Richard Lloyd

In the last week two prominent people in the business and IP communities have voiced their opinions on the state of the patent system. Elon Musk the head of electric car pioneer Tesla Motors has grabbed headlines and stimulated plenty of debate around the company’s decision not to initiate patent litigation against anyone who, in “good faith”, wants to use the company’s technology. Meanwhile David Kappos, former Director of the USPTO and now a partner at Cravath Swaine & Moore, launched a passionate defence of the US patent system in Forbes magazine in an article  titled, ‘The patent system is a boon – not a drain - to the American economy’.   

So who do you side with?  Below is an excerpt from Musk’s statement:

“When I started out with my first company, Zip2, I thought patents were a good thing and worked hard to obtain them. And maybe they were good long ago, but too often these days they serve merely to stifle progress, entrench the positions of giant corporations and enrich those in the legal profession, rather than the actual inventors. After Zip2, when I realized that receiving a patent really just means that you bought a lottery ticket to a lawsuit, I avoided them whenever possible.”

And here’s part of Kappos’s piece:

“There are 40 million American jobs that depend on IP protection. Companies in IP-intensive industries generate over $5 trillion in economic activity per year and are responsible for three quarters of all US exports. And IP fuels not just market incumbents but disruptive startups that promise to be the mass employers of the future – software firms with patents raised nearly $11 million more on average from venture capitalists compared to similar firms without patent assets.”

Musk’s announcement has sparked an avalanche of press coverage for Tesla and earned him much admiration from advocates of patent reform in the US. The company’s move is undoubtedly a very smart marketing tactic and has boosted its share price, but it’s also specific to a branch of the car industry that has failed to develop – and not because new entrants have been stymied by a restrictive patent system. Electric cars remain a niche at a time when most of the major auto-makers are focused on producing more efficient, lower emission vehicles. Plus, as we’ve covered before, this is not the smartphone industry. There has been a significant shift towards greater collaboration among carmakers thanks, with the AutoHarvest Foundation being but one example of this.

If the major carmakers had wanted to take advantage of Tesla’s technology then they could always have reached out to Musk and his team to agree a licensing deal. But the fact is that the giant corporations (or any disruptive industry player) that the Tesla CEO might once have feared have not emerged as a major threat to his business. If Musk had wanted to make a more powerful statement about the pointlessness of patents then he would have given Tesla’s up; or, as this blog by law firm Downs Rachlin Martin pointed out, promised not to use them even for defensive purposes. But he didn’t. Tesla still owns a big patent portfolio.

Kappos did not write his piece in response to Musk’s move. Rather he was writing in the aftermath of the collapse of patent reform in the US Senate and in his role as an adviser to the Partnership for American Innovation (PAI), a group of seven major US companies advocating measured changes to the US patent system. Although they appear to be at different ends of the patent spectrum, Musk’s move actually reinforces many of Kappos’s points. Patents, granted in a system that has real power, give their owner the flexibility to do what they want with the assets they possess. Arguably Musk could only make his announcement in a jurisdiction like the US that actually attributes real value to IP. Of course, in the current climate, that line of thought doesn’t attract the same kind of headlines.