Elon Musk Invites Competitors Under the Hood

On June 12th, 2014 – despite all conventional wisdom attesting to patents and associated litigation as an invaluable competitive business strategy – Tesla CEO Elon Musk boldly proclaimed:

“Tesla will not initiate patent lawsuits against anyone, who, in good faith, wants to use our technology.”

Don’t believe it? Check out Tesla’s redecoration of the company wall where all patents used to reside:

tesla patent wall

If you are scratching your head and thinking the patent model would have been quite lucrative for Tesla, you are not alone in this reaction.

Patents have long benefited inventors, business, and society: inventors gain a temporary monopoly on a novelty that might have otherwise been kept secret, business advances through development of ideas and solutions, and society benefits from innovative products and services.

In fact, patents have proven valuable even when the underlying product or service remains in idea stage. Patent troll is the designation given to an entity that has no intention of actually creating the patented product or process, but instead enforces patent rights against alleged infringers in an attempt to benefit from licensing fees and/or lawsuits.

patent trollPerhaps Elon Musk is astute to the fact that innovation and growth of the automobile industry was originally plagued by patent troll, George Selden, who for years extracted royalties from car manufacturers with his 1895 patent of a four-wheel car, despite never having produced his own vehicle.

It was the legendary Henry Ford himself who challenged George Selden. Musk’s recent actions echo the earlier words of Henry Ford, who over 100 years earlier testified at trial: “It is perfectly safe to say that George Selden has never advanced the auto industry in a single particular (method) and that it would be further advanced than it is now if he had never been born.”

DO PATENTS AID OR STYMIE INNOVATION? 

This is the fundamental question that Musk is answering loud and clear.

Tesla Motors was created to accelerate the advent of sustainable transport. If we clear a path to the creation of compelling electric vehicles, but then lay intellectual property landmines behind us to inhibit others, we are acting in a manner contrary to that goal. Tesla will not initiate patent lawsuits against anyone who, in good faith, wants to use our technology. – Elon Musk, June 12th, 2014.

The existence of patents – in this particular industry – has massive potential to hinder the pace of innovation and therefore contradicts Tesla’s mission.

musk2

Musk’s “good faith” stipulation resulted in a plethora of questions, as many wondered if such vague language was actually an invitation for negotiation, rather than sincere encouragement of imitators. Musk has since further elaborated his statement to reiterate that “anyone” is welcome to the Tesla patents. It begs one to wonder: is this a statement to endure in perpetuity?

Interestingly, and perhaps deliberately, there was no timeline set forth. Tesla still owns the patents – will the company forever cede its rights? Of course, potential infringers could rely on promissory estoppel, the legal doctrine that seeks to avoid injustice by enforcing a guarantee even after the promisor (Musk, in this scenario) has changed his / her stance. Yet, promissory estoppel is not foolproof, as there is no guarantee of success in court. Eager imitators had best be hopeful that Musk will be feeling generous for the long haul.

TESLA SEEKS TO EXPAND THE MARKET:

Nine times out of ten, competition and innovation are positively correlated. As competition increases, so too does innovation, as companies are coerced to think outside the box in order to stay afloat.

The implications are tremendous.

The existence of a patent implicitly implies that business is zero-sum: one electric car company wins at the expense of another. Now, imagine the nascent electric vehicle market is not zero-sum. An electric vehicle tidal ride could increase the success of all electric cars. The simple truth is that the more people advocating electric vehicles, the better Tesla fares. If Tesla can change the conversation to electric vehicles, the company will gain more than its fair share. Zero emission vehicles constitute less than 1% of total new car production worldwide.

There are literally billions of potential Tesla drivers.

Forbes hit the nail on the head, publishing: Rethinking Patent Enforcement: Tesla Did What?

“A definite patent term, which is usually 20 years, encourages the inventor to fully exploit the market for his or her intellectual property. Without this exclusivity, we are told, innovation would be discouraged.” Tesla’s gambit challenges this conventional wisdom. It suggests that the highest hurdle that innovative companies often face is not the theft of their ideas, but rather the development of new markets.” – Forbes, July 2014.

The media was less than kind regarding the intention behind Musk’s vision.

  • “This is simply a strategic move to rapidly expand and monetize the EV market. This move is hard-core strategy and really has nothing to do with altruism.” – Seeking Alpha
  • “In sum, Elon Musk’s opening of Tesla’s patent portfolio might be motivated as much by strategic necessity rather than by altruism.” – Harvard Business Review
  • “Tesla Motor Inc’s open source approach is far from altruistic.” – ValueWalk

The list continues.

The question of intent expands far broader than the Tesla / Musk story.

Consider CVS Health, a company at which many pointed a similar accusatory “ulterior motive finger”, critiquing CVS Health’s underlying motives for eliminating tobacco last year. Indeed, it was a spectacular marketing move – despite the company’s anticipated $2 billion hit to annual revenue, CVS Health was able to more than offset the anticipated loss with a 16% gain in pharmacy sales. Was this selfishly pursued? Is America’s health actually CVS’s number one priority?

But if you view the outcome in isolation, CVS Health eradicated a tremendous amount of tobacco sales. Yes, avid smokers still have an abundance of substitutes from which they can purchase tobacco, but the fact of the matter is that 7,800 CVS Health locations successfully made tobacco a little less convenient.

CVS Health is but one example of the many sustainable initiatives that have resulted in colossal benefits for the initiator. It is these very sustainable initiatives that prove business is not zero-sum.

Yet, there is a school of thought that doing good and making money are mutually exclusive. In other words, if Tesla is performing an action that benefits the company financially, it must not be good for society. This criticism includes the notion that less than pure intentions cannot be deemed sustainable.

However, the company case studies we have examined prove it is possible to successfully “do good” and “make money” at the same time. Many such companies have prolifically used sustainability to augment profits, share price, and image.

If the outcome is positive, does intention matter?

If you believe that business is not zero-sum, the answer is no.

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