Tesla's Open Patents: A catalyst for change?

23 June 2014

Elon Musk's decision to open Tesla Motors' patents to "good faith" users shows that he is serious about innovation, but what impact will this have on the automotive industry?

Tesla CEO Elon Musk is not new at finding ways of revolutionizing the world of business and he is certainly a big dreamer, who claims that his ultimate goal is to "accelerate the advent of sustainable transport." His vision is to build super-fast transport systems based only on renewable energy, and transform the automotive industry from a producer of fuel-burning vehicles to one producing only electric and solar vehicles.

This may sound ambitious, but Musk's track record of establishing profitable and sustainable businesses like PayPal, SpaceX, Solar City and Tesla shows that he has the vision and drive to deliver.

His latest announcement is that Tesla Motors will open its innovative electric car patents to "good faith" users who intend to apply them to the enhancement of the electric vehicle and related infrastructure development.

This is a bold move that reinforces the fact that established industries are being disrupted by technologically-driven innovation and that accelerated product development rates are bringing with them a completely new approach to business.

Guarding intellectual property in an open source world

Traditionally, the automotive industry, like other manufacturing industries, has jealously protected its intellectual property, rarely allowing free access to its IP rights. The electronics industry is still engulfed in a patent war which is proving to be more harmful that useful, and with no real benefit for the development of the business.

The software world is not new to the concept of open source systems and freeware or free licensing, but clearly the Tesla proposition is bold because it is trying to apply similar concepts to technical patents which any commercially-minded individual would normally keep very much protected.

Is this a rash move or is it a brilliant destabilizing idea? Only time will tell, but many commentators like Forbes and Wired magazine are already praising the move.

Other commentators have highlighted the fact that free licensing has been used in the past in order to create a standard. Think of the DVD consortium or the VHS standard created by JVC or even the PC created by IBM.

The reasoning has always been that standardisation will allow industry-wide access to a new technology, so that development costs can be reduced and barriers to the introduction of the new ideas eliminated. In the case of Tesla, this move could convince many car manufacturers to develop the electric vehicle concept more rapidly. Once electric vehicles become ubiquitous,  the development of new recharging infrastructure - which seems to be the essential enabler for widespread adoption by consumers – can be completed.

Strengthening Tesla's standing in the market

In his blog, Musk writes that Tesla's competition is "the enormous flood of gasoline cars pouring out of the world’s factories every day," rather than the much smaller players producing electric vehicles. Given Tesla's position as the only dedicated electric vehicle manufacturer,  it would likely benefit from more adoption in the market because a greater market for electric vehicles would force the industry to solve the substantial shortfall in charging infrastructure. By kick-starting the production of electric cars by competitors, Tesla could evolve into a supplier of batteries and electric transmission to other manufacturers.

It will be important to understand which license terms Tesla will introduce to allow use by third parties of its patents, and have a clear definition of the good faith principle indicated by Musk as a condition for the use of his technology.

It also appears that Tesla is not giving up its patents or ceasing to register them, but simply promising to avoid enforcing them, which is a proposition that would need to be clearly set out in a proper contractual form.

Musk said that an innovative company should continue to produce innovative technology and be so fast that it does not need to rely on patents to survive, but simply on its innovative strength. This is an interesting proposition for any industry and certainly a challenge for all competitors.

The Tesla decision could change the automotive industry's approach to the concept of electric mobility, and certainly something that will be discussed in many Board meetings all over the manufacturing world.

Open source licensing taught us that not all free licenses come with acceptable conditions and that many limitations and restrictions could still apply. While Tesla's latest news has the potential to disrupt the automotive industry model, it remains to be seen whether it will enable smaller manufacturers to enter the market.