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Tesla and Trade Secrets: the importance of a rounded IP strategy

We recently discussed how trade secrets can be a valuable tool in a company’s IP arsenal when handled properly, and Tesla is a good example of a company who uses a multi-faceted IP strategy to give them a commercial edge.

Tesla has featured heavily in the news over the past year, with announcements of an electric supercar and a semi-trailer truck (both with incredibly impressive speeds and ranges), activation of the world’s largest lithium ion battery built following a Twitter bet to reduce power outages in South Australia, as well as some less positive stories regarding car crashes involving Tesla’s Autopilot technology. In May 2018, Tesla also faced some tough questions regarding their financials having reported record losses for the last quarter, and CEO Elon Musk’s dismissal of “bonehead” questions led to a sharp drop in their share prices.

Tesla is interesting not only because of their technologies and their eccentric CEO, but also because of their approach to IP. You may recall that Tesla, then Tesla Motors, made waves in June 2014 when Musk announced that they would no longer “initiate patent lawsuits against anyone who, in good faith, wants to use [their] technology”, effectively making their patents “open source” to interested parties in a bid to accelerate innovation in the electric vehicle sector.

The wording “in good faith” left some ambiguity around whether formal licensing agreements would need to be drawn up between Tesla and those wanting to use the technology, however this was later clarified by Musk and he confirmed that use of the relevant patents did not “require any formal discussions” and anyone can “just go ahead and use them”.

This may seem like an unusual patent strategy given that licencing fees are often used by companies as a mechanism to monetise an invention and thereby offset the costs invested in R&D; as a prolific innovator, Tesla invests heavily in R&D and would seemingly benefit from leveraging the monopoly rights afforded to them by their granted patents, especially in light of the questions around their financials.

However, it wasn’t long before other companies followed Tesla’s example. Only a few months after Musk’s announcement, Toyota, a previous collaborator with Tesla Motors, announced that they would also open up their patents related to their competing hydrogen fuel-cell vehicle technology.

Despite opting to make their patents “open source”, both Tesla and Toyota have continued to file patent applications worldwide and it seems apparent that their reasoning for doing so is tactical rather than altruistic to try and tip manufacturer and market adoption in favour of their respective competing technologies. As has been seen countless times with competing technologies (see, for example, the videotape format war of the 1970s and 1980s), the ease of adoption of a technology is at least equally as important as the technology itself in ensuring its success.

All this isn’t to say that Tesla are openly sharing absolutely everything that they have developed and innovated in a bid to make plug-in electric vehicles more attractive, to both manufacturers and consumers, than hydrogen fuel cell electric vehicles. What has been discussed less openly, quite understandably, is that not all of Tesla’s IP is protected by the patent system; rather, some of their IP is instead protected through trade secrets to give them a strategic edge over competitors.

For example, when in development it was known that the Tesla Model S would combine more than 7,000 conventional Panasonic lithium ion cells with nickel-cobalt-aluminium cathodes to give the car its impressive range of around 300 miles on a single charge; however, the layout, mechanics, and system management which allowed this feat to be achieved were protected as a trade secret.

Tesla takes the management of their trade secrets seriously; in 2017 they hit out at former Autopilot director Sterling Anderson who they alleged downloaded sensitive information to his laptop and attempted to recruit multiple Tesla employees before creating competing autonomous vehicle company Aurora with Google’s former autonomous car director Chris Urmson. The lawsuit was ultimately settled with Tesla withdrawing its claims, however in return Tesla will be able to conduct on-going audits of Aurora’s computers and reclaim its Autopilot data.

As touched upon in our recent article, some forms of IP do not fulfil the patentability requirements, e.g. customer lists, making the decision on how best to protect it simple, i.e. as a trade secret; however, when a company’s intellectual property does fulfil the patentability requirements, the decision on whether to pursue patent protection for the invention or keep it as a trade secret is critical to ensure that their IP can be exploited to the fullest.

Particularly for SMEs, trade secrets can seem, at first glance, to be a very attractive option for protecting IP given their potentially infinite duration of protection, lack of registration costs, and immediate effect. However, when your potential trade secret does fulfil the patentability requirements, two important questions need to be asked:

1) Can the innovation be reverse-engineered from the final product?

2) Will it be impossible to keep the innovation a secret outside of your organisation?

If the answer to either of these questions is potentially yes, and the associated risks outweigh the potential benefits, then the patent system is likely to be the most viable option to protect your innovation. Utilising the patent system does bear the price of divulging the crux of the innovation to the public, however it proves a useful tool as part of negotiations with other companies, to generate license fees, and to stake a claim on a given technology space.

All innovative companies face the major decision of whether to protect their innovations as trade secrets or through the patent system; as demonstrated by Tesla, this is not a binary decision and the two forms of protection can co-exist, even complementing each other as strategic tools. Using a multi-faceted approach to IP helps to give a company an upper hand over competitors in the same technology space, as well as those with competing technologies.

For more information on intellectual property strategy, see here. If you wish to discuss your IP strategy with us, call us on 020 7655 8500 or email us via gje@gje.com.