Patents ruin disruptive innovation.

Despite these pressures and the best efforts of all involved, the first commercialization of a new idea can take years.60 Along the way, the process from idea to commercialization is iterative and riddled with setbacks, pivots, and deviations.61 As one study observed, in the early stages of a new product type the "process by which the technology is scaled from pilot to commercial production creates opportunities to learn by building."62 There is no set time-to-market because there is a widely variable relationship between the amount of resources that a startup uses, the complexity of the product and the time necessary to complete the commercialized product. All else being equal, the more time and funding that the startup possesses, the faster the startup can get to market. Further, the first version of a commercial product might be far from perfect, and improvements may be necessary. Marketing to obtain a critical mass of customers can extend the time that the startup collects its initial revenues even further. Events that detract from this drive to market, including the multi-million dollar drain of patent litigation, can stymie the startup's viability.63

The commercialization of the Nest thermostat provides as a brief illustration of the distinction between ideas, inventions, and commercialization, as well as the impact of funding on time to market. This device started as the idea of Tony Fadell, an experienced, former Apple designer who has been called the "godfather of the iPod." 64 While designing a home in 2009, Fadell began to explore ideas for a smart, energy saving thermostat after considering the low-tech designs that were available then on the market.65 He discussed his concept with a colleague in Fall 2009, who agreed to form Nest with Fadell.66 In the middle of 2010, the company was founded.67 In September of that year, Nest received its first round of venture funding.68 While he sought this funding, Fadell did not present prospective investors with a working prototype, but instead based on a crude Styrofoam model and a business plan in a slide deck.69 Based solely on this information, it might appear that at this juncture Faddel's idea had not yet materialized into an invention before September 2010. However, on September 14, 2010, Nest filed patent applications demonstrating that the startup's concept had indeed ripened into an invention as of that date.70

Nest first commercialized the smart thermostat in October 2011 after receiving two rounds of funding.71 Consistent with the startup's patent applications, the device predicts temperature needs by "learning" its user's habits so that it can customize home temperatures.72 After a calendar year, the device had sold units in the area of "in the mid hundreds of thousands."73 By the beginning of 2014, Google purchased Nest for 3.2 billion dollars, and the number of Nest thermostats sold had reached over a million.74 Nest has now developed a revised version of its thermostat, a smart smoke detector, and is thought to be developing in-home camera technology.75

Nest represents a concept-to-commercialization example that succeeded under the best of circumstances. Run by a highly credentialed inventor who was the "godfather of the iPod," Nest attracted early, robust funding that provided the resources to hire, design, and refine the original concept. By contrast, the early days of Fitbit, which ultimately designed the wearable fitness tracker, faced delays, undercapitalization, and failure (not once, but seven times).76 The company, which started in April 2007, began with $400,000 in private investment that proved inadequate to manufacture the device.77 Despite thousands of pre- orders, Fitbit had difficulty obtaining a second round of capital, finally convincing one venture capitalist to invest after speaking to thirty.78 Fitbit required tremendous focus to belatedly get the product to the market during late 2009.79 As the company's cofounder and CEO described, "one mistake in hardware and you're done. One mistake can set you back months."80 Fitbit's founders, both experienced entrepreneurs, noted that the first product launch experienced significant delays because of re-designs, logistical problems, and finding acceptable manufacturing sources.81 During this delay, rivals began moving in.82

Many startups fail long before reaching Nest or Fitbit's sales levels.83 The first few years are difficult, strenuous, and resource-starved.84 Although many startups fail for reasons that have nothing to do with the patent system, startups are the most likely entities to be slowed to a crawl or financially devastated by a patent suit. For some startups, the patent system may be precisely the right tool that carries the company through to viability rich with research and development in future products. For others, the potential for a patent suit may be a risk (or a reality) that is not worth its upsides.

Nest and Fitbit serve as examples of the type of startup that is eligible for the anti-patent program. Such entities begin with an idea that is refined toward commercialization, ultimately release a product, and move forward to create subsequent versions or other types of products. Startups in other fields, particularly software, might obtain the largest benefits from the proposed program. Currently, all of these companies are subject to patent demands that could stymie development. To appropriate a phrase, the patent system prevents the invisible hand of the startup market from deciding on an individualized basis whether the potential risk outweighs the rewards. Instead, firms are forced to decide to settle or litigate, which are expensive propositions even if there are strong defenses available, simply to continue to focus on innovation. Immunity relieves the startup from this Hobson's choice, and allows the entity to focus on permissionless innovation in the form of continuing research, development, and exploration.