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intellectual property (IP)

intellectual property (IP) | 06 Apr 2021
BY Rowan Forster

Elon Musk doesn’t do patents. Does that matter?

Recently, there was a fascinating IP-related article in the Harvard Business Review: “Elon Musk doesn’t care about patents. Should you?” was always going to enjoy considerable attention. The opening lines very much set the tone: “Ownership seems straightforward in business: Get a patent or copyright when you create something. Charge for its use. Avoid ambiguity about who owns what. But much of this wisdom is wrong.”

The authors go on to say that the “world’s savviest businesses already know this.” They say that HBO tolerates theft, SpaceX forgoes patents, and Airbnb started operating without even knowing whether its product offering was legal. We’re introduced to the term “ownership engineering”. We’re also told about three ownership engineering strategies, namely:

Tolerating theft

HBO chose not to pursue people who were using the passwords of others and thereby “stealing” content. Instead, it decided to let the unauthorised usage grow the brand and create an addiction to the product. Microsoft did the same with its software in China, with Bill Gates saying this: “As long as they’re going to steal it we want them to steal ours…they’ll get sort of addicted and then we’ll somehow figure out how to collect sometime in the next decade.”

Microsoft has seemingly figured it out, with China now accounting for 10% of the company’s annual revenue.  The authors even suggest that this thinking has application in the luxury goods market, citing a study that showed that 40% of people who bought counterfeit luxury goods went on to buy the genuine version later.

Foregoing ownership

The authors argue that the basis for legal ownership is misplaced. There are substitutes available such as secrecy. Elon Musk is quoted as follows: “We essentially have no patents. Our primary long-term competition is China. If we published patents it would be farcical because the Chinese would just use them as a recipe book.”

The authors also argue that a common strategy is building on top of another platform.

Leaning in to ambiguity

The authors argue that legal clarity as to ownership is less important than many believe. They cite the fact that lack of clarity didn’t stop Uber from starting a business where car owners charge people for conveying passengers, or Airbnb from starting a business where apartment owners charge holiday makers. They cite this aphorism: “It’s better to ask for forgiveness than permission.” Ownership ambiguity, they say, creates “legitimate and valuable business opportunities.”

There’s even talk of the old American west, where people simply claimed ownership. According to the authors “only later did the law arrive and, when it did, states often recognized early-bird claims.”

Some thoughts in rebuttal

The article is very interesting indeed. Yet, as IP lawyers we obviously have some issues with it. Just recently there was an article in Forbes about how a US start-up invested heavily in IP from the outset and, although it struggled for a number of years whilst the patents were being registered, it was finally able to use the IP to get rid of the competition.

A recent joint report of the European Patent Office (EPO) and the European Union Intellectual Property Office (EUIPO) makes the point that businesses with at least one registered patent, design or trade mark have an average of 20% higher revenue per employee than businesses with no IP rights. Of the three IP rights, the patent pays the greatest dividends, with an average 36% higher revenue per employee. These figures do, we suggest, establish a clear link between IP ownership and commercial success.

Ever since the Venetians granted exclusivity to the Murano glass makers in the 15th century, we’ve been granting time-limited monopolies (generally 20 years for patents) to inventive people. There is simply no doubt that the system of monopoly protection in exchange for information has played a significant role in technological progress. Much of this progress has been good – we see it now more than ever with COVID-19 vaccines (although admittedly there is controversy as to whether these patents should be suspended in this time of crisis). As for Elon Musk’s comments about China, well they do sound a bit dated. China is, of course, increasingly part of the IP world.

A final word

The Harvard Business Review article is, without doubt, a cracking read, but we don’t think it tells the whole story.

 

Rowan Forster

IP | Patent Attorney | Executive

rforster@ENSafrica.com

+27 83 440 3170