A short history of giving away your patents

Giving away intellectual property may seem counterintuitive, but for many businesses it pays off in other ways

 
A Toyota employee checks a Mirai on its final assembly line at the Motomachi factory in Toyota city
A Toyota employee checks a Mirai on its final assembly line at the Motomachi factory in Toyota city in February 2015. (Toshifumi Kitamura/AFP/Getty)

In January, Toyota announced it would open up its patent portfolio in order to drive wider adoption of hydrogen technology. Under the automaker’s scheme, manufacturers will be allowed to develop products using its patented technology through 2020 without a royalty fee. “The first-generation hydrogen fuel cell vehicles, launched between 2015 and 2020, will be critical, requiring a concerted effort and unconventional collaboration between automakers, government regulators, academia and energy providers,” said Bob Carter, senior vice-president of Toyota’s automotive operations. “By eliminating traditional corporate boundaries, we can speed the development of new technologies.”

Giving away intellectual property isn’t as rare as it might seem; Toyota provided free access to some of its hybrid car patents when it debuted the Prius nearly 20 years ago, and many companies have built their businesses on such arrangements. Here are some of the ways giving ideas away has paid off.


SEALAND INDUSTRIES

1956
Shared: Shipping containers
Number of patents released: 1
Annual revenue of products based on royalty-free patents: US$440 billion

In 1956, a converted oil tanker called the Ideal X carried 58 stacked shipping containers from Newark to Houston. It was the first instance of containerized shipping—and a hint that a single interchangeable unit of cargo was the future of global trade.

But during the early days of the fledgling industry, different companies were pushing different-sized containers: SeaLand, the company pioneering the new method, had chosen a 33-foot-long container suitable for loading on trucks, while competitor Matson, concerned about weight, was pushing for a smaller 24-foot model. The uncertainty hampered uptake at every point on the supply chain.

Malcolm McLean, who had purchased SeaLand specifically to build his vision of an end-to-end containerized shipping company, ultimately received a patent for the design of stackable shipping containers. But instead of enforcing it against his competitors, McLean leased it to the International Organization for Standardization royalty free, so that anyone could build compatible containers. The resulting explosion in so-called “intermodal” transportation propelled SeaLand’s success more than any patent lawsuit ever could have: within 15 years, SeaLand was the largest shipping business in the world.


AT&T

1970s
Shared: UNIX software
Number of patents released: 8,600
Annual revenue of products based on royalty-free patents: US$478 billion

Not all openness has been by choice. UNIX, an early and highly influential computer operating system, had first been developed within Bell Labs. But its parent company, AT&T, had agreed not to enter the computer business as part of a 1958 antitrust settlement; it had to share its source code with anyone who wanted it, and academic computer science departments were enthusiastic adopters.

That led to a proliferation of UNIX-like operating systems starting in the 1970s—some of them free and open-source, some commercial and locked-down, and many somewhere in between. It also proved that “openness” and “standardization” often had little to do with altruism; companies and consortiums fought viciously, and at length, about which technologies would become “standard” for the whole industry (a period now referred to, only half-jokingly, as “the UNIX wars”).

Scraps of UNIX and its descendants live on today in every computer you touch; both Apple’s iOS and Google’s Android contain code that can trace their lineage back to these early UNIX operating systems.


GOOGLE

2005
Shared: Android
Patents controlled by Google: 51,000+
Annual revenue of products based on royalty-free patents: US$255 billion

Openness can also be a weapon. Android, an open-source mobile operating system started in 2003, soon became Google’s big stick in the smartphone wars. At the time of Android’s release, the dominant mobile OS in the fledgling smartphone market was Nokia’s Symbian, which then held more than 75% of the market.

The launch of the iPhone, boasting the much more user-friendly iOS, put Nokia on the backfoot—but in the long run it was Android that did the most damage. By releasing Android under a free license, Google made Android the cheap and easy choice for the next generation of smartphone makers—manufacturers like Samsung, HTC, LG and Xiaomi. Symbian, which charged a license fee for every phone made and offered fewer customization options, quickly withered, ultimately leading to the breakup of Nokia and the sale of its mobile phone division to Microsoft.


FACEBOOK

2009
Shared: Tornado
Patents owned by Facebook: 704+
Annual revenue of products based on royalty-free patents: US$12.4 billion

In 2009 Facebook bought a social network called FriendFeed that was struggling to attract users but had a compelling technology under the hood: a piece of software called Tornado, which allowed FriendFeed to update its profile pages in real time as people added likes, comments, new posts and more. (Sound familiar? Today Tornado powers Facebook’s news feed for hundreds of millions.)

The first thing Facebook did was open-source Tornado’s code, which may seem counterintuitive—why buy a company and then give away its biggest asset? A combination of factors: Facebook was built on a suite of open source precursors and being a good corporate citizen is good PR; but it’s also a good way to accelerate development and testing, spot promising newcomers and retain existing talent.



TESLA

2014
Shared: Lithium-ion electric car patents
Number of patents released: 200+
Annual revenue of products based on royalty-free patents: US$2.01 billion

Tesla founder Elon Musk announced in a June 2014 blog post that the company “will not initiate patent lawsuits against anyone who, in good faith, wants to use our technology.”

Musk is famously skeptical of patents, referring to them as a “lottery ticket to a lawsuit.” His other major venture, SpaceX, holds none at all, and Musk has implied that not publishing the company’s inventions is a way to keep them out of the hands of Chinese competitors who reverse-engineer patent filings.

Tesla is in the midst of constructing its so-called “Gigafactory” to manufacture the lithium-ion batteries that run its cars. But the factory as planned is so large that its capacity will meet Tesla’s needs with plenty to spare. Musk may be looking to create a larger market for all those extra batteries by enticing his competitors to standardize on his technological terms.


TOYOTA

2015
Shared: Hydrogen fuel cell vehicle patents
Number of patents released: 5,680
Annual revenue of products based on royalty-free patents: US$40.8 million

Toyota is opening up its patent portfolio, but not to just anyone. Interested companies—automakers, parts manufacturers and energy companies that will operate fuelling stations—will have to apply for access, and Toyota says it will decide on a case-by-case basis. Through 2020, Toyota will provide royalty-free use of its patents, including 3,350 related to fuel cell system software control; 1,970 related to fuel cell stacks; 290 related to high-pressure hydrogen tanks; and 70 related to hydrogen production and supply. (Those final patents have been opened up indefinitely and free licences will not expire with the rest in 2020.)


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