What makes Tesla unique? How about everything. Mention patents to most people and their eyes glaze over. Worse, they think of patent “trolls” that some say are harming American businesses. But everyone appreciates one fundamental fact: Patents, and intellectual property generally, mean value.
Tesla began accepting orders on March 31 for its Model 3 electric vehicle at around $35,000. But unlike companies that jealousy guard their patents and intellectual property, Tesla’s giving away its patents for free.
Why? It has a lot to do with how the company imagines its future markets — and how it manages its world-famous brand.
Tesla’s CEO Elon Musk famously announced not two years ago, “All Our Patent Are Belong To You.” (The sentence is an inside joke for coders and video game mavens: Musk’s seemingly unusual grammar refers to a well-known Internet meme, “All Your Base Are Belong to Us,” a mistranslation of a Japanese phrase in the early 1990s video game Zero Wing.)
Musk said Tesla would “not initiate patent lawsuits against anyone who, in good faith, wants to use our technology.” In doing so, Tesla created a limited, open-source patent pool for the technologies used to build its electric vehicles (EVs) — including for vehicle components, battery charging, energy storage and power optimization.
Why give its patents away? To build the size of the market, and its own share of it. Tesla’s vision is an electric-powered future for automobiles and sophisticated energy storage systems, so the company must change a culture accustomed to internal combustion engines, and it must revolutionize the nation’s fuel delivery infrastructure.
As more people buy EVs, demand for a charging infrastructure increases. As the number of charging stations increases, it’s easier for potential buyers to rationalize a purchase. Not to mention that each charging location becomes another powerful advertisement of the Tesla brand, and a showroom for its vehicles.
The cultural and network effects reinforce each other in a positive feedback loop. And that moves Tesla toward its goal: selling all-electric vehicles to an increasingly larger group of buyers — buyers confident they’ll have access to power wherever they need it.
As the pie grows, everyone gets a larger slice.
Tesla’s not even the first automotive manufacturer to build and sell an EV. But that brings it back to brand.
Consider: What name leaps to mind when thinking about an electric car? How many people think Tesla first, and any one of the Nissan Leaf, BMW i3 or Chevy Bolt second?
Tesla’s Model 3 is an EV priced to put all-electric transportation within reach of middle-class buyers, with the cachet of a market-leading brand renowned for innovation. A lower-cost entry point — like Apple’s recently announced price cut for the Apple Watch, and its new, smaller iPhone — can increase market share by driving wider adoption.
By making its patents available for free, Tesla empowers others to build electric vehicles. More cars come along and the grid gets bigger. As the pie grows, everyone gets a larger slice.
Why don’t other automakers do the same thing? Simple: Established auto manufacturers have focused only intermittently on the EV market. More recently, Toyota, Ford and GM have focused on alternative fuel technologies like hybrid electric vehicles (HEVs) or other partially electrified vehicles.
Established automakers can afford to adapt to new market opportunities over time. Tesla, as many investors know already, is burning cash and has yet to turn a profit. Its very survival is at stake.
Truth be told, Toyota and Ford do license their alternative fuel technology patents: Toyota for its hydrogen fuel-cell vehicles (FCVs) and Ford for its HEVs. But they have different approaches to doing so.
Toyota is offering its powertrain technology patents royalty-free through 2020; royalty-free access to its hydrogen production and supply patents as yet never expires. The company is less reliant on other market players to assist in setting a standard for FCVs, so it needn’t rely on others to help establish a market for them. But like Tesla, Toyota will benefit from a larger fueling network, so it’s reducing the cost to others who are interested in adding to the number of hydrogen fueling stations.
Ford’s approach to licensing is more traditional. Some of its patents for HEV technology are available for a fee. But Ford doesn’t need a tool to help create the conditions necessary for the relatively more mature technology, which has been mass-marketed for nearly 20 years, to succeed. It can afford to view its patent pool as a potential new source of revenue.
Tesla wins by using its patent pool to establish industry standards for EVs. Unique in the marketplace, Tesla wins for the brand by doing what Elon Musk famously does all the time: going against the grain. Building markets, bolstering the public’s view of the brand, staying famous, all the time, for everything it does.
Technology innovators have much to learn from Tesla’s example. And whose eyes would glaze over when the topic of patents has to do with revolutionizing how the entire world travels?
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