What Tesla Knows That Other Patent-Holders Don’t

What Tesla Knows That Other Patent-Holders Don’t

by Walter Frick  |   5:15 PM June 12, 2014

Tesla made a seemingly unusual move today: it invited competitors to use its patents, for free. In apost on the company’s blog, CEO Elon Musk declared that Tesla’s “true competition is not the small trickle of non-Tesla electric cars being produced, but rather the enormous flood of gasoline cars pouring out of the world’s factories every day.”

Rather than worrying about car companies copying their technology, Tesla now hopes they will do so, in order to expand the overall market for electric vehicles.

This counterintuitive strategy is more than good PR — although that too — say several IP experts. In fact, it reflects a keen understanding of both innovation and talent.

The first thing to note is that Tesla is not truly giving away its secret sauce, the source of its competitive advantage. “There’s a lot of thinking in the research these days on the gap between the codified knowledge that is patentable and gets disclosed versus tacit knowledge that really exists in how you actually produce,” says Orly Lobel, a law professor at the University of San Diego specializing in intellectual property. “That gap is probably relevant in this market.”

A Tesla vehicle is quite literally more valuable than the sum of the parts, even when the value of the patented technology is included. “They have this sexy car that people are increasingly liking,” says Lobel. “It’s something different from just the aggregation of the knowledge in the patents.”

That thinking is echoed by Alberto Galasso, another IP expert at the University of Toronto, who put it this way: “A patent on a great technology is worth nothing if there is no threat of imitation.” Access to the patents doesn’t ensure that a competitor can execute on an equally innovative product.

Tesla is trying to thread the needle of expanding the industry without giving up its competitive position. By giving away access to its patents it is offering competitors a leg up, but not fully ceding its lead in innovation.

“Tesla is very much the dominant innovator in the industry, so it can afford making that move,” Lobel told me, adding that the company may hope that it will trigger reciprocal action by others equally committed to furthering the industry.

But there is another advantage to the strategy. The move may also help with recruitment, says Lobel, either directly, by attracting engineers committed to open innovation, or indirectly by boosting the brand.

Tesla will presumably keep patenting for defensive purposes, Lobel suggests. But the basic idea articulated in Musk’s post that “Technology leadership is not defined by patents” holds. As Lobel puts it, “Really, the innovation is in creating the end product really well.”


About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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