Tesla Licensing Restrictions

Why Tesla’s Totally Illogical Strategy Might Work

by Elaine Schwartz    •    Jun 25, 2014

Our Wednesday environment focus

Elon Musk just flipped entrepreneurial logic upside down. Rather than building a patent moat around his technology, he announced it would be available to anyone using it “in good faith.” That means Tesla’s 203 patents will be accessible to all who want to copy them. Musk even eliminated his “wall of patents” at Tesla HQ.

Eliminating patent protection extends Tesla's economies of scale

Tesla Wall of Patents. Photo from: Steve Jurvetson

In his 1791 “Report on Manufactures,” Secretary of the Treasury Alexander Hamilton said patents (and tariffs) were necessary for protecting infant industries. Through a domestic monopoly for a fixed time period, the entrepreneurial “pay off” could be guaranteed. In that way, the country and the individual would benefit.

So why would Elon Musk have given his R&D to everyone?

Perhaps he wants an Electric Vehicle (EV) ecosystem. If the industry adopted his battery, his factories could be a source of supply for everyone. Furthermore, if the Tesla battery became an industry standard then so too could the Tesla charging station. With only 100 Supercharging Stations currently in the US and Europe, Tesla surely wants more. Imagine an EV ecosystem in which Toyota and BMW join with Tesla to build a charger station network similar to our gasoline station prototype.

Tesla would enjoy a larger economy of scale if other firms built Supercharger Stations.

Ultimately, Tesla’s push for standardization could give the industry the power it needs to move past 1% of vehicle sales. By diminishing the incentive to develop competing green technologies like hydrogen fuel cells, the strategy could lessen fragmentation. United, the EV industry might fight the gasoline engine more successfully.

Tesla is creating bigger economies of scale by diminishing its patent power.

From: The  Market Oracle

Our bottom line: For electrically powered vehicles, Tesla inspired standardization is somewhat reminiscent of the 19th century spread of railroads. Only when track size was standardized could they become a viable transportation infrastructure. Perhaps Tesla needs standardization to create the economy of scale that will generate its nationwide infrastructure.

Can you envision an EV industry infrastructure developing from the economy of scale Musk hopes for? Please let us know in a comment.

Sources and more... While the most complete analysis of Tesla's open sourcing decision was from The Guardianother articles from gizmag (patent wall picture), qz.com, csmonitor, marketoracle, and Elon Musk's blog had helpful information, pictures and graphs.

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