19 December 2023

Open Source Patents: too good to be true?

CAP-XX and Tesla have been embroiled in patent litigation in the US since 2019, with CAP-XX originally suing Maxwell Technologies (a wholly owned subsidiary of Tesla) and Tesla subsequently suing CAP-XX.  The first case concluded on 15 December 2023, with a jury in Delaware finding CAP-XX’s cases to be invalid.

As the dust settles on this first chapter, we look at how CAP-XX and Tesla got to this point. We also ask, what does this mean for Tesla’s open source philosophy?

“All Our Patent Are Belong To You”

In 2014 Elon Musk wrote a blog post on the Tesla website with the above title. (To clarify, that is not a typo, but a reference to a meme.) The post announced that henceforth Tesla was adopting an open source philosophy and would “not initiate patent lawsuits against anyone who, in good faith, wants to use our technology”.

Did this mean that other parties working in the field of electric vehicles could now benefit from all of Tesla’s innovations?  Unsurprisingly, it was not that simple. Accompanying the blog post was a Patent Pledge which defined who may use Tesla’s technology. In particular, the Patent Pledge stated that Tesla would not initiate patent lawsuits against a party “acting in good faith”. The Patent Pledge defined a party as “acting in good faith” if, among other things, it did not assert any patent or other intellectual property right against Tesla or assert any patent right against a third party “for its use of technologies relating to electric vehicles or related equipment”.

As my colleague Jack Rogan wrote in a previous article, this appears to mean that the cost to a party of using Tesla’s patents is that the party’s own patent rights cannot be enforced, and are thus free to be used by any other party.

An eye for an eye

As mentioned above, Tesla has been embroiled in litigation with a company called CAP-XX since 2019.  These lawsuits look set to underline Tesla’s resolve to assert its patents against parties it deems to have acted in bad faith. The first lawsuit was filed in September 2019 by CAP-XX Ltd against Maxwell Technologies Inc. The second lawsuit was filed in July 2023 by Tesla, Inc. against CAP-XX, apparently in direct response to the first lawsuit.

CAP-XX is an Australian company which develops, manufactures and sells supercapacitors.  Maxwell Technologies is a US company focused on developing and manufacturing energy storage products, particularly supercapacitors. Tesla announced that it planned to acquire Maxwell Technologies in February 2019 and the deal closed in May 2019, i.e. before the first lawsuit was filed. Accordingly, when CAP-XX filed the first lawsuit it was effectively asserting a patent right against Tesla, and so was acting in bad faith as defined by Tesla’s Patent pledge.

The court documents from the first lawsuit alleged that various cylindrical supercapacitors produced by Maxwell Technologies infringed the claims of two of CAP-XX’s patents. Interestingly, the court documents from the first lawsuit noted that CAP-XX approached Maxwell Technologies in September 2017, i.e. long before Tesla announced its intention to acquire Maxwell Technologies. This shows that CAP-XX did not actively set out to sue Tesla.

As noted above, the US District Court of Delaware found that CAP-XX’s patents were invalid, and therefore could not be infringed by Maxwell Technologies. CAP-XX has said that while it is “disappointed with this decision, it is in discussions with its attorneys to agree the appropriate next steps”.

In the second lawsuit, Tesla alleged that various supercapacitors sold by CAP-XX infringe two of Maxwell Technologies’ own patents. Since these patents have been assigned to Tesla, it is Tesla who has filed this lawsuit. In relation to the second lawsuit, CAP-XX has said that it intends “to strenuously defend this action”. This case is ongoing.

A double-edged sword?

Elon Musk’s initial blog post regarding the open source philosophy of Tesla may say that he avoids patents wherever possible. However, in reality, Tesla continues to file patent applications for new innovations. As the above cases show, Tesla will not only defend itself when threatened with patent litigation, but will also be happy to use its sizeable patent portfolio to prosecute parties it deems to be acting in bad faith.

So where does this leave other companies developing electric vehicles and related technologies?  Should they embrace the open source philosophy or stick to business as usual?

A company which embraces the open source philosophy will be able to utilise the innovations developed by Tesla and described in its many patent filings, and so may effectively be building on the shoulders of giants.  However, if it obtains patents for its own innovations, enforcing them against competitors would mean it would be acting in bad faith according to Tesla’s Patent Pledge, and would put it at risk of being sued by Tesla.

Conversely, a company which chooses not to engage with Tesla’s offer, would be prevented from utilising innovations which are the subject of one or more of Tesla’s patents. However, if such a company did develop technology of its own, any patents which it obtained relating to its innovations would be enforceable. These patents could assist the company in carving out a niche for itself in the electric vehicle market, and prevent others from utilising its innovations without paying a licence fee.

In conclusion, we would counsel any company considering taking advantage of Tesla’s Patent Pledge to carefully weigh up the potential downsides before committing itself to such a course of action.