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Supreme Court Holds That Certain Aspects of Claim Construction Decisions Merit Deference on Appeal

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USToday on IPcopy we have a handy review courtesy of Wolf, Greenfield & Sacks, P.C. of the recent Teva Pharamceuticals v Sandoz case in the US.

On January 20, 2015, the U.S. Supreme Court issued its opinion in Teva Pharmaceuticals USA, Inc. v. Sandoz, Inc. The Teva case alters the way the U.S. Court of Appeals for the Federal Circuit (Federal Circuit) will review decisions concerning how patent claims should be construed and whether particular claims are invalid as “indefinite.”

While the ultimate issues of claim construction and indefiniteness will remain legal questions that get a fresh look on appeal, Teva requires that the Federal Circuit defer to the district court’s findings concerning subsidiary facts unless those findings were “clearly erroneous.” Until now, the Federal Circuit has taken a fresh look at even these subsidiary questions, such as whether a person skilled in the art would have understood certain claim terms as having particular meanings.

Teva is likely to impact patent litigation both substantively and procedurally. The substantive changes may take time to develop, whereas certain procedural shifts (e.g., increased reliance on expert witnesses for claim construction) could emerge quickly.

Background

In its 1996 Markman decision, the Supreme Court ruled that “construction” (interpretation) of terms in a patent is a task for judges rather than juries. “Markman” claim construction hearings have since become central to patent litigation, as the judge’s claim construction ruling can resolve a case entirely, or at least shape it for trial. District court judges also often use the Markman process to address indefiniteness defenses, in which an accused infringer argues that the terms of a patent are too vague to be enforceable.

The Federal Circuit, which handles virtually all patent appeals, has traditionally applied a “de novo” standard of review to all district court claim construction and indefiniteness rulings. This meant that, on appeal, the Federal Circuit took a fresh look at the record and decided for itself how to rule on these issues, with no deference to how the district court judge had ruled.

Defenders of the Federal Circuit’s de novo approach stressed the court’s expertise in patent matters and the importance of consistency. Critics lamented the unpredictability of Federal Circuit appeals and the high reversal rate for claim construction rulings, which made it difficult to settle patent cases until the Federal Circuit had the final word.

Facts of the Case

Teva owns patents covering Copaxone®, a multiple sclerosis drug. Sandoz and other companies sought to market generic versions of Copaxone. Teva sued them in federal court in New York. The defendants argued that Teva’s patents were invalid as “indefinite” because they require a particular “molecular weight” but do not specify any particular technique for determining it. Different techniques can lead to differing results and thus confusion as to whether a particular drug infringes Teva’s patents.

The trial judge ruled in Teva’s favor, relying on a declaration submitted by an expert witness retained by Teva who argued that a particular diagram in Teva’s patents would teach a person skilled in the field which method to use for determining molecular weight.

The Federal Circuit, however, reversed the trial judge and held that most of Teva’s patent claims were invalid as indefinite. Applying its traditional de novo review standard, the Federal Circuit closely scrutinized Teva’s expert witness testimony and ruled that it did not “save” the majority of Teva’s claims.

Supreme Court Decision

The Supreme Court vacated the Federal Circuit’s decision, holding that the patent appeals court must accept a district court’s factual findings underlying a claim construction or indefiniteness decision unless those findings are clearly wrong. Citing the federal rule relating to appellate review of fact findings, the Supreme Court rejected the idea of treating patent cases differently. The Court also emphasized that district court judges have “greater opportunity” than appeals courts to study the relevant technology.

Nevertheless, Teva confirms that the ultimate question of a patent’s claim scope is an issue of law that the Federal Circuit should continue to review de novo.

As to Teva’s patents, the Supreme Court deemed the trial judge’s finding (based on Teva’s expert witness) as to how the diagram would be understood to be “factual” in nature, and thus to require deference unless it is “clearly” wrong. By contrast, the Supreme Court described the overall significance of Teva’s figure as a legal conclusion. With these comments, the Court remanded the case to the Federal Circuit for further consideration.

Takeaways

Teva’s substantive impact will depend in large part on how the Federal Circuit responds. Theoretically, it could undermine the goal of national uniformity of patent decisions as courts in different districts might reach conflicting patent interpretations, each of which could be affirmed on appeal.

But such scenarios are unlikely. Given its historical emphasis on uniformity, the Federal Circuit may strain to avoid situations in which findings of fact prove dispositive to claim construction or indefiniteness decisions. Teva itself predicts that “subsidiary factfinding is unlikely to loom large” in claim construction as a whole.

The U.S. Patent & Trademark Office (PTO) took a similar view in an amicus brief. The PTO advocated a “clear error” standard of review for subsidiary facts, yet suggested that the Federal Circuit’s legal conclusion (invalidating most of Teva’s patent claims as indefinite) appeared correct. Nevertheless, there may be at least occasional situations in which the same patent claims could be construed to have different meanings in different states, affecting how or where companies can do business.

In any event, Teva could have significant procedural impacts on patent litigation. In particular:

Reversal rate: Teva should at least marginally reduce the Federal Circuit’s current relatively high reversal rate for district court claim construction decisions.

Reliance on expert witnesses: Parties may rely on expert witness testimony to a greater extent during claim construction, and argue more vigorously that the expert’s input on the meaning of claim terms is dispositive, in the hope of shielding it from appellate reconsideration. District court judges likewise may be more likely to cite such testimony and make detailed factual findings to reduce the likelihood of the Federal Circuit reversing the district court’s claim construction. Further, judges may be more interested in having experts testify live at Markman hearings rather than submitting declarations in advance.

Choice of venue: There is a widespread (if oversimplified) perception that certain forums are tilted in favor of patent owners whereas others are more favorable for accused infringers. With that in mind, accused infringers often file declaratory judgment actions and/or motions to transfer in the hope of avoiding the patent owner’s preferred forum. Teva may encourage even more such attempts.

Handling of transfer motions: However, Teva may make courts more hostile to such transfer motions. District court judges are often reluctant to transfer patent cases when they are already handling other cases involving the same patents. Such concerns may loom even larger under Teva and the resultant possibility of different courts construing claims in different ways that would be difficult for the Federal Circuit to reverse. Given such uniformity concerns, the Federal Circuit itself may become less likely to reverse decisions denying transfer motions. It also may become more common for district courts to issue claim construction decisions before ruling on transfer motions.

Teva is unlikely to have as significant an impact on patent prosecution. Nevertheless, patent applicants may consider incorporating additional “terms of art” into claims to set the stage for expert testimony during claim construction in litigation, thus potentially reducing the odds of reversal on appeal.

Wolf, Greenfield & Sacks, P.C.   22 January 2015


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