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Tesla reminds us of the urgent need for patent reform

(Marika Kochiashvili/Reuters)
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Patent reform advocates are cheering an announcement last week from Tesla Motors that it had symbolically taken down its proud wall of patents. To encourage more rapid deployment of electric vehicles, chief executive Elon Musk wrote, “Tesla will not initiate patent lawsuits against anyone who, in good faith, wants to use our technology.” Going forward, Musk promised to open source the company’s protected inventions.

Hundreds of commenters largely cheered the decision. “It is wonderful to see altruism and sound business decisions converge,” said one Tesla owner.  “Well played, Tesla,” said another.

Tesla’s move certainly goes against the grain.  But it is hardly game-changing.  While patents can be powerful legal weapons against copycat competitors, it bears repeating that they are always temporary.

In the United States, patent protection lasts, depending on the nature of the innovation, no longer than twenty years.  After that, the invention becomes free for anyone to use however they like, without any say by the original inventor, for all eternity.

Reformers are likewise hailing Tesla’s decision to take the affirmative step of open sourcing its protected innovations, encouraging others to use and improve on them.

But that too is a standard feature of the patent system. As part of the quid pro quo of receiving government-sanctioned protection for her innovation (which, among other prerequisites, must be seriously innovative), the inventor must provide sufficient information — in advance and in detail — for others in the field to duplicate the invention without having to reinvent the wheel.

Because free duplication, if the invention is worth its salt, is precisely what will happen the minute the patent expires.  In the strange alchemy of patent law, what was illegal and subject to harsh penalties and liabilities becomes, presto chango, not only legal but strongly encouraged.

That’s not some bitter irony. It’s the very point of the system.  Patents have long been seen as essential to encourage inventors to advance a nation’s competitive interests. Without that protection, entrepreneurs like Musk were thought to be unable to recover their enormous up-front research and development costs and still earn a profit before copiers swooped in and undercut them.  Absent the patent, therefore, they may choose not to invest, depriving consumers of better and cheaper products.

But like any sanctioned monopoly, a patent is a necessary evil; an economically harmful constraint on further innovation.  So, having granted the inventor sufficient time to control the invention exclusively, the system cuts off the monopoly, full stop.

Admirable as Tesla’s decision (and earlier pledges by other technology leaders, notably Twitter) may be, it’s hardly revolutionary.  All they are doing is speeding up the clock, depending on particular patents in their portfolio, by a few or by several years.  The company is betting that even armed with the specifics of its innovations free to use, the cost and time needed to make competitive use of their patents is sufficient protection to render the patents, in effect, overkill.

Are they right? Probably. In many fields, particularly in electronics, computing and communications, advances in technology are increasingly outpacing the ability of even the most aggressive entrepreneurs to take full advantage of their potential.  The accelerating pace of change has become the real constraint on competition.  Disruptive technologies are outrunning the duration of their patents.  It provides all the incentive most innovators need to continuing investing in the future.  While few companies are as direct as Tesla in admitting it, patents are increasingly redundant.

So why do Silicon Valley companies still bother to spend millions of dollars pursuing patents?  The short answer is to defend themselves. Tesla and others may swear off suing infringers, but they can’t avoid being dragged into court as defendants. Especially when others, including so-called “patent trolls,” file frivolous lawsuits in federal courts that are suspiciously friendly to infringement claims (we’re looking at you, Eastern District of Texas).

Faced with lawsuits that border on the absurd, in other words, it helps to have a broad portfolio of patents of one’s own to throw back in the plaintiff’s face, particularly if those can be pooled with the patents of others in the industry, including your competitors.

Patent law, to paraphrase Shakespeare, is increasingly nothing but sound and fury, signifying nothing.  Tesla’s move underscores the urgent need for genuine reform. The system’s benefits are quickly being overrun by its costs, particularly in those industries where technological disruption is speeding up, which is more of them all the time.  When core technologies are continuously being replaced before the patents on them expire, unneeded protections for inventors become an expensive and dangerous drag on both the economy and future innovation.

Why?  Cynical litigation to enforce often worthless patents are costing companies billions in legal fees and other forms of tribute.  With broader and more dubious patents being granted all the time, the temptation is growing both for producing and non-producing patent holders to use litigation not to protect true innovation but to slow down competitors or siphon off their profits.

In fast-changing fields, overly generous patent grants that last far longer than the commercial life of any product that might make use of them are retarding the “progress of science and useful arts” — the Founding Fathers’ justification for granting patent monopolies in the first place.  Some scholars believe that the cost of unwarranted patent lawsuits in the United States have now eclipsed the economic value the system has generated since its inception two hundred years ago.

Today, for example, a ridiculous war is raging among nearly all of the participants in the smartphone ecosystem, which was kicked off by a jihad declared by the late Steve Jobs against the Android operating system and anyone who dared to offer it on their devices. (The war, as wars do, has since engulfed everyone.)

Apple recently reached a truce with Google, but that does nothing to bring dozens of other withering campaigns to a close.  Samsung, Nokia, and others are still very much in peril. And so is Apple itself, whose activities have unintentionally emboldened non-practicing patent holding companies to go after them with equal vigor. According to a recent survey by law firm WilmerHale, roughly half the cost of producing a smartphone—about $120—goes directly to paying patent royalties.  Which means that consumers have become human shields in the patent wars.

Combatants in the smartphone wars could take a page from Tesla, Twitter, and perhaps soon, other brave innovators, and just admit that whatever value remains in patents for their innovations just isn’t worth fighting for. (Indeed, pooling their resources together, they could effectively fight off the trolls, solving two problems in one move.)

Despite a desperate need to rethink patents, Congress has consistently demonstrated an inability to do so over the last decade, including modest efforts that died last month. So it’s good that innovators are taking on the challenge in their own unique way.  Maybe they’ll invent a new system on the remains of the old one—a new system that reflects the reality of 21st-century innovation.

Downes is co-author with Paul Nunes of “Big Bang Disruption:  Strategy in the Age of Devastating Innovation” (Portfolio 2014).  He is a project director at the Georgetown Center for Business and Public Policy.