Thursday, June 12, 2014

Why Tesla gives away its patents to copycats?

Wired reports on the latest in patent news:

Tesla CEO Elon Musk announced today that his company will not “initiate patent lawsuits against anyone who, in good faith, wants to use our technology.” In plain English, that means that if other car companies want to produce electric cars, they can use Tesla’s technology to do it, and, in turn, advance Musk’s sustainability vision.
What's the significance of that?

I looked up Tesla's patent portfolio on the US PTO website this afternoon: 156 issued US patents and nothing of great importance there. In comparison, BMW and Toyota have thousands of patents. In a patent fight against its direct competitors Tesla has a slim to none chance to win. Therefore, giving away a weak patent portfolio is not a big loss for Tesla. On the other hand, if the company succeeds inducing the competitors to give up their patents, that would be great! Besides, Tesla promises to gives its patents to those who want "to use our technology" only. Interesting. This brings our attention to Tesla's new business model.

Recently, the company announced that it is going to build a huge battery-making plant in the US. For this project to be successful, Tesla needs economies of scale: a lot of electric cars made by those who use Tesla batteries and electric drive technology. Selling batteries to a potentially huge market would be more profitable than trying to enforce weak patents in a small market. Giving away the patents is a shrewd PR move by Elon Musk. This reminds me of an ancient Chinese stratagem called "Tossing out a brick to get a jade gem." It means "Bait someone by making him believe he gains something or just make him react to it ("toss out a brick") and obtain something valuable from him in return ("get a jade gem")."

In the system model terms (see our book Scalable Innovation), Tesla intends to make money on the battery, i.e. the Packaged Payload, while encouraging others to build more electric cars, i.e. the Tools.

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