Tesla Tosses its Patents: Do­-Good or Do­-Well Strategy?

If you want to join the Open Source movement, hop aboard an electric car for a ride. Or so says Tesla. Yesterday they opened their patents to all. Their press release begins with a dramatic statement, “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.”

Don’t be misled by this publicity stunt – behind it is a well thought­out business decision. There are two ways to increase your revenue: (1) fight for a larger slice of the pie; (2) increase the size of the pie. In the telecom world, everybody (at least in the industrial countries) already has a phone. It’s hard toincrease the size of the pie, so everybody is vying for a larger market share. That’s where patents become handy. Hence, the chart of patent infringement lawsuits involving smart phone makers looks like a spaghetti plate – everyone suing everyone else. After all, patent is little more than a right to sue.

In the world of electric cars, which represent less than two per cent of automobile market, the competition comes not from other electric car makers, but from cars that run on gasoline. Fighting for a larger market share makes little sense, particularly for Tesla, the undisputed market leader. Electric cars face a classic chicken­or­egg conundrum. Consumers don’t rush to buy electric cars because there are not enough charging stations. And businesses do not rush to invest in building charging stations until there are enough cars to use them. The solution: Never mind your slice; increase the size of the pie. Patents don’t help to do that. They serve as entry barriers. Hence, the logical solution is to open the patents to competition.

Many technology companies know that to promote a standard, it is often necessary to open patents to competition. Opening their patents and promoting the industry standard based on their technology, Tesla is establishing itself as the industry leader. This is not do­good strategy; this is do­well strategy.

So Elon Musk made a smart move... But why all this patent bashing? Nobody ever said that accumulating patents was the right strategy for everyone! We often advise our clients that manufacturing processes, for example, are better protected by trade secrets than by patents. Sometimes they are appropriate, other times less so. That is why intellectual property strategy must always be considered in the context of the strategic goals of the enterprise. If you decide to supercharge your IP strategy, Tesla patents will not stand on your way.