George Mason Law Professor Adam Mossoff published an article in the university’s Center for the Protection of Intellectual Property blog last week titled “Tesla’s New Patent Policy: Long Live the Patent System!” Mossoff’s piece is in response to a blog post by Tesla CEO Elon Musk, revealing that the electric car company would not sue companies who use its patents in “good faith.”

Mossoff writes that the announcement is not quite what it seems at first blush:

The reality is that Tesla is not disclaiming its patent rights, despite Musk’s title to his announcement or his invocation in his announcement of the tread-worn cliché today that patents impede innovation. In fact, Tesla’s new policy is an example of Musk exercising patent rights, not abandoning them.

Mossoff explains that Tesla’s “good faith” language is the key to understanding its strategy. In fact, Tesla is talking about a cross-license, which is a common practice in all industries:

In plain English, here’s the deal that Tesla is offering to manufacturers and users of its electrical car technology: in exchange for using Tesla’s patents, the users of Tesla’s patents cannot file patent infringement lawsuits against Tesla if Tesla uses their other patents. In other words, this is a classic deal made between businesses all of the time — you can use my property and I can use your property, and we cannot sue each other. It’s a similar deal to that made between two neighbors who agree to permit each other to cross each other’s backyard… Thus, each party has licensed the other to make, use and sell their respective patented technologies; in patent law parlance, it’s a “cross license.”

Tesla’s strategy is a sound business approach, argues Mossoff, and one likely to bring commercial and brand value to the company:

Tesla’s decision to cross license its old patents makes sense. Tesla Motors has already extracted much of the value from these old patents… Now that everyone associates radical, cutting-edge innovation with Tesla, Musk can shift in his strategic use of his company’s assets, including his intellectual property rights, such as relying more heavily on the goodwill associated with the Tesla trademark.

Let us know what you think. Is Tesla abandoning its patent rights or, in fact, exercising them to the full extent of the law and opening the door to a more fulsome view of patent licensing models?

In my last blog post, I wrote that with patent reform efforts in Congress stalled, we expected reform efforts to continue elsewhere – specifically citing the growing movement within the patent licensing industry itself to develop a voluntary code of conduct or standards of ethical behavior, just like responsible members of other industries do.

Sometimes we call it right. Last week, Dominion Harbor Group (DHG). a licensing services company formed in 2013 by eight former-IPNav employees, published a list of six best-practice principles. DHG is clearly attempting to improve standards and encourage greater self-regulation in the patent community. Of course, the principles also distinguish DHG – and indeed, all companies who advocate for principled patent licensing – from bad actors in the market.

The six principles that DHG proposes adhering to in tandem with its clients are:

• Pre-filing letters – DHG will not work with any clients that send serial demand letters in the hopes of extracting “cost of defense” settlements.
• Patent pleading – DHG will only work with clients that agree to provide clear, concise and detailed disclosure regarding their claims early in the process.
• Litigation efficiencies – DHG believes that litigation is inherently inefficient and that parties to litigation should do everything possible to expedite the litigation process and thus reach resolution of the material issues at minimal litigation cost.
• Revenue threshold for licensing – DHG believes that small companies should not be the target of patent litigation where their use of a particular invention may be incidental and small. Accordingly, DHG will not represent any client in a case where the alleged-infringing company has less than $25 million in annual revenue.
• Rational pricing – DHG recognizes that not all patents are granted on $100 million inventions and that litigation costs should not be used to prop up the value of patents with low damages. DHG invites potential licensees to engage in an early disclosure of revenue information so that both parties can arrive at a rational price for licensing IP.
• Fee shifting – DHG is in favour of fee shifting that punishes any party engaging in litigation abuse. This should not just apply to a patent plaintiff but rather should apply uniformly to any party that takes unreasonable positions in patent litigation.

What’s particularly notable – and novel – is that DHG is not only committing itself to certain standards, it’s casting a wider ethical net by including clients. Thus, DHG won’t work with clients that send serial demand letters in the hopes of extracting cost-of-defense settlements (the very definition of troll-like behavior). DHG is advocating for transparency by insisting that its clients “provide clear, concise and detailed disclosure regarding their claims early in the process.” DHG also won’t work with any client that goes after start-ups and small businesses, and gives a precise dollar figure – any allegedly infringing company with less than $25 million in annual revenue.   These are important public commitments that Conversant applauds and supports.

Since Conversant’s announcement last November of its 10-point set of guidelines for principled patent licensing, two other companies have come forward. Finjan Inc., a developer and licensor of patented cyber security software, last week committed itself to a series of licensing best practices aimed at ensuring “candid, transparent, and consistent business practices” in the licensing field. With DHG’s announcement, that makes three of us.

Is this the beginning of a trend? For the sake of the patent licensing industry, and the integrity of the U.S. patent system, we should all hope so.