This is the third installment on the Senate Committee for the Judiciary�s hearing on the new Patent Reform Act. This post will discuss the testimony of Mr. John A. Squires, Chief Intellectual Property Counsel for Goldman, Sachs and Co. Readers can find the first three installments of this series here. Squires not only spoke on behalf of Goldman Sachs, but also as chairman of the Securities Industry and Financial Markets Association IP Subcommittee, the American Bankers Association, and the Financial Services Roundtable. Squires quoted a Harvard study that found financial patents to be 27 times more likely to be asserted and litigated than their tech and bio counterparts. Given that statistic and the financial background of the groups that he represented, Squires often focused on the effect of the proposed bill upon business method patents. Post-Grant Review Squires came out in favor of the additional post-grant review contained in the Patent Reform Act, saying:

The second window is essential to a meaningful, efficient and broadly available reevaluation of suspect patent claims before a firm is forced into prolonged and expensive litigation.

Squires sees the second window as a way to solve the PTO’s (self-admitted) lack of a suitable prior art database for business methods. He also echoed Mary Doyle’s testimony in stating that reviewing all patents through the existing system leaves companies in the untenable position of predicting how patentees may interpret and apply their patents (especially expansive business method patents). Interlocutory Appeals Squires next came out in favor of the language allowing interlocutory appeals to the CAFC from Markman rulings. He cited the high rate of District Court decisions being overturned (35%), and this uncertainty undermines the purpose of claim construction proceedings. He also addressed the concerns of those who are not in favor of interlocutory appeals: a flood of appeals will descend upon the CAFC, cases will become longer, and that litigants will get “two bites at the apple.” Squires responded:

The CAFC heard a total of 834 cases in 2006 of which 453 were patent cases.4 Of those, 259 were adjudicated (57%). A 50% increase would mean an additional 109 cases a year could be attributable to interlocutory appeal. The CAFC�s current workload plus those cases is an increase of roughly 12%, and with four three-judge panels hearing cases, the net is an increase of 2 or 3 cases per month, per panel in addition to the roughly 17 cases per month the CAFC currently hears. These numbers do not account for any decrease in caseload resulting from cases that would no longer need an appeal at the end of trial due to IA resolving the issue earlier.

In addressing the last two concerns, he believes that the interlocutory appeal will facilitate out of court settlements and thusly shorten disputes. Finally, Squires wants to see language in the new Act that will prevent any ‘second bites at the apple.’ Venue Squires looks favorably upon the Reform Act’s change to the venue requirement in order to eliminate forum shopping. However, he wants to strengthen the provision:

to ensure that financial institutions are not subject to litigation in venues where they have no significant business presence and that the incentive is removed for patent holders to ‘create’ a principle place of business to sue in a favorable district.

Prior Use Squires agrees with the prior use rights defense to remove methods, buts also wants the bill changed to ensure that holding companies can confer the defense to their affiliates. He suggests the following language:

The defense under this section may be asserted by a person who performed or caused the performance on its behalf of the acts necessary to establish the defense. Such person may license such defense only to (i) an entity that controls, is controlled by, or is under common control with that person so long as such entity became affiliated with such person in good faith for reasons other than receiving such license, or (ii) an entity providing services to such person or licensed affiliate, solely to the extent such services are provided on behalf of such person or licensed affiliate.

Willfulness and Apportionment of Damages Squires was in favor of the Act’s raising the standard for finding willfulness because infringers will still be punished. However, the new legislation will “encourage good faith due diligence and investigation” as opposed to the current system which encourages companies to remain ignorant of other’s patents for fear of treble damages. Squires also expressed a desire to see damages reduced to a level “based overwhelmingly on the patent’s specific contribution over prior art.” Effective Date of the Act and Secret Prior Art Squires wants Sections 5, 10, and 13(a) of the Act to take effect immediately. The present language states that the bill will not take effect for 12 months. Also, he believes that “the laws should apply to all non-expired patents and patent applications, not just those filed after the law is enacted.” Finally, Squires wants the novelty provision of Section 102(1) (a) to:

replace “public use or on sale” with “otherwise publicly known” or “otherwise available to the public.” The above change to the H.R. 1908/S.1145 will allow organizations to contractually protect against unintentional invalidity of patents by executing a binding non-disclosure agreement with collaborating organizations.