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How the Patent Non-Assertion Pledge Can be a Savvy Business Strategy

Tesla's recent pledge not to sue those who use its patent-protected technology is evidence of the broadening popularity of patent non-assertion strategies outside the formal standard-setting process. But those who would rely on such pledges still need to read the fine print. It was nearly a decade ago that IBM announced it would allow free access to a portfolio of more than 500 patents for those using them to develop or distribute certain open-source software. Since then, a number of other tech companies have issued their own patent non-assertion pledges. In 2012, Twitter promised that it would not wield its patents in litigation. Google now lists dozens of patents it won't enforce unless it is sued first.

Electric carmaker Tesla's pledge is notable in that it moved the strategy beyond the information and communications sector and into the manufacturing field. It's a trend that's likely to spread, says William Schwartz, a Morrison & Foerster partner focused on technology transactions. "As long as there are people who see patents as an impediment to growth because they are too inflexible, this strategy will continue to be used as a means to take the hard edges off," he says.

While these pledges may help spur innovation through the sharing of technology, it's important to remember that they're not altruistic, Schwartz says. By encouraging others to innovate using its technology, a company is often hoping to sell more products or services by expanding the market. For example, for Tesla, a lack of conveniently located charging stations has been a major barrier to getting more people to buy electric cars. If others also make and sell electric cars, the thinking goes, more charging stations would be built.

The patent non-assertion strategy has become so widespread, it has its own database (at www.pijip.org/non-sdo-patent-commitments/). Launched by the Washington College of Law at American University earlier this year, it links to dozens of pledges by patent holders outside the formal standard-setting process to allow others to use their technology, either free of charge or under fair, reasonable, and non-discriminatory (FRAND) licensing terms.

As the database shows, each pledge comes with its own set of caveats. For example, Tesla pledges that it will not "initiate" patent litigation against anyone who, "in good faith, wants to use" Tesla technology, prompting many to wonder what uses would be considered in "good faith."

The pledge did not explicitly include an exception—included in many patent non-assertion pledges—stating that Tesla may still assert its patents if it is on the defensive end of an infringement lawsuit, though Schwartz says it's safe to assume that Tesla reserves that right. He notes the word "initiate" may have been carefully chosen with this in mind.

One of the biggest unknowns is whether a future owner of a patent would have to abide by a non-assertion pledge if a pledged patent were sold or transferred by the pledge maker, especially if (as with Tesla) the pledge was made unilaterally and informally. Because these pledges are a relatively new phenomenon, it's unknown how that and other potential legal issues would be resolved. "You really have to think hard before relying too much on one of these pledges," says Schwartz. "There are still a lot of 'what-ifs' that haven't been answered." But he expresses admiration for the boldness of Tesla's move. "Patent non-assertion commitments can be very complex," he explains, "and Tesla's probably would have had far less impact if it were complicated by a lot of legal detail."

Keywords: Intellectual Property, Patents, Technology, Technology Transactions

Mofo Tech Blog - A blog dedicated to information, trend-spotting & analysis for science & tech-based companies

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.

© Morrison & Foerster LLP. All rights reserved

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