Elon Musk Doesn’t Care About Patents. Does That Matter?

Early last month, Harvard Business Review published an interesting intellectual property-related article, in which declared that Tesla Motors CEO and SpaceX founder-slash-CEO Elon Musk “doesn’t care about patents.” The article’s authors Michael Heller and ...

Early last month, Harvard Business Review published an interesting intellectual property-related article, in which declared that Tesla Motors CEO and SpaceX founder-slash-CEO Elon Musk “doesn’t care about patents.” The article’s authors Michael Heller and James Salzman followed up on this attention-grabbing assertion by asking, “Should you?” The opening lines of the article 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.”

Heller and Salzman argue, however, that “much of this wisdom is wrong,” and in fact, the “world’s savviest businesses already know this,” which is presumably why HBO tolerates theft, SpaceX forgoes patents (and Tesla has taken a stance on this, too), and Airbnb started operating without even knowing whether its product offering was legal. With this in mind, Heller and Salzman introduce the idea of “ownership engineering,” which they define as “creating value by managing how products and services are owned,” and they dive into three ownership engineering strategies, namely, tolerating theft, foregoing ownership, and leaning into ambiguity.

Tolerating theft – HBO chose not to pursue people who were using the passwords of others and thereby, “stealing” content. Instead, the entertainment titan decided to let the unauthorized usage grow the brand and create an affinity for the product. Microsoft did the same with its software in China, with Bill Gates saying, “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.”

Gates’ logic prevailed, as China now accounts for 10 percent of the company’s annual revenue. The authors even suggest that this thinking has application in the luxury goods market (where both widespread trademark protections and counterfeiting prevail), citing a study that showed that 40 percent of people who bought counterfeit luxury goods ultimately went on to buy the genuine version later.

Foregoing ownership – The authors go on to assert that the basis for legal ownership is misplaced, and that there are substitutes available, such as secrecy, which appears to be the route being taken by Musk, who says, “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.” There is also the “first-mover advantage.”