A look at how Tesla is using the power of patents.

When someone mentions electric vehicles, one of the companies that springs to people’s minds, even to those who know little about electric vehicles, is Tesla, mainly due to their great brand recognition and marketing. However, there are many other traditional car companies who are in the market, including Renault and Nissan, Volkswagen (Audi), Hyundai, Daimler, Toyota, Ford and Jaguar to name a few. Tesla being widely recognised may be down to Tesla’s claims of leading the way in modern electric vehicle production or perhaps it has something to do with their CEO, Elon Musk – who famously launched his own Tesla into space as a proof of concept for his Space X project.

Patents free?

Tesla’s large market share and household brand for electric vehicles can be attributed to its claims of field-leading innovation and it being one of the first companies to see the potential and benefit to the world in developing electric vehicles.

To complement its innovation, Tesla patents its inventions and it is highly likely that some intellectual property is protected by trade secrets. Musk states that at Tesla they “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”.

In essence, Tesla has used the patent system in the past for exactly the reason it has been developed: to protect its hard work and innovation from being utilised by others without Tesla’s consent. A quick patent database search will find around 900 results for patent applications where the applicant is Tesla Inc., or Tesla Motors as they were formerly known. One of the first of the published applications (WO2006/124663) back in November 2006 was for a method and apparatus for mounting, cooling, connecting and protecting batteries. Others, like WO2007/145726, published in December 2007 relate to efficient rotors for an electric motor. Many early applications also relate to thermal management of cells and batteries or to detection and prevention of a thermal event, as well as charging systems and cell designs.

This large portfolio of applications in an area that few companies were working at the time gave Tesla an advantage over the competition. Not only was Tesla further ahead in innovation and development, but its patents, a list of which can be found on Telsa’s website, granted Tesla a monopoly on the patented technology and therefore the right to prevent anyone from infringing their rights by using Tesla’s technology without permission.

All our patent are belong to you

That is why it was a shock to the general public in June 2014 when Elon Musk issued a statement titled ‘All Our Patent Are Belong To You’. Musk stated that “in the spirit of the open source movement”, Tesla would not “initiate patent lawsuits against anyone who, in good faith, wants to use our technology”. This was allegedly done to accelerate the advent of sustainable transport.

The statement suggested that the patent system was holding back the creation of compelling electric vehicles. Perhaps most ironically, Musk described patents as devices to entrench the positions of giant corporations.

However, it is well known and well documented that the patent system encourages innovation and progression. In exchange for a monopoly on an apparatus or method for up to 20 years, the patentee must disclose the know-how to enable others to replicate the invention. Not only does this disseminate knowledge throughout a technical field but it allows others to improve on it.

The electric vehicle sector is an example in itself. As more and more companies turn their attention to electric propulsion solutions, patent applications filed relating to electric propulsion have increased from less than 2,000 a year in 2009 to almost 14,000 a year in 2018, with just below 5,000 applications directed to hybrid vehicles and 5000 applications directed to battery vehicles. The development of electric vehicles is such that there were more patent applications filed relating to electric vehicles than internal combustion engines, which in the same period increased from around 6,000 filings a year to around 11,000 filings.

In Musk’s statement he said that Tesla’s true competition was not the “small trickle of non-Tesla cars being produced, but rather the enormous flood of gasoline cars pouring out of the world’s factories everyday”. This statement may not be so true today as other manufacturers join the marketplace for electric vehicles, but at the time of the statement electric vehicle sales of the major manufacturers equated to less than 1% of their vehicle sales.

You may think that applying the open source philosophy today in such a competitive environment, and even in the past in such a potentially large growth sector, would be a crazy thing for Tesla to do. However, this is because ‘open source philosophy’ does not really change things for Tesla’s actual competitors.

Tesla’s ‘open source philosophy’ comes with conditions. The main qualifier in Tesla’s ‘Patent Pledge’ is that Tesla will not initiate patent lawsuits against a party acting in ‘good faith. According to Tesla, a party is acting in ‘good faith’ so long as the party (and anyone related/affiliated/associated) has not:

asserted, helped to assert, or financially backed an assertion of (i) any intellectual property right against Tesla, or (ii) any patent right against a third party for the use of its technologies relating to electric vehicles or related equipment challenged, helped to challenge, or financially backed a challenge to any Tesla patent marketed or sold any knock-off Tesla product or helped another party to do so.

So, essentially, Tesla’s patents are only free to use if: you do not enforce any right against Tesla, you do not enforce any patent right against another party, you do not oppose Tesla’s patents or copy Tesla’s designs.

Using Tesla’s technology would essentially make any other company’s own intellectual property rights redundant. On the other hand, Tesla benefits from the arrangement because it appears that Tesla is free to use any improvements made to its technology by another party.

The options mentioned above are not the only way a party can use Tesla’s technology. Parties can still attempt to use Tesla’s technology without necessarily having to open up their own IP portfolios by negotiating a licencing agreement with Tesla. Yet, it should still be clear that Tesla is still gaining from the transaction, whether it be in the form of licencing fees or royalties, or even cross licencing.

Patents or secrets?

Since Tesla has pledged not to enforce its patent portfolio, how does Tesla protect its intellectual property?

Not many would be surprised to learn that although Elon Musk grumbled about the patent system in his statement, Tesla still applies for patents on its inventions.

One recent example is WO2020/028625, which discloses an interactive user interface for a steering wheel that recognises gesture movements made by a user.

Further examples are WO2019/241869, which discloses a new chemical additive for lithium-ion batteries and WO2019/173891, which discloses battery systems based on two-additive electrolyte systems.

Tesla actually released “all” the data related to the research leading to the ‘891 application. However, a former member of the research team said that the data will have been released to allow others to benchmark themselves against Tesla.

Tesla is known for using trade secrets for protecting its inventions and is also known to use the full extent of the law to prevent or punish ex-employees from revealing details that are supposed to be secret.

In summary, based on the hundreds of patent applications made by Tesla, it is clear that Tesla strongly values the patent system as a way of protecting technology derived from its engineers’ hard work and innovation.

What’s the cost?

Based on patent application filings of Tesla and in general, it does not appear that automotive companies will be turning their backs on the patent system due to the advantages of the trade off between public disclosure and limited monopoly, increased innovation, and potential monetary gains from licensing.

The trend towards electric vehicle development and patent protection is not slowing down. However, it appears that any patent rights obtained by a party that has used Tesla’s IP based on the Patent Pledge, will be redundant. So, the cost of using Tesla’s open patents appears to be that the party’s own intellectual property rights are free to be used by any other party.