Is Elon Musk's SpaceX Protected Without Patents?

Last October, Tesla Motors (NASDAQ: TSLA ) founder Elon Musk said that his other firm, SpaceX (a space transport company), does not have any interest in holding patents. "We have essentially no patents in SpaceX," Musk told Wired . "Our primary long-term competition is in China-if we published patents, it would be farcical, because the Chinese would just use them as a recipe book."

While that may be true, Musk could still end up in a courtroom.

"Simply eliminating one area of IP protection is risky because, regardless of whether or not you participate in the patent system, you are subject to its obligation," Cheryl Milone, a former patent attorney and founder and CEO of Article One Partners (a patent validation community), told Benzinga. "You could still be hit with a patent infringement lawsuit."

Instead of swearing off patents entirely, Milone suggests that entrepreneurs find a balance within the system.

"Any trade secret has the potential to walk out the door as an employee does," she said. "The key commercial features of companies' products or services need to be evaluated individually and there needs to be a balance of patents and trade secrets."

Milone also spoke about the prior user rights defense of the AIA (America Invents Act).

"In the AIA (America Invents Act) there is something called the prior user right, where if a company is using something and is accused of infringing, they can say, 'Hey, we were using it,'" said Milone. "'We kept it as a trade secret.'"

This should feasibly allow inventors to continue using their creation in the same way, even after a patent is granted to someone else.

While the AIA was designed to bring long-awaited changes to the patent system, Milone said it ultimately was not what everyone wanted "at a robust enough level."

"But it was what could be accomplished and agreed to," she said. "The focus of it is improving patent quality. It's giving the Patent Office higher fees and more access to the public to have the Patent Office do a better job of processing applications.

"If a patent is asserted against you and you think the patent shouldn't have been granted, you can go back to the Patent Office, have them take a second look at something called 'post-grant proceedings.'"

Milone said that this has given the Patent Office an edge in improving patent quality. "That's a tremendous improvement in where we were," she added.

Looking ahead, Milone said to watch for the SHIELD (Saving High-Tech Innovators from Egregious Legal Disputes) Act.

"It creates a 'loser pays' approach for patent litigation," Milone explained. "I think it's a great discussion. I think there are ways that can be improved, but I support it.

"If someone files a complaint for patent infringement and they don't even identify the product in what's called a 'nuisance suit,' the judge has the ability to apply Rule 11 sanctions and make the economics more equitable. There are a number of tools in the judiciary's toolbox that can be applied and should be applied more aggressively because what we really want to promote is the proper use of the system and not a misuse of it for nuisance settlements."

Not everyone agrees.

Alexander Poltorak, the chairman and CEO of General Patent Corporation, wrote a scathing op-ed about the SHIELD Act for The Hill last August.

"Congressmen DeFazio and Chaffetz may want to give a more accurate name to their new bill: the 'Shield the Infringer Act,'" Poltorak wrote.

Louis Bedigian is the Senior Tech Analyst and Features Writer of Benzinga. You can reach him at 248-636-1322 or louis@benzingapro.com. Follow him @LouisBedigianBZ

(c) 2013 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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