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.

Now, some might say that settling an infringement suit is not an economically rational act. However, more than 95 percent of NPE cases settle. The users of the patents are paying the owners. So why not make that payment in a more efficient, market-based way that actually reflects the value of the patent rather than hold-up costs of litigation?