Tesla Motors Corp (NASDAQ: TSLA) Releases All Its Patents

“All our patents belong to you” is the title of the document that was published June 12, 2014, during a press release with Elon Musk, the famous owner and CEO of the California-based electric carmaker Tesla Motors Corp (NASDAQ: TSLA.

This announcement sounded like a thunderclap in the world of patents: why would Tesla, a manufacturer of electric vehicles who holds several hundred patents, some of which are blockers for competitors, officially declare that all of its patents could now be exploited freely by anyone?

This attitude, which runs counter to the typical industrial policy, is also a total turnaround for Tesla used so far its patent portfolio in a conventional manner, that is to say, to ensure a technological advance compared to its competitor’s manufacturers of electric vehicles.

Two questions arise:

- Why did Tesla suddenly decided to authorize the use of its patents?

- What operations of its patents does Tesla authorize exactly?

The “opening” of its patents by Tesla to promote the emergence of standardized technologies

The electric car market is currently faced with the classic problem of technological breakthrough products that are struggling to establish themselves and to replace existing technologies.

The problem can be summarized by example, rather than by a long winded technical explanation. In 2010, there were only around 12,000 service stations against only a few thousand charging stations for electric cars in France. However, autonomy and recharging the batteries are the biggest concerns for customers. And all manufacturers of electric vehicles recognize that rapid deployment of charging stations is a key issue and is a vital factor to boost sales.

Currently, the difficulty stems not only from the fact that the number of charging stations is still low, but also from the fact that they are not yet standardized. Several technologies coexist. It is therefore essential that a dominant and unique technology emerge in the market so that all electric vehicles can be recharged at any terminal.

Tesla, a major player and holder of key patents in the field, chose to impose its electric vehicle technology and recharging by giving free use of its services to all competitors.

The calculation seems a bit risky. Giving all competitors access to Tesla’s expensive and exclusive technologies is a huge risk for the electric car company. However, it may hint at Tesla’s point to make itself the dominant technology that should be adopted as the standard in the industry. This gives the company a competitive advantage, because it is the one that all manufacturers and consumers look to. Thus, the opening of its patents by Tesla has the dual purpose of encouraging industry to develop programs related to electric vehicles, while maintaining themselves as the technological leader over its competitors.

In doing so, Tesla creates a third way to determine the valuation of its patents.

- The first known way is the exclusivity of integrating the invention in its own products to have a competitive advantage.

- The second known pathway is the license, which is to authorize others to use its patents against royalties.

- Tesla engages in open innovation to boost an emerging market (electric vehicle) while attempting to impose its technology to maintain an industrial advantage. As Tesla stated in its press release, its main competitor is not the electric vehicle of its competitors, but the heat medium. Indeed, the major automakers have not begun to rely on this new technology.

Only the Renault-Nissan Alliance has embarked on an ambitious program of electric vehicles and, to a lesser extent, the manufacturer BMW. It is therefore essential that manufacturers of electric vehicles cooperate and share their technologies if they are to hope for a takeoff in sales. Tesla is also in discussion with BMW on these issues.

2) The exploitation of patents Tesla is free provided they are of “good faith”

Tesla says in its press release that it will not engage in infringement action against anyone using its technology in “good faith” (“Tesla Will not initiate patent lawsuit against anyone who, in good faith, wants to use our technology “).

For an industrialist who considers reproducing one or more of Tesla patents, the question is: what is the scope of the commitment made in the press release of 12 June 2014.

Several issues need to be resolved.

Is the commitment of Tesla is it reliable? The issue is crucial. Here is a competitor who is reluctant to integrate electric vehicle technology patented by Tesla. If Tesla can revoke its commitment, then the competitor’s industrial is not able to sell. The next day its vehicles that are based on those of Tesla’s patents are considered to be infringement.

The commitment of Tesla on future patents? Any technology is subject to continuous development. But if Tesla removes future patents on improvements, its competitors can exploit their products and the technology will no longer evolve and will become obsolete.

What is operating in “good faith” of a Tesla patent? Is it considered “good fatih” if a competitor that uses the Tesla patents while making its vehicles in a country with low labor cost? What about an industrialist who reproduces Tesla’s patents in a field other than electric vehicles? Can those who reproduce Tesla patents attack Tesla if it infringes on one of its patents? Does the removal of Tesla’s ownership of these patents imply reciprocal neutrality for both parites?

It is likely that the rule of reciprocity is applied. The principle was established by the Association Eco-Patent Commons, who are particularly active in the field of open green innovation. The Swiss Association encourages patent holders on green technologies to allow free exploitation by third parties.

But the articles of association stipulate that if a patentee agrees to operate a third of its patents, it is provided that the third party who operates does not take infringement action against the patentee on the basis where another patent is owned by a third party.

These questions are essential. They should be decided under U.S. law, but perhaps also under French law for Tesla patents covering the French territory.

As it stands, if we want to hear the opinion of an industrial advisor on Tesla’s patents, we can only assume that the company’s press release in June 2014 is only an invitation to enter into negotiations with Tesla to define the specific use of its patents.

Failure to obtain an express agreement means that the company will take on significant legal risks. Elon Musk said it best in a statement when he criticizes the legal certainty afforded by a patent: “when I realized that receiving a patent really just meant that you bought a lottery ticket to a lawsuit, I avoided them whenever possible.”