Jack Ellis

At the Consumer Electronics Show (CES) in Las Vegas last week, Toyota revealed that it would grant access to thousands of its patents covering zero-emission fuel cell vehicle (FCV) technology on a royalty-free basis. The move has been met with both praise and criticism, with some observers sceptical of the Japanese company’s motivations. But whatever the driving factors are, the ‘opening’ of these patents stands to create value not just for Toyota itself, but also for the wider automotive industry.

This follows on from fellow automaker Tesla Motors' pledge last June not to sue unlicensed third parties that practised on its patents. According to the US company, it made this decision based primarily on the belief that it and “other companies making electric cars, and the world would all benefit from a common, rapidly-evolving technology platform” provided by its IP portfolio. Likewise, Toyota’s decision has similar stated aims for the hydrogen fuel cell ecosystem, with Bob Carter, senior vice president of automotive operations at Toyota Motor Sales, USA Inc, telling the CES audience that FCV development will require “a concerted effort and unconventional collaboration between automakers, government regulators, academia and energy providers”; and that “by eliminating traditional corporate boundaries, we can speed the development of new technologies and move into the future of mobility more quickly, effectively and economically”.

However, unlike Tesla, Toyota has provided a fair amount of detail on the nuts and bolts of how its programme will actually work. The Japanese company will offer royalty-free licences to approximately 5,680 of its FCV-relevant patents. These include around 3,350 assets relating to fuel cell system software control technology; 1,970 relating to fuel cell stacks; and 290 covering high-pressure hydrogen tanks. Licences to these patents will be available royalty-free until 2020, coinciding with the predicted end of the launch period for Toyota’s first generation of FCVs. Another 70 patents covering hydrogen production and supply will be indefinitely free to licensees installing and operating hydrogen refill stations.

Toyota is offering royalty-free licences to manufacturers who will produce and sell FCVs – including those making buses and industrial vehicles such as forklifts – as well as to parts suppliers and companies seeking to establish and operate FCV refuelling facilities. Companies looking to adapt fuel cell technology covered by the patents for uses outside of the transportation sector will have their petitions for licences evaluated on a case by case basis.

Furthermore, Toyota will “request, but will not require” prospective licensees to provide licences to their own FCV-related patents on similar royalty-free terms.

As happened to Tesla when it made its ‘open’ patent pledge, Toyota’s initiative has already been decried by some as little more than a publicity stunt that represents limited value to the wider auto industry. Daimler CEO Dieter Zetsche reportedly labelled it a “PR move” and declined Toyota’s open licensing invitation, saying that the German company already possesses “hydrogen technology at the same level as Toyota”.

But such an analysis misses the point. There is no doubt that both Toyota’s and Tesla’s actions are driven by self-interest and would not have been possible but for the ownership of patents in the first place, and they have both certainly garnered press exposure on the back of their announcements. In seeking to encourage third party use of their patents, both companies are trying to kick-start a market in electric vehicle parts, components and sub-assemblies that will ultimately benefit them. In Toyota’s case, the royalty-free offer is part of a wider strategy which has involved substantial financial and technological support for the development of a hydrogen refuelling infrastructure in the United States, including collaborations with FirstElement Fuels and Air Liquide.

What could turn out to be most significant of all, however, is that Toyota’s move also represents an important milestone for Japanese corporates - many of which are now looking for ways in which to leverage their substantial patent holdings. The company may have always been one of the more outward-looking among Japan’s largest corporates, but its royalty-free initiative should serve as inspiration to others, particularly those which are less keen on aggressive monetisation. What it shows is that patent strategy is not a binary choice of assertion or nothing. Instead, once you own a strong portfolio, what you have is a range of options and a great deal of flexibility. If anyone in Japan, or elsewhere for that matter, had any doubts about this, last week Toyota clearly demonstrated that there are plenty of innovative routes to take when deciding how to create additional value from patent assets.