History Backs Up Tesla’s Patent Sharing

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Harvard Business School Publishing




Yesterday, Elon Musk, CEO of Tesla, the electric car company, announced that Tesla would make its patents freely available to competitors. To many people this announcement seemed surprising if not shocking. After all, the conventional wisdom holds that patents are essential to keep competitors from imitating innovations, especially for small startup companies. If rivals imitate, they will drive down prices, wiping out the potential profits on innovation, thus making it difficult or impossible to earn a return on R&D investments. But while this conventional wisdom applies to mature technologies, it is often wrong during the early stages of major new technologies. Indeed, since the Industrial Revolution, innovators have made their inventions and knowledge freely available to rivals during the early stages of critical new technologies including textile technology, Bessemer steel production, the personal computer, wireless communications, and the Open Source software that powers the Internet. Often innovators did not patent their inventions or when they did, they allowed other innovators to use them freely. Nearly two hundred years ago, the Boston Manufacturing Company, the leading producer of cotton cloth using the most important technologies of the Industrial Revolution, stopped enforcing its patents, allowing competitors to use its innovations, much like Tesla.

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