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To Patent or Not to Patent …?

Sep 30, 2014
Satyamoorthy Kabilan
National Security and Strategic Foresight

Protecting their intellectual property is viewed as a necessity for many organizations. For companies involved in technological or scientific innovation, the use of patents to protect intellectual property and generate a competitive advantage is fairly commonplace. When I built two technology start-ups in and around Cambridge, U.K., I certainly did make use of patents, and they were a key part of helping me to successfully raise venture capital and negotiate partnerships with larger firms.

Recent events, however, have started to raise questions around the standard models that we have for protecting intellectual property and, in particular, about the effectiveness of patents. There certainly has been a lot of debate around the international patent regime and whether it actually assists or stifles innovation. There certainly have been cases where companies have developed or acquired intellectual property simply to block off certain avenues of research. And, of course, there are the so-called “patent trolls” who build their revenue purely on the back of patent litigation.

Patents are expensive to maintain and only offer protection for a certain period of time. The cost of litigation to protect your patent rights can be exorbitantly high, and this has been used as a tactic against smaller patent holders in particular.

On June 12, 2014, Elon Musk, CEO of Tesla, announced that the company was opening up its intellectual property collection. He stated that the reason for this was that the technology that Tesla had developed should be accessible for the greater good, as it pertains to powering zero-emission vehicles. Opinions over whether this is a smart move for Tesla vary. The intellectual property behind much of its technology has put it at the forefront of electric vehicle development.

Tesla is building a massive battery factory and has huge amounts of know-how in this area, leading some to speculate that this is a good move for the company. There is still a steep learning curve for others to emulate Tesla’s success, and with its factory, it also has a massive capital investment in place that creates a barrier to entry. Others have speculated that Tesla wants to stimulate the overall market for electric vehicles and profit from it through its know-how and the massive investments in manufacturing that it has made, as well as its established brand and reputation. Or is this simply a massive publicity stunt by Tesla to build its reputation as a socially responsible organization that is releasing its technology to help others build zero-emission vehicles?

Operating successfully without the benefit of patent protection in the technology space is actually not a new phenomenon. One of the best examples of this approach is that taken by RedHat, a company involved in the development of Linux software. Linux is an open-source platform and RedHat clearly states that others are free to take and use its software … and many actually do. RedHat generates its revenues from the services it provides alongside its software and makes a significant amount on this basis, reporting a 2013 fiscal revenue of US$1.33 billion.

RedHat also invests heavily in research and development, carrying out a big chunk of this activity for an entire ecosystem of Linux users and providers, including its competitors. What researchers pointed out in a recent paper is that its competitors don’t push the company too hard as they are dependent on RedHat.  Essentially, an entire technology ecosystem has grown up around this model and RedHat is the leading provider in this space, generating innovation that supports the entire industry, as well as profiting from its services. Could this be the type of approach that Tesla is looking at?

The research paper that looked at RedHat also examined the issue of intellectual property from a game theory perspective. The authors set up and ran a set of theoretical games to examine the viability of this open intellectual property strategy. What came out of the game was a result that supported the open approach taken by both Tesla and RedHat. Even from a theoretical standpoint, there seem to be merits to this open intellectual property approach.

While this open intellectual property may seem to work for larger, established organizations, I would not be ready to abandon patents altogether, especially for start-up companies in science and technology. I certainly would not have been successful with my first two ventures had I not used patents, and I do not see how I could do something similar again without protecting my intellectual property. However, what is emerging is that there may be an option to help expand the market for a given technology by opening up your intellectual property portfolio, allowing you to increase your revenues through the expansion of your market. This certainly is an intriguing possibility, and I will surely be watching with interest to see how Tesla copes with its new approach to intellectual property.

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