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30 September 2014Patents

Open patents: all in good faith

Open source software is nothing new but allowing other companies, in certain circumstances, to use quite freely inventions covered by patents is more controversial. So the electric car maker Tesla Motors found itself in the spotlight when it decided to do just that.

The announcement was made on Tesla’s website on June 12 in a blog post titled All Our Patent Are Belong To You, a reference to the badly-translated phrase ‘All your base are belong to us’ from the video game Zero Wing. In the post, Tesla chief executive Elon Musk wrote: “Yesterday, there was a wall of Tesla patents in the lobby of our Palo Alto headquarters. That is no longer the case. They have been removed, in the spirit of the open source movement, for the advancement of electric vehicle technology.”

Then, in the next paragraph, came the heart of his announcement: “Tesla will not initiate patent lawsuits against anyone who, in good faith, wants to use our technology.”

There is enough ambiguity in the phrase “good faith” to ensure that some companies will be reluctant to use Tesla’s technology, but Musk is hoping that the pledge will be enough to encourage other carmakers to enter the market, use Tesla’s technology and develop it further.

Musk’s pledge raises questions over the role of patents in a nascent industry such as the electric car market, which has struggled to grow. President Barack Obama, in his 2011 State of the Union address, set a target of one million electric cars on US roads by 2015. However, the US Department of Energy has since distanced itself from such an ambitious goal.

Musk recognised this in his blog post. “Electric car programs (or programs for any vehicle that doesn’t burn hydrocarbons) at the major manufacturers are small to non-existent, constituting an average of far less than 1% of their total vehicle sales,” he wrote.

The chief executive also recognised the importance of patents. “When I started out with my first company, Zip2, I thought patents were a good thing and worked hard to obtain them. And maybe they were good long ago, but too often these days patents serve merely to stifle progress, entrench the positions of giant corporations and enrich those in the legal profession,” he said.

“We felt compelled to create patents out of concern that the big car companies would copy our technology and then use their massive manufacturing, sales and marketing power to overwhelm Tesla. We couldn’t have been more wrong.”

So Tesla has the same goal in mind now as it did when it obtained the patents: to encourage large automobile manufacturers to use its technology and develop it further, thus increasing the size of the electric car market and popularising its ownership, with long-term benefits to the environment.

Potential benefits to the industry

Perhaps Musk’s pessimism about patent assertion stems from the Apple/Samsung smartphone patent war, leading to the conclusion that open sourcing is a better solution for both the electric car market and Tesla’s fortunes.

A report from the UK Department for Transport published this year painted a bleak picture of the electric car market. Only 5% of those who responded to the survey had considered buying an electric car, and more than 50% had not even considered the possibility.

The primary reasons cited by respondents for not buying an electric car were concerns over finding places to charge it, how far it could travel and the overall cost of buying and maintaining an electric vehicle.

At present, 80% of electric cars are made by just three companies: Tesla, Nissan and BMW.

Musk noted: “At best, the large automakers are producing electric cars with limited range in limited volume. Some produce no zero-emission cars at all.”

Tesla’s decision was an invitation to other carmakers to use its technology and develop it further. If, for example, Ford or General Motors were to build a fleet of electric vehicles, there would be greater demand for charger stations. With more charger stations, one of the concerns raised by consumers would be addressed and the market could begin to develop. Tesla would be using the strength of other carmakers for its own long-term benefit.

Doing a Google

Tesla’s decision is comparable to Google’s pledge to open source its Android operating system in 2007. At the time, Apple was the dominant company in the smartphone market, having released the first iPhone. At the time, there were few competitors and, with Google not in a position to challenge Apple’s near monopoly, open sourcing seemed a good business choice.

The result has paid dividends, not in licensing fees but in the widespread adoption of the Android operating system by numerous smartphone makers. Available on handsets made by HTC, Nokia and Samsung, the Android operating system is now used in 80% of the smartphones currently in circulation.

“Google benefits in many ways from having more users of the Android operating system,” says Robert Stoll, partner at Drinker Biddle & Reath LLP.

“There seem to be some similarities. Tesla recognises that it needs to get the public using electric cars so it allows other makers to use some of its electric car patents to get a critical mass interested in those cars.”

The potential is there for Tesla’s technology to be widely adopted by the industry. But, however altruistic Tesla’s motives might be, there could be a downside for the industry overall if other carmakers adopt the same technology.

"too often these days patents serve merely to stifle progress, entrench the positions of giant corporations and enrich those in the legal profession.”

Writing in The Telegraph, John-Paul Rooney, partner at Withers & Rogers, expressed concern over the development of the market. He wrote: “Offering its patented technologies up to other innovators is equivalent to telling the market ‘our tech is the de facto standard, so use it’. Of course, it also makes it less likely that others will invest in the development of alternative technologies, stunting innovation as a result.”

So soon after the decision, it is impossible to assess the impact and Rooney raises concerns about the potentially negative impact the decision will have on the future of the electric car market.

Steven Rubin, partner at Moritt Hock & Hamroff, has doubts too: “The market is still so new I still think people are going be developing in a lot of different places ... although you do need some standardisation to move it forward.”

Responses have been mixed. The Financial Times reported that Nissan and BMW have both shown interest in using Tesla’s technology, while The Detroit News reported that GM, Fiat-Chrysler and Ford have shown little interest.

Climate change

Tesla’s bold decision suggests another way for patent rights and litigation to be approached.

Tom Hutchinson, director of Hutchinson IP, notes that the announcement “represents a departure from the ‘entrenched position’ patent warfare that has dominated, in particular, the mobile phone sector in recent years”.

The current climate of costly litigation resulting from the assertion of patent rights could potentially give way to the idea of open sourcing patents. The seeming ease of having a contract between parties free from lawyers’ fees and costly litigation can be attractive to those within the car industry.

Rubin disagrees. By introducing a “general licence ... everyone is forced to comply with the same terms”.

“In the abstract it sounds great, but when you dive into the details like everything else in the law it is significantly more complicated and more problematic.”

For Rubin, the open sourcing of patents creates more complications for right holders. If somebody buys Tesla technology and develops it, then under the open source agreement they might be forced to shed their own IP rights.

"what will happen if (when) a competitor ‘freely’ using Tesla’s patented technology goes on to sue Tesla for infringing the competitor’s own IP rights?”

“So Tesla modelling the open source has these same problems. Suppose someone buys Tesla or Tesla patents, what about innovations on top of that? You have all these problems and complexities that are, at the end of the day, going to cause more litigation and more fees for lawyers. I think this blanket statement of ‘we’re not going to sue anyone on our patents’ is silly. It is a very complex legal right and by doing that you just create uncertainty.”

The medium is the message

Tesla’s choice of medium to announce its decision may also leave competitors wary about using its technology. A blog post is not necessarily legally binding and can leave companies vulnerable to future litigation.

“Can a competitor really rely on the announcement and proceed to market with a potentially infringing product?” asks Hutchinson.

Manufacturers entering the market may initially be cautious about using Tesla’s technology because it may bind them to open source their own patents should Tesla wish to use their technology. If they refuse, Tesla may revoke the open access to its patents.

“While Tesla may have noble intentions, and the announcement seems to indicate this, I wonder what will happen if (when) a competitor ‘freely’ using Tesla’s patented technology goes on to sue Tesla for infringing the competitor’s own IP rights,” Hutchinson says.

“Sadly, I suspect that the adage that ‘unilateral disarmament only leads to you becoming the first casualty in the next war’ will eventually hold true in this case,” he adds.

While Tesla may promise not to litigate against those who use its patents “in good faith”, the choice of platform devoid of a statutory legal basis may leave those entering the market reluctant to use its patents.

Conclusion

Tesla’s aim, whether altruistic or out of self-interest, is to see the electric car market develop and flourish. Not content with being a small fish in a small pond, Tesla is openly inviting other manufacturers to use its technology to popularise the idea of the electric car, develop the infrastructure and, ultimately, help the environment.

However, both its use of the words “good faith” and the medium of the blog post may leave its competitors wary about using Tesla’s technology. Without legal protection, carmakers could leave themselves vulnerable to litigation and so, for now, Tesla’s decision to open source its patents has created uncertainty within the still-developing industry.

Perhaps Musk is right to say that the world would benefit from a common, rapidly-evolving technology platform, but whether “applying the open source philosophy to our patents will strengthen rather than diminish Tesla’s position” remains to be seen.

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15 October 2014   Electric car manufacturer Tesla has revealed that a number of automobile companies have shown an interest in the patents it provided for free earlier this year.