Take Off Every Zig: The Risk in Tesla’s “All Our Patent Are Belong to You” Message

by Hodgson Russ LLP
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Tesla sports car chargingWith a title parodying a classic Internet meme, Elon Musk announced on June 12, 2014, that “Tesla will not initiate patent lawsuits against anyone who, in good faith, wants to use our technology.” Musk plans to continue filing additional patent applications and will make subsequent patents freely available as well. This benefits the planet, future generations around the globe, and—more particularly—Tesla, in that it could speed adoption of electric vehicles and the construction of charging stations.

At this point, it’s still not totally clear what Tesla considers to be “good faith.” Musk indicated Tesla was “looking for common sense and fairness.” As an example, Musk clarified that Tesla does not want a competitor to mimic Tesla’s cars or to trick consumers into thinking a competitor’s car is actually a Tesla car. Aiming to provide some additional clarification, Musk also said that Tesla is open to simple agreements with companies worried about what freely using Tesla’s patents “in good faith” actually means.

If Tesla needs a license to a patent in the future, Musk indicated that he didn’t expect to get it for free. However, he will be looking for “good faith” dealing in return for Tesla’s shared patents. Such “good faith” dealing could involve the relative value of the Tesla patents being used versus the patent or patents Tesla is trying to license.

While impressive and laudable, this move by Tesla is not without risk. Musk wants other companies to use Tesla’s technology. However, this may enable a competitor to further improve Tesla’s technology and obtain patents for itself. These patents may impede or even block Tesla’s growth or sustainability. This is partly the reason Tesla will continue to file patent applications. These future Tesla patent applications may prevent others from obtaining patent coverage on technology improvements that Tesla may later need.

Still, a competitor may begin manufacturing technology covered by Tesla’s shared patents and, after spending countless R&D dollars, discover an improvement to Tesla’s technology. What if this competitor then obtains a patent on the improvement, but either asks for an exorbitant royalty (in Tesla’s opinion) or refuses to share its patent when Musk politely asks for a license back to Tesla? Based on Musk’s statements, the competitor likely would not be acting “in good faith” in this example. But if Tesla files a patent infringement lawsuit against the competitor, Tesla may need to worry about laches or equitable estoppel.

A successful laches defense could allow the competitor to preclude Tesla from recovering damages for infringement prior to the lawsuit or from obtaining an injunction on products sold prior to the lawsuit. As explained in Ecolab, Inc. v. Envirochem, Inc., depending on the time period between when Tesla learned the competitor was using and would infringe one of its shared patents and Tesla’s filing of a patent infringement lawsuit, a competitor may be able to argue that Tesla unreasonably and inexcusably delayed filing suit after the competitor began R&D or manufacturing activities using Tesla’s technology and that this delay resulted in material prejudice to them. Economic loss or change in economic position during the delay can be a form of prejudice under laches. Ecolab, Inc. or A.C. Aukerman Co. v. R.L. Chaides Const. Co. explains that the length of time for laches to apply varies depending on the circumstances, but laches could be presumed if Tesla delayed bringing a patent infringement lawsuit more than six years after it learned that the competitor infringed its shared patents. With the time necessary for the competitor’s R&D team to develop an improved design on Tesla’s technology and to obtain an issued U.S. patent, a six-year gap may not be impossible.

Equitable estoppel would be an absolute bar to Tesla’s patent infringement lawsuit and would prevent any form of relief. In an equitable estoppel defense, as explained in Ecolab, Inc., the competitor would need to argue that Tesla misled it to reasonably infer that Tesla would not enforce these freely shared patents against it, that it relied upon Tesla’s conduct for its choice of R&D or manufacturing activities, and that it would be materially prejudiced if Tesla could proceed with its patent infringement claim. Musk’s statement that Tesla does not intend to file a patent infringement claim or Musk’s statement that Tesla currently does not need any other company’s patents could support the claim that Tesla misled the competitor. Reliance upon Tesla’s conduct could be shown if the competitor commenced R&D or manufacturing based on Tesla’s statements. Like laches, economic loss can be a form of prejudice under equitable estoppel.

Tesla already may have evaluated these risks. There are ways to defeat both laches and equitable estoppel claims. For example, laches could be excused if Tesla could show the filing delay was to determine the extent of infringement by the competitor or due to some negotiations with the competitor regarding the infringement. A court also must consider evidence about actions of the competitor when deciding whether to allow a laches or equitable estoppel defense.

Tesla’s open source philosophy is not without risks, and Tesla should be cautious in case competing car manufacturers block Tesla’s growth with their own patents developed from shared Tesla technology. The meme referred to in Tesla’s press release, based on the video game Zero Wing, involves a battle “for great justice.” Musk, based on the next lines of the meme, may be implying that gasoline car manufacturers “have no chance to survive make your time.” However, if Tesla “set up us the bomb” by filing a patent infringement lawsuit, the competitors may “take off every ‘zig’” (or engage all their lawyers) in response to Tesla’s legal actions.

 

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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