, e.g. agreements between two companies to licence one or more patents to each other with no financial counterpart.


Behind the smokescreens of intense patent disputes (to whom press gives a great deal of coverage), such a commercial deal is pretty classic in innovation industries. From an economist’s perspective, and potential collusion problems put apart, cross licensing of old technologies has to be encouraged. Once most of the monopoly value of old technologies has already been extracted by the patent owner, cross licensing appears to be the most efficient way to accelerate the diffusion of innovations and to reduce R&D costs. Basically, cross licensing promotes innovation and stimulates competition. Tesla is no more a start-up seeking to defend the exclusive use of its old patented technologies at all costs, but a dominant firm looking to improve its products through technological partnerships. Musk acknowledge that to sustain its leadership, Tesla needs to acquire (eventually for free) complementary technologies and should not waste its resources in long, complex, costly and uncertain legal disputes.


It’s a pity that economic experts and journalists felt into the trap of sensationalism in making headlines on Tesla’s appeal for a urgent patent reform or Tesla’s unreserved eulogy of the open source system. In my opinion, the worthy story to tell was – by far – the one of a successful company that is now adapting its strategy to cope with new development challenges. As every innovative firm seeking for competitiveness in the long run, Tesla has to find a business model corresponding to its size, intentions and ambitions. No, Tesla is definitely not turning its back on the patent system, but rather the opposite : Musk’s firm will now exercise its IPRs to the fullest extent of the patent law. Because IPRs are more than ever the best (renewable) fuel for innovation and growth !!!