Tesla drives home use of patents

Company in move to share tech­nol­ogy

Business Day - Business Law and Tax Review - - BUSINESS LAW & TAX REVIEW - HER­MAN VAN SCHALK­WYK

US­ING crafty word­play on a well-known in­ter­net meme, the bril­liant South African­born US en­tre­pre­neur and busi­ness­man Elon Musk an­nounced that Tesla Mo­tors would not ini­ti­ate patent law­suits against any­one who, in good faith, wants to use its tech­nol­ogy. In­stead, Tesla Mo­tors would only use its patents de­fen­sively.

In a sym­bolic move to­wards an open-source ap­proach to tech­nol­ogy de­vel­op­ment, Tesla Mo­tors even went as far as to take down its wall of patents in the lobby of its Palo Alto head­quar­ters. What does this mean for the elec­tric mo­tor ve­hi­cle in­dus­try? And, should lo­cal com­pa­nies in the tech­nol­ogy sec­tor follow suit?

To an­swer th­ese ques­tions it is im­por­tant to con­sider the le­gal ef­fect of this shift to­wards a quasi open-source po­si­tion. First, it is im­por­tant to ap­pre­ci­ate that Tesla Mo­tors is by no means abandoning its ex­ist­ing patents — well, not yet. A move to take down its patent wall does not con­sti­tute an aban­don­ment of its patent rights. For this, Tesla Mo­tors will have to take the con­scious decision to aban­don its patents at the var­i­ous patent of­fices world­wide. This ties in with the pro­viso in Tesla Mo­tors’ state­ment that it will not take le­gal ac­tion against any­body who, in good faith, uses its patented tech­nol­ogy.

This state­ment clearly tasks one to dis­tin­guish be­tween in­fringe­ment of patent rights in good faith and in­fringe­ment in bad faith, some­thing that we can only spec­u­late about. At which point will Tesla Mo­tors de­cide that com­pe­ti­tion has hit too close to home, that bona fide use of its tech­nol­ogy had turned into mala fide use that jus­ti­fies an in­fringe­ment law­suit? Maybe this point will come when one of the large mo­tor ve­hi­cle man­u­fac­tur­ers com- petes with Tesla Mo­tors us­ing Tesla’s own tech­nol­ogy? How­ever, Musk does not seem to be both­ered by this.

Ac­cord­ing to his en­try on the Tesla Mo­tors blog, it ap­pears he is con­vinced that the real en­emy is hy­dro­car­bon­burn­ing en­gines and that the elec­tric ve­hi­cle mar­ket is large enough for all to tap into. This move by Tesla Mo­tors might just be clever enough to en­sure the bulk of elec­tric ve­hi­cle in­dus­try is built on Tesla Mo­tors tech­nol­ogy.

By mak­ing Tesla Mo­tors tech­nol­ogy avail­able to ev­ery­one, pre­sum­ably also the large mo­tor ve­hi­cle man­u­fac­tur­ers, there is a real pos­si­bil­ity that it will be used as the base on which fu­ture elec­tric ve­hi­cles are built. Should this hap­pen, Tesla Mo­tors could be in the driv­ing seat, so to speak.

It is also safe to as­sume that, while the rest of the ve­hi­cle man­u­fac­tur­ing in­dus­try de­signs its elec­tric ve­hi­cles on ex­ist­ing Tesla tech­nol­ogy, Tesla Mo­tors would with­out a doubt look to em­ploy the best en­gi­neer­ing minds to guar­an­tee it re­mains at the cut­ting edge of elec­tric ve­hi­cle tech­nol­ogy. This again fits into the in­tel­lec­tual prop­erty strat­egy which it has adopted, as the fil­ing of patent ap­pli­ca­tions re­quires the tech­nol­ogy to be pub­lished.

Such pub­li­ca­tion would dis­close the lat­est tech­nol­ogy to Tesla Mo­tors’ com­peti­tors. This lat­est move by Tesla could there­fore also be seen as a shift in in­tel­lec­tual prop­erty strat­egy from one of patent­ing its most valu­able tech­nol­ogy to­wards one of keep­ing it in­ter­nally as know-how. Th­ese two strate­gies are mu­tu­ally ex­clu­sive. You can ei­ther patent your tech­nol­ogy, which would grant you a 20-year mo­nop­oly in ex­change for the pub­li­ca­tion of the tech­nol­ogy, or you could seek to keep your tech­nol­ogy se­cret in an at­tempt to keep it out of reach of com­peti­tors.

Although the sec­ond op­tion might seem at­trac­tive, and in some in­stances it is the cor­rect strat­egy to em­ploy, most com­pa­nies should be ex­tremely care­ful in adopt­ing this stance to in­tel­lec­tual prop­erty.

This se­cret body of valu­able and not read­ily as­cer­tain­able knowl­edge, which is re­ferred to as know-how, is only pro­tectable for as long as it re­mains con­fi­den­tial. Should the tech­nol­ogy fall into the pub­lic do­main it no longer forms part of the company’s know-how and is free to be used by ev­ery­one.

This brings us to another as­pect of in­tel­lec­tual prop­erty which of­ten comes as a sur­prise to many in­ven­tors: copying is al­low­able in terms of South African law pro­vided, ob­vi­ously, that such copying does not in­fringe on the statu­tory or common law rights of the pro­pri­etor of the tech­nol­ogy. For ex­am­ple, the South African Copy­right Act specif­i­cally makes pro­vi­sion for re­verse en­gi­neer­ing. In terms of Sec­tion 15(3A) a per­son is al­lowed to make a re­pro­duc­tion of a three-di­men­sional prod­uct if that prod­uct has a util­i­tar­ian pur­pose and was re­leased into the mar­ket by the right­ful owner.

You can ei­ther patent your tech­nol­ogy, which would grant you a 20-year mo­nop­oly, or you could seek to keep it se­cret

Us­ing Tesla Mo­tors as an ex­am­ple, should it re­lease a prod­uct into the mar­ket that is not pro­tected by any regis­tered right its com­peti­tors are al­lowed to make such a prod­uct with­out there be­ing any re­course avail­able to Tesla Mo­tors. It comes as no sur­prise most patent at­tor­neys would ad­vise clients not to follow Tesla Mo­tors’ ex­am­ple with­out care­ful thought.

In his blog en­try, Musk also made the bold state­ment that “re­ceiv­ing a patent re­ally just meant that you bought a lot­tery ticket to a law­suit”. There is cer­tainly some truth in this. After all, patent rights are neg­a­tive rights in that a paten­tee has the right to ex­clude oth­ers from com­mer­cially ex­ploit­ing the patented tech­nol­ogy.

There are no patent po­lice look­ing to en­force a paten­tee’s rights. The decision against whom to en­force its patent rights al­ways vests with the paten­tee. How­ever, by ob­tain­ing patent rights a paten­tee not only buys a ticket to a law­suit but also buys a ticket to the ne­go­ti­a­tion ta­ble. Patent lit­i­ga­tion is an ex­pen­sive ex­er­cise and in many in­stances it is suit­able for both par­ties at the ne­go­ti­a­tion ta­ble to set­tle out of court. For ex­am­ple, patent rights of­ten form the ba­sis of li­cence agree­ments that in ef­fect make the in­fringe­ment of the paten­tee’s rights law­ful pro­vided that roy­al­ties, if it is not a roy­alty-free li­cence, are paid to the paten­tee.

With­out patent rights, an in­ven­tor in most in­stances misses out on an invitation to the ne­go­ti­a­tion ta­ble. Re­turn­ing to the case of Tesla Mo­tors, its decision not to aban­don its patent rights for­mally might seem to sug­gest it is still in­tent on join­ing the dis­cus­sions around the ne­go­ti­a­tion ta­ble.

Bona fide use of Tesla Mo­tors’ tech­nol­ogy might just em­body li­cens­ing its patented tech­nol­ogy to other man­u­fac­tur­ers. This is pure spec­u­la­tion but, ei­ther way, Tesla Mo­tors def­i­nitely stands to gain in a rapid rise in the pro­duc­tion of elec­tric ve­hi­cles based on its tech­nol­ogy.

There is also a point of view that, for Tesla Mo­tors to ben­e­fit to the full ex­tent, it has to en­sure the boom in elec­tric ve­hi­cle tech­nol­ogy takes place while it is at the pin­na­cle of its tech­nol­ogy de­vel­op­ment, and prefer­ably while the bulk of its patents are still in force. The term of a patent is 20 years, after which the tech­nol­ogy is free for com­mer­cial ex­ploita­tion by ev­ery­one. This lat­est decision by Musk might there­fore just be an in­ge­nious way of speed­ing up the de­vel­op­ment cy­cle of elec­tric ve­hi­cles so that Tesla Mo­tors sees the max­i­mum ben­e­fit be­fore the ex­pi­ra­tion of its patents.

At this point we can only spec­u­late on the ex­tent to which Tesla Mo­tors is will­ing to al­low bona fide use of its patents. The true re­flec­tion of Tesla Mo­tors’ and in par­tic­u­lar Musk’s opin­ion on the patent sys­tem will, how­ever, only be re­vealed in due course.

It will be in­ter­est­ing to see whether or not Tesla Mo­tors file any new patent ap­pli­ca­tions in the fu­ture. In the mean­time from a patent at­tor­ney’s per­spec­tive the decision by Tesla Mo­tors is seen as a clever util­i­sa­tion of the patent sys­tem rather than a shift away from it.

TECH­NOL­OGY FREE-FOR-ALL

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