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Tesla Releases Patents To Fuel Electric Vehicles

Patents are often a fortress to defend against competitors, but Tesla Motors CEO Elon Musk tore down that wall Thursday.

Musk said that Tesla (TSLA) will no longer file patent lawsuits vs. anyone who, "in good faith, wants to use our technology.

At the end of 2013, Tesla said it had 203 patents and 280 pending applications with the U.S. Patent and Trademark Office. They cover a broad range of areas, including Tesla's battery and electric-car charging technology.

Musk said he hopes that releasing Tesla's patent portfolio will spur innovation and growth in the electric car industry, which he sees as a disappointment.

"If you look at results of how many all-electric cars are being made, it's just a tiny number, well below of 1% of new cars," he said in a media conference call.

Most EVs Stuck In Slow Lane

There are close to 100 million cars made each year, with 2 billion on the road, he said. "At the current pace it would take 20 years to replace that fleet," he said.

Investors seemed to take the news with some caution. Tesla was trading near 206 before the announcement and closed down 0.5% at 203.52 as the overall market slid.

It's unclear if Tesla's decision to unleash its patents will fuel EV innovation and growth — and if that will benefit the company. The move could also promote the uptake of Tesla batteries and its charging system.

"I don't think this announcement is all that material to the current outlook on Tesla," said Craig Irwin, analyst at Wedbush Securities. "What it shows is that Tesla is collaborative and looking to foster the development of this industry. They are open to seeing other strong competitors be successful in this space as well.

Thus far, all-electric cars aside from the Tesla Model S have yet to generate much excitement. There are about 10 such models on the U.S. market. They include the Ford (F) Focus Electric, the Chevy (GM) Spark, the Nissan (NSANY) Leaf and Honda (HMC) Fit.

Outside of Tesla, "the others have had far less successful launches in the electric vehicle market," said Irwin. "While Tesla has crushed expectations others have greatly trailed what they hoped to achieve.

Musk Decries Patent Abuse

Musk said Tesla removed the patent restrictions "in the spirit of the open source movement, for the advancement of electric vehicle technology.

Too often these days, he said, patents serve to stifle progress, entrench the positions of giant corporations and enrich lawyers rather than the actual inventors.

For example, Apple (AAPL) and Samsung have been engaged in a brutal multiyear battle of smartphone patents, each trying to one-up the other.

Musk implied that such patent fights miss the main point of competition. That is, patents are abused and overused, stalling innovation and progress.

"If a company is truly relying on patents, that is a weak position because it means they are not innovating fast enough," he said.

Innovation Culture

Patents shouldn't be such a big concern for Tesla shareholders, Musk said.

"The question is where do the best engineers want to work and is the company doing things that attract the most talented people," he said.

Carter Driscoll, a technology analyst at boutique investment bank MLV & Co., applauded the announcement.

"It's a smart move, even from a marketing perspective," he said. Tesla today dominates a niche luxury market, with BMW and Volkswagen's (VW) Audi as rivals.

Tesla's move is likely to inspire other auto companies to step up their involvement in electric vehicle parts production.

"It's a sharp move by an organization that tends to be ahead of the curve," said Driscoll. "They are pushing the development of technology that for many years was overhyped and underdelivered, but we're now starting to see a bit of acceleration."