Supreme Court Deference to District Courts in Patent Cases

Supreme Court Deference to District Courts in Patent Cases

Figuratively speaking, patent litigation requires a unique pair of glasses. Because patents are often granted years before being asserted in litigation, patent law requires that they be interpreted as understood by a hypothetical “person of ordinary skill” in the art to which the patent pertains at the time it was filed. This perspective is designed to avoid “hindsight bias”—the idea that most inventions do not seem inventive when viewed through the lens of a contemporary person of ordinary skill. Needless to say, patent law has many overlapping layers of legal and factual inquiries that ultimately determine which party will prevail.

Every patent appeal is heard before the U.S. Court of Appeals for the Federal Circuit. Over time, the Federal Circuit has established standards of review for the many doctrines of patent law. Per the Federal Rules of Appellate Procedure, pure factual issues are reviewed for clear error, matters of law are reviewed without deference to the lower courts and matters of discretion are reviewed for an abuse of discretion. However, the Federal Circuit also has to determine standards of review for complex patent law doctrines that require legal conclusions with, at times, underlying factual inquiries.

Given the court’s purpose—to create a national and consistent body of patent law—it is no surprise that the Federal Circuit has typically erred on the side of legal review without deference when creating standards of review. For example, claim construction, a process that often involves testimony from experts, is reviewed entirely without deference. Obviousness, considered a mixed question of law and fact, is reviewed without deference to the legal conclusions but for clear error of the underlying factual determinations. Until recently, whether a patent case was “exceptional” under patent law was also reviewed without deference to the lower court. Given the number of issues reviewed without deference, some members of the patent bar have expressed concern that trial court practice has lost its importance—that the Federal Circuit has essentially made itself a court of first instance that has ignored the trial level judge’s role as a fact finder and “eyes on the ground” during the initial phase of litigation.

Recent U.S. Supreme Court decisions show that the justices agree that the status quo is imperfect. They have emphasized the importance of trial judges in patent cases, and there’s no reason to believe that the justices will change their approach when they consider pending cases. Specifically, in light of their recent opinions in Octane Fitness v. Icon Health & Fitness and Highmark v. Allcare Health Management System, we predict that the Supreme Court’s upcoming decision in Teva Pharmaceuticals USA v. Sandoz will result in increased deference to the district court, more closely aligning claim construction to the principles of contract interpretation.

The Background

For the majority of the Federal Circuit’s existence, it has largely escaped significant scrutiny from the Supreme Court. However, in the recent past, the Supreme Court has become much more active in granting certiorari in appeals of patent decisions from the Federal Circuit. Indeed, the Supreme Court has issued five patent opinions in the past three months, In addition to Octane and Highmark, the court decided Nautilus v. Biosig Instruments and Limelight Networks v. Akamai Technologies. The Teva opinion will be the sixth within a year.

The companion cases of Octane and Highmark addressed different aspects of the “exceptional case” inquiry under 35 U.S.C. § 285. Under federal patent law, in addition to normal Rule 11 sanctions, parties can seek fees and expenses in “exceptional” cases under § 285. Parties typically move under § 285 when their opponent takes an exceptionally frivolous position resulting from a lack of diligence and/or legal acumen. These two cases gave the Supreme Court an opportunity to analyze several aspects of an exceptional case determination. In Octane, it evaluated the Federal Circuit’s objective-subjective test for whether a case was “exceptional,” and it looked at the clear and convincing standard of proof required for a party to prove the objective-subjective test. And in Highmark, it asked whether the de novo standard of review (without deference) applied by the Federal Circuit was proper.

The results? The Supreme Court changed the exceptional case test, lowered the standard of proof needed to support an exceptional case finding from clear and convincing evidence to preponderant evidence, and changed the standard of appellate review from de novo to clear error.

The underlying theme of the Octane and Highmark decisions was that the Federal Circuit’s test for exceptionality, coupled with its nondeferential standard of review, usurped the province of the district court. In Octane, the Court emphasized that cases can be exceptional based on the substantive merits of the claims and also the manner in which the case was litigated. The new test emphasized that the district court must consider the “totality of the circumstances” in assessing whether a case is exceptional. The Court rejected the “unduly rigid” objective-subjective test in favor of a test more true to the “inherently flexible” language of 35 U.S.C. § 285, the statutory basis for finding an exceptional case.

Highmark also emphasized the role of the district court when it changed the appellate standard of review from de novo to an abuse of discretion. In Highmark, the Court re-emphasized the case-by-case nature of the district court’s evaluation of an exceptional case. According to the court, because the exceptional case determination is wholly discretionary, and not a matter of law or fact, it should be reviewed for an abuse of discretion on appeal. The Court was clear: its holdings in Octane and Highmark were direct reflections of its position that, as a matter of the “sound administration of justice,” the district court is “better positioned to decide whether a case is exceptional . . . because it lives with the facts over a prolonged period of time.”

Going Forward

The forthcoming Teva case will require the court to take on claim construction. The process of claim construction clarifies contested terms within the asserted patent claims. It often determines a patent’s validity and whether a defendant’s product infringes the asserted patent. A typical claim construction includes questions of fact that underlie the legal determinations made by the court. For example, to help the court understand the term “gene” in a patent in the field of genetics, genetics expert might testify how a person of ordinary skill in genetics would understand the word “gene” at the time the patent was filed. A court will weigh one or more expert opinions as it also examines the patent specification, the patent figures and the prosecution history to determine what the patentee meant when he used the term “gene.”

Despite these factual underpinnings of claim construction, the Federal Circuit reviews a district court’s claim interpretations without deference. This standard of review was recently upheld by a majority of a divided Federal Circuit in Lighting Ballast Control v. Philips Electronics North America, No. 12-1014 (Fed. Cir. Feb. 21, 2014) (en banc). Notwithstanding the Federal Circuit’s recent endorsement of the de novo standard of review, the Supreme Court granted certiorari in Teva for the following question:

“Whether a district court’s factual finding in support of its construction of a patent claim term may be reviewed de novo, as the Federal Circuit requires (and as the panel explicitly did in this case), or only for clear error, as Federal Rule of Civil Procedure 52(a) requires.”

In the authors’ opinion, there seems little chance that the Federal Circuit’s de novo standard will survive Supreme Court review. Based on Octane’s and Highmark’s focus on the unique position of the district court, and the traditional clear-error standard of review of factual determinations, the Federal Circuit’s treatment of claim construction will soon change.

We believe, moreover, that it should change. In particular, the Supreme Court should change the doctrine to closely follow basic contract principles. Claim construction, at its essence, is interpreting a contract between the inventors and the public—disclosing an invention in return for a limited right to exclude others from making, using or selling the claimed invention. Just as it does when it construes a “regular” contract, a court is able to apply the ordinary meaning of words and examine other words in the patent to help place disputed terms in context. The defining difference between contract interpretation and patent claim construction is that claim construction must be performed through the lens of a hypothetical person of ordinary skill from the date the patent was filed. This lens, unless expressed through statements by the patentee during prosecution of the patent, must be created and evaluated based on facts, including expert testimony and extrinsic documents.

Given this underlying factual inquiry, it makes sense to assign the typical clear-error standard of appellate review to the factual determinations made by the district court. Once those determinations have been articulated, their application to the legal determination of a term’s meaning should be reviewed de novo. This relatively straightforward standard of review would preserve the district court’s province over fact finding, and allow the Federal Circuit an opportunity to ensure a proper application of facts to the highly technical patents before them every month.

The Bottom Line

The Supreme Court’s recent interest in patent law has served two purposes: It has preserved the province of the district court’s fact finding and discretion, and it has articulated Federal Circuit tests in terms that the Supreme Court deems more accessible and flexible for the district court’s use. Without other circuits to split with the Federal Circuit, the Supreme Court’s mission for granting certiorari has been to address important issues of federal law. And the Court has found that the Federal Circuit is either right (and certiorari is not granted) or wrong (in the Court’s eyes), and granting certiorari shows that change is coming.

We believe that a heightened standard of review for factual findings underlying a district court’s claim construction would have a noticeable impact on patent litigation. In particular, to the extent that there has been hesitation to use expert testimony in support of proffered claim constructions, it could soon become almost a requirement.

John Nilsson is a partner in Arnold & Porter’s Washington, D.C., office. He specializes in representing technology clients in complex patent litigation. Many of his cases have focused on medical device technologies, though he has also represented clients in patent cases involving technologies outside the medical device and biotechnology spheres. Seth Heller is an associate in the same office. He joined the firm after clerking at the U.S. Court of Appeals for the Federal Circuit and the Supreme Court of Israel. His practice focuses on patent litigation and appeals, with a particular emphasis on biotechnology, pharmaceuticals, medical devices, diagnostics and the life sciences.

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