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Tesla chief Musk applies contrarian style to patents

Elon Musk wants to apply the contrarian style that made him millions of dollars from PayPal and billions from rocket ships and electric cars, to revolutionize the litigious world of patents.

Tesla Motors Inc. became a rarity among automakers when Musk yesterday pledged that inventions on his electric cars and batteries will be free for anyone to use “in good faith.” The move may speed the adoption of technology that Musk needs to make his fledging line of cars more than a luxury niche.

Patents are a trade-off that give companies the right to block others from using a specific technology in exchange for making the idea public so others can analyze and build on it. The alternatives are to keep the technology a trade secret or, as in the case of the Linux computing system, make the information available to everyone. Tesla is adopting a third way ― continue to patent, but let the public use it at will.
Tesla chief executive Elon Musk. (Bloomberg)
Tesla chief executive Elon Musk. (Bloomberg)

“The more people that use the technology, the more valuable the market,” said Zorina Khan, an economics professor at Bowdoin College in Brunswick, Maine, and author of “The Democratization of Invention.”

The move shows Musk positioning Palo Alto, California-based Tesla for a more open relationship with the global auto industry than the one-off projects it’s had with investors Toyota Motor Corp. and Daimler AG to supply battery packs and motors. He met this week with executives from Bayerische Motoren Werke AG and said he recommended that BMW collaborate by using Tesla’s rapid-charge system and even build its own battery factory.

Car prices

Tesla has more than 160 issued U.S. patents for things like a system to protect battery packs from overcharging and an improved rotor construction in an electric motor, according to the website of the U.S. Patent and Trademark Office.

The biggest potential lies in its battery technology, said Blair Jacobs, a patent lawyer with McDermott Will & Emery in Washington who has represented automakers. The battery is about 40 percent of the overall price of the car, he said. Musk has stated that he wants to develop a Tesla that he can sell for about half the current price of a Model S sedan, and the only way he can do that is to cut the cost of the battery.

Tesla is poised to begin developing as many as three sites for what Musk has called a $5 billion battery “gigafactory.” The company is considering sites in Arizona, California, Nevada, New Mexico and Texas.

Industry vault

Tesla is looking to have its battery technology used by utilities to help reduce electricity costs. By opening their use to others, Tesla’s inventions could become the de facto standard, and give it the upper hand in selling batteries to automakers like General Motors Co. or Toyota, Jacobs said.

“As others move in to electrical vehicles, they would rely on Tesla technology for batteries,” Jacobs said. “It could be remarkably profitable.”

While Musk’s strategy is not unique to the technology industry ― International Business Machines Corp. employed it nine years ago ― it’s an unusual move for automakers. Car companies “traditionally lock their intellectual property in a vault and steal everyone else’s,” said Erik Gordon, a professor at the Ross School of Business at the University of Michigan. (Bloomberg)