A Closer Look at Tesla’s Open-Source Patent Pledge

In 2014, Elon Musk announced that he was “open-sourcing” Tesla’s patents.  He argued that doing so would allow the electric vehicle market to grow more rapidly.  While Musk’s original announcement was short on details, the company has since provided additional information regarding the use of Tesla’s patents in its Patent Pledge.  Echoing language from Musk’s announcement, the Patent Pledge states that Tesla “will not initiate a lawsuit against any party for infringing a Tesla Patent through activity relating to electric vehicles or related equipment for so long as such party is acting in good faith.”

The Patent Pledge provides a potential path for companies to use the technology covered by Tesla’s patent portfolio.  Tesla is the assignee of over 350 U.S. utility and design patents covering a broad range of technology, from thermal management systems to door handles.  However, companies considering whether to use Tesla’s patented technology should carefully review several key restrictions found in the Pledge.

As quoted above, Tesla’s agreement not to sue a party for patent infringement extends only “for so long as such party is acting in good faith.”  The Pledge goes on to state that a party is acting in good faith as long as they have not:

  1. asserted, helped others assert or had a financial stake in any assertion of (i) any patent or other intellectual property right against Tesla or (ii) any patent right against a third party for its use of technologies relating to electric vehicles or related equipment;
  2. challenged, helped others challenge, or had a financial stake in any challenge to any Tesla patent; or
  3. marketed or sold any knock-off product (e.g., a product created by imitating or copying the design or appearance of a Tesla product or which suggests an association with or endorsement by Tesla) or provided any material assistance to another party doing so.

These conditions could have significant legal and business implications for a company using Tesla’s patented technology.

First, the Pledge states that those acting in good faith will not assert any patent or intellectual property right against Tesla.  Note that a company using Tesla’s patented technology is not only giving up the ability to bring an action against Tesla for patent infringement, but any form of intellectual property infringement.  This includes trademark and copyright infringement, as well as trade secret misappropriation.  Thus, for example, if Tesla copied a company’s source code line-for-line, that company would be required to forfeit the protection provided by the Pledge in order to enforce its rights.

Of potentially even greater consequence, the Pledge states that a company is not acting in good faith if it has asserted “any patent right against a third party for its use of technologies relating to electric vehicles or related equipment.”  Therefore, before using technology from a Tesla patent, a company must determine whether it is willing to agree not to assert its own patents against any company operating in the electric vehicle market anywhere in the world.  This may be a trade-off that a company is willing to make, but it is not a decision that should be taken lightly.  Among other implications, this decision may have a significant impact on the value that investors place on the company’s IP.  If competitors are able to use the patented technology of the company, it may be difficult to establish a competitive advantage in the marketplace.

The second restriction limits a company’s ability to challenge the validity of a Tesla patent.  This is similar to language found in many intellectual property license agreements.  However, there are a few things to note.  First, this restriction applies to any Tesla patent, not only the one that the company is using.  Second, the Pledge requires that the company not have any financial stake in a challenge to a Tesla patent.  The term “financial stake” could be quite far reaching.  For example, Tesla could argue that a supplier has a financial stake in its customer’s challenge of a Tesla patent.

Finally, the third restriction withholds the protection of the Pledge from those who market or sell a “knock-off” or provide material assistance to another party doing so.  The Pledge does not provide a definition of “knock-off product,” but it does provide one example: “a product created by imitating or copying the design or appearance of a Tesla product or which suggests an association with or endorsement by Tesla.”  Hence, a company using Tesla’s patented technology must be careful in its product design to ensure that Tesla cannot assert that it is selling a knock-off.

Tesla’s Patent Pledge presents companies in the electric vehicle field with a tremendous opportunity, but one that also carries some substantial risk.  Agreeing to abide by the Pledge could significantly curtail a company’s ability to protect, defend, and assert its own intellectual property.  A company should weigh these implications against the benefits of using the technology before deciding to take advantage of Tesla’s offer.  If the company does decide to use Tesla’s technology, it should put processes in place to ensure that it does not violate the conditions of the Pledge and, as a result, lose the protections that it provides.