James Day and Andy Nguyen, Farella Braun & Martel
James Day and Andy Nguyen, Farella Braun & Martel ()

The U.S. Supreme Court in January issued its opinion in Teva Pharmaceuticals USA Inc. v. Sandoz,13-854, which changed the level of deference the Federal Circuit must show to district court claim construction orders—in part.

For more than two decades, the U.S. Court of Appeals for the Federal Circuit has reviewed claim construction on a de novo basis; in other words, as a pure question of law without showing any deference to the district court. The de novo review standard resulted in a high rate of reversal by the Federal Circuit in claim construction decisions. This caused uncertainty, and the existing standard had been under attack even before being explicitly confirmed in Cybor Corp. v. FAS Technologies, 138 F.3d 1448 (1998).

The New Criteria

With the issuance of the Teva decision, the Supreme Court has changed that standard. The Federal Circuit must now review factual findings underlying a claim construction order for clear error, giving deference to district court judges, though the Federal Circuit will still review the interpretation of patent claim terms itself de novo even if that interpretation is based on the underlying findings of fact. Whether or not the new standard brings more predictability to patent litigation or changes the reversal rate of the Federal Circuit, one thing seems likely: We will be seeing more expert testimony—and the associated expense—in claim construction proceedings than we did under the old standard.

It will be even more critical now for litigants to retain and work with experienced patent litigation counsel to select highly qualified experts who not only have the right credentials and experience to opine on claim construction-specific issues, but who can also clearly and persuasively testify, if permitted, before a district court judge. It will also generally be in the patent owner’s interest to develop a factual record in the district court to make an appeal of those findings less likely to be successful under the clear error standard.

What the Supreme Court Changed

Since the decision in Markman v. Westview Instruments, 517 U.S. 370 (1996), federal district courts have been tasked with interpreting the meaning of terms in patent claims. Until now, those district court claim construction opinions were reviewed de novo by the Federal Circuit. The standard applied to claim constructions based exclusively on the intrinsic evidence, like the patent at issue and its prosecution history. It also applied to any factual conclusions drawn from extrinsic evidence, like expert testimony and dictionary definitions. Under this non-deferential standard, the Federal Circuit has reversed an unusually high percentage of the claim construction orders it has reviewed—sometimes estimated at 50 percent or more.

In the closely watched Teva Pharmaceuticals case, the Supreme Court was asked to change the standard of review to require the Federal Circuit to show deference to factual findings of the district courts. And it did. In a 7-2 decision, the court held that factual findings underpinning a claim construction must be reviewed for “clear error” on appeal.

In other words, the appellate court should accept factual findings of the district courts, unless the appellate court finds they are unsupported by substantial evidence.

How ‘Teva’ will Impact Patent Litigation

It is too soon to tell if the Supreme Court’s ruling will have any impact on the outcome of more than a few cases that turn on disputed expert testimony. As the Supreme Court confirmed in Teva, “When the district court reviews only evidence intrinsic to the patent (the patent claims and specifications, along with the patent’s prosecution history), the judge’s determination will amount solely to a determination of law, and the Court of Appeals will review that construction de novo.”

In other cases, where there are “subsidiary facts” in dispute, the district courts “will need to make subsidiary factual findings” based on the extrinsic evidence. It is “this subsidiary fact-finding [that] must be reviewed for clear error on appeal.” But even in cases where the district court resolves factual disputes, the judge “will then interpret the patent claim in light of the facts as he has found them,” and this “ultimate interpretation is a legal conclusion” subject to de novo review.

There is ample room in the new standard for the Federal Circuit to review most claim construction decisions largely, if not entirely, under the same de novo standard that has applied for years.

Whether or not the Teva decision will have any real impact at the appellate court level, it is likely to change the way litigants present their claim construction arguments and the way district court judges support their claim construction orders. Under the old standard, there was limited benefit to making a strong presentation of extrinsic evidence because even if it was convincing, any factual findings the district judge might make would be reviewed de novo by the Federal Circuit. The Federal Circuit takes the view that extrinsic evidence is “less significant” than the intrinsic record. Phillips v. AWH Corp., 415 F. 3d 1303 (2005).

In light of Teva, a claim construction order based solely on intrinsic evidence will be more easily reversed than a decision with specific factual underpinnings. Litigants are now incentivized to submit more extrinsic evidence, even in cases where they would not have under the old standard, and hope the district judge will use it to craft a favorable opinion with plenty of citations to underlying facts that must be reviewed with deference by the appellate court. There is a greater prospect for each claim construction dispute to become a “battle of the experts,” and there is at least the potential for other extrinsic evidence, like dictionary definitions, to take on greater importance.

All of this will likely lead to more frequent and more involved evidentiary hearings in connection with claim construction proceedings. Indeed, while live expert testimony is uncommon in claim construction proceedings under the old standard, the Teva decision makes live testimony more likely so the district judge can weigh competing evidence, assess credibility and make specific factual findings. Going forward, patent litigants should focus more energy on retaining experts who are qualified to offer testimony in support of specific claim construction positions but who are also effective, credible witnesses.

Why the Supreme Court Changed the Standard

The Teva case presents a situation where disputed extrinsic evidence proved to be dispositive, making it an example of a case where the change in standard may well alter the ultimate result. The main dispute in Teva concerned the meaning of the term “molecular weight” as it appeared in Teva Pharmaceutical’s asserted patent claim.

Sandoz, the defendant, argued the claim was indefinite because the term “molecular weight,” as used in the patent claim, could refer to any one of three different potential measures of molecular weight. The parties presented competing expert testimony on this point, and the district court accepted the testimony of Teva’s, finding the patent sufficiently definite and valid. On appeal, the Federal Circuit conducted de novo review of the lower court’s decision. It implicitly rejected Teva’s expert testimony, finding the term “molecular weight” indefinite.

The Supreme Court vacated the Federal Circuit’s judgment based primarily on Federal Rule of Civil Procedure 52(a)(6), which states a court of appeals “must not … set aside” a district court’s “[f]indings of fact” unless they are “clearly erroneous.” Continuing a theme that has developed over the past decade, the court decided there is no reason patents should be treated differently than other legal documents like contracts and deeds, indicating that, in general, patent law is not exempted from the basic procedures established for all other civil litigation.

According to the Supreme Court, Rule 52 sets out a “clear command.” And, although it ruled in Markman that claim construction poses a question of law for a judge, that did not imply or create an exception to Rule 52 regarding underlying factual disputes. The court also determined that precedent and practical considerations favored clear error review.

In Practice articles inform readers on developments in substantive law. Contact James Cronin with submissions or questions at jcronin@alm.com.