At RPX we talk a lot about the need for “market efficiency” in the patent world—about the need for a more cost-effective way to transfer value between patent users and patent owners. Today, litigation is the default method to do so, and it is hard to imagine a less efficient form of economic exchange or price discovery than a lawsuit.
In fact, of the nearly $11 billion spent by operating companies to resolve non-practicing entity (NPE) patent disputes last year, approximately half went to settlements and half to legal costs. In other words, if settlements in theory represent the agreed-upon value of the asset, then the legal expenses represent the transaction costs. This is inefficiency on a massive scale; no economically rational market would ever survive with such large transaction costs.