Wedoany.com Report-Dec 27,Tesla, trade secrets, and another lawsuit
Dry coating technology is at the centre of another recent lawsuit in the battery manufacturing sector.
As discussed, Tesla is one of the pioneers of dry coating technology, at least partly based on their purchase of Maxwell Technologies and its IP. On 14 June, Tesla filed a lawsuit against a former (and present) supplier, Matthews International Corp., for alleged trade secret theft related to dry-electrode battery manufacturing technology. Matthews is alleged to have used Tesla’s confidential trade secrets in its patent filings, and by ‘selling equipment for dry-electrode battery manufacturing’, which ‘embodied Tesla’s confidential trade secrets’, with Tesla’s conservative estimate of damages exceeding US$1 billion.
Tesla, and its CEO Elon Musk, have traditionally been critical of patents, and have promised to make their patents ‘available for anyone to use for free’, also promising “not [to] initiate patent lawsuits against anyone who, in good faith, wants to use [Tesla’s] technology”. Tesla generally files fewer patent applications than may be expected for an innovative company of its size, apparently relying more heavily on trade secrets.
Case study: Trade secrets vs patents
As long as trade secrets are kept confidential, they may offer protection indefinitely, whereas patents provide protection for a limited period of time, typically up to 20 years. A patent requires disclosure of an invention, with patent applications generally published about 18 months after filing, whereas trade secrets are kept secret. Because there is no formal application process for trade secrets, they tend to be relatively inexpensive and may be used to quickly protect incremental improvements. Patents require a formal application process.
However, patents are a monopoly right, granting an exclusive right (making, using, selling, and licensing an invention), whereas trade secret protection may be lost if the information becomes known or is discovered separately.
While Tesla and in particular Elon Musk are not the only trade secret enthusiasts, Tesla’s recent lawsuit against Matthews highlights some of the potential downsides of strongly prioritising trade secrets over patents: trade secrets do not provide a monopoly right to their owner, and they may be difficult to enforce.
In the fast-developing battery sector which relies on complex supply chains, sharing of trade secrets with third parties may be unavoidable. While contractual confidentiality arrangements and clear definition of information considered proprietary by each party may help to avoid misunderstandings, Tesla would perhaps be in a stronger position if they had filed patent applications instead of relying solely on trade secrets. It is noted that Matthews have refuted the claims made by Tesla, referencing their work on dry coating technology allegedly starting over 25 years ago.
Conclusion
The trends are clear: booming demand for electric vehicles and in other sectors relying on battery energy storage, and increasing investment, is leading to ever more research and development in the battery sector. The R&D is resulting in growing numbers of patent applications and granted patents. This applies to both secondary batteries in general, and also to specific technologies of increasing interest, such as dry coating.
Alongside patents, trade secrets are an important intellectual property right in the battery sector, with companies such as Tesla heavily relying on trade secrets. In a rapidly evolving industry such as battery manufacturing, trade secrets may be a valuable part of a comprehensive IP strategy.
Patents do offer clear benefits over trade secrets. Most companies likely rely on a mixture of both patents and trade secrets to protect their intellectual property. Where possible, most companies will probably wish to seek patent protection, be it on the material, electrode, cell, or module level, or in relation to manufacturing processes/machines or battery management systems. Patent applications do not preclude companies from keeping separate but related trade secrets. However, one should ensure that trade secrets are identified, clearly defined, and ensures that misappropriation by employees or suppliers is prevented.
Patents do not only provide an opportunity to protect one’s own innovations, the proliferation of patents and patent applications also means that more conflict is likely. Considering freedom to operate and possible infringements is important for new entrants to the battery sector, but also for established companies.
As previously discussed, in the case of LG incumbents are apparently willing to become more litigious, and as a result licensing may become more commonplace. The interplay between patents, trade secrets, suppliers, and litigation also bear consideration, as illustrated by the legal battle between Tesla and Matthews.
