Tesla, Toyota, and Open Patents: The Hype and the Hope

In recent months, a veritable open patent war has erupted between Tesla Motors and Toyota. Both companies have been widely cited in the industry and financial press for their respective announcements opening up their electric vehicle (Tesla) and fuel cell (Toyota) patents. Tesla CEO Elon Musk opened the first salvo with a blog post last June in which he announced that Tesla would “not initiate patent lawsuits against anyone who, in good faith, wants to use our technology.” He cited the desire to “accelerate the advent of sustainable transport” as a prime motivator. Toyota followed suit in January 2015, announcing that the company would open up both its fuel cell vehicle (FCV) and hydrogen production and supply related patents, until 2020 for the former and indefinitely for the latter.

Commentators have criticized both companies for a host of different reasons. In Tesla’s case, a number of analysts have pointed out that, depending on how you interpret “good faith,” the patents won’t likely end up being used by large or serious competitors. In Toyota’s case, many have pointed out that by offering royalty-free use of its FCV patents for such a brief time (2015-2020), the overall impact of the gesture will be limited. 

Criticisms aside, what’s driving this sudden interest in open patents by two clean-transportation pioneers? Well, Tesla and Toyota are in a battle for mindshare and market share for very different visions of how to upend the dominant internal combustion engine. Toyota is betting that the future of transportation will eventually include a significant slice for FCVs (the company’s first production FCV is currently on sale in Japan and is slated to enter the U.S. and European markets later this year). However, fuel cell traction isn’t going to be fast. The company is projecting total sales of only about 700 vehicles globally this year, and 3,000 in the U.S. by 2017. Tesla, on the other hand, with billions invested in car production, its lithium-ion battery gigafactory, and charging infrastructure, is firmly committed to an EV pathway. It has sold more than 50,000 vehicles globally to date and the company projects sales of more than 50,000 in 2015.

So here’s the big question: Will the rival automakers’ opening up their respective patents do anything to grow the market for the technologies they support? Will their actions enable the market for their low-carbon vehicles to flourish while opening up broader competition for the good of the environment? Or, as skeptics like to point out, is this mostly about generating publicity for their respective companies and technologies? 

To help answer this question, it’s worth looking at the history of open patents and knowledge sharing to get an idea of what might be at play here. In a world of open standards in the computing industry, there are plenty of examples of how open innovation can be a powerful tool. It could be argued that the bulk of today’s Internet was built off of open standards such as HTML, TCP/IP, Linux, and others. And other industries, working to advance technologies and market growth in their sectors, have relied upon knowledge sharing and openness as well, including textile technology, steel production, the personal computer, and wireless communications. The most recent “State of Green Business” report released last month by Greenbiz looks at how open, distributed networks and initiatives are positively impacting the sustainability sector, including the rich history of seed sharing in agriculture. 

And perhaps there is no better example than the legendary Bell Labs, where open patents arguably changed the course of human technological development. Steven Johnson, in his wonderful and insightful book “How We Got to Now: Six Innovations that Made the Modern World,” writes at some length about Bell Labs’ experience with open patents. In a landmark agreement with the U.S. government in 1956, Bell Labs’ parent company AT&T agreed to open up its entire patent portfolio in order to keep its monopoly status running the nation’s phone service. Bell Labs, dubbed “The Idea Factory,” was the birthplace of many of the most significant technological innovations of the 20th century, from vacuum tubes to solar cells. The agreement meant that Bell Labs had to freely license any existing patent to any American firm that found it useful, and all new patents needed to be licensed for a modest fee.    

The Bell Labs experience flies in the face of conventional wisdom regarding patent protection. “So much of the American success in postwar electronics – from transistors to computers to cell phones – ultimately dates to that 1956 agreement,” writes Johnson in his book. “Thanks to the antitrust resolution, Bell Labs became one of the strangest hybrids in the history of capitalism: a vast profit machine generating new ides that were, for all practical purposes, socialized.”

While we are unlikely to see anything quite like Bell Labs ever again, with its vast resources, unique structure, and one-of-a-kind innovation capacities, other efforts could have significant impacts. “Technology leadership is not defined by patents, which history has repeatedly shown to be small protection indeed against a determined competitor, but rather by the ability of a company to attract and motivate the world’s most talented engineers,” writes Elon Musk in the aforementioned blog post. “We believe that applying the open source philosophy to our patents will strengthen rather than diminish Tesla’s position in this regard.” 

So, which is it? Hype, to build one’s brand and image and garner news headlines? Or hope, with the ability for open patents to help fuel an entire industry? A little of both, I think. But this much seems apparent: both companies clearly see open patents as a powerful tool to advance their competing visions of the future of clean transportation. 

Not unlike the 1980s battle between Japan’s vision for satellite broadband (a very one-way, broadcast-oriented, top-down model) and America’s Internet-based vision (a more distributed, egalitarian, often messy democratic model), the current battle between EVs and FCVs matters. One could be skeptical about the motives behind Toyota and Tesla’s decisions, but in the end, there’s an epic battle at play here – and the next five to 10 years will give us a clearer view of who is likely to claim victory in their quest to disrupt a more than 100-year old industry. 

Perhaps nothing less than the environment depends upon it. 

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Ron Pernick is founder and managing director of research and advisory firm Clean Edge and the coauthor of two books on clean-tech business trends and innovation, Clean Tech Nation (HarperCollins, 2012) and The Clean Tech Revolution (HarperCollins, 2007).  

Information contained in this article is not intended to be investment advice or used as a guide to investing.