Supreme Court Orders Federal Circuit To Defer To District Court Factual Findings During Patent Claim Construction: Will Markman Strategies Change?

Thursday, January 22, 2015

On January 20, 2015, the U.S. Supreme Court handed down its first patent decision of the current term, rejecting the U.S. Court of Appeals for the Federal Circuit’s long-standing practice of reviewing district court patent claim construction rulings, including subsidiary findings, without deference. See Cybor Corp. v. FAS Techs., Inc., 138 F.3d 1448 (Fed. Cir. 1998) (en banc). The Supreme Court ruled that the Federal Circuit must review all district court factual findings for “clear error,” even if a fact is nearly dispositive of the claim construction issue. The ultimate interpretation of the claim remains a legal conclusion, however, that the Federal Circuit will review de novo. Teva Pharmaceuticals USA, Inc. v. Sandoz, Inc., Case No. 13-854 (Jan. 20, 2015). The slip opinion is available at http://www.supremecourt.gov/opinions/14pdf/13-854_o7jp.pdf.

Although the Teva decision does not expressly alter the analytical framework used in claim construction proceedings since Phillips v. AWH Corp., 415 F.3d 1303 (Fed. Cir. 2005) (en banc), it is likely to introduce important strategic issues in patent cases, especially relating to conduct of claim construction proceedings.

Background

The interpretation of the asserted claims frequently is critical to the outcome of a patent dispute. The construction of disputed claim terms often determines whether an accused product infringes the patent and can be pivotal to invalidity defenses. In Markman v. Westview Instruments, Inc., 517 U.S. 370 (1996), the Supreme Court ruled that claim construction is an issue delegated to the trial judge, even when it involves resolving disputed testimony, such as conflicting expert opinion on the meaning of a term of art. The Markman Court noted that, “[T]here is sufficient reason to treat construction of terms of art like many other responsibilities that we cede to a judge in the normal course of trial, notwithstanding its evidentiary underpinnings.” 517 U.S. at 390.

Although Markman assigned claim construction to the trial judge, it did not expressly state whether factual findings subsumed in that issue are subject to de novo review (as normally would be the case for legal rulings) or to review for “clear error” (as normally would apply to judicial fact findings). In fact, Markman characterized the patent claim construction process as a “mongrel practice” of law and fact with “evidentiary underpinnings.” 517 U.S. at 378. In Cybor, the Federal Circuit held that it would review district court claim construction rulings de novo, considering the record without deference. Critics of the Cybor policy, including several Federal Circuit judges, have pointed out that the approach is inconsistent with the prevailing claim construction analysis, which requires district courts to consider a factual record consisting of both “intrinsic” evidence (the patent claims, specification, and prosecution history) and “extrinsic” evidence (such as expert testimony, treatises, art references, and other facts outside the patent and prosecution). The Federal Circuit reaffirmed the Cybor policy in early 2014, when the court ruled 6-4 to retain the de novo standard based on the principle of stare decisis. Lighting Ballast Control, LLC v. Philips Electronics North Am. Corp., 744 F.3d 1272 (Fed. Cir. 2014).

Teva Pharmaceuticals v. Sandoz Dispute 

The Supreme Court ruling comes in a case involving drug patents under the Hatch Waxman Act. Teva Pharmaceuticals owns several patents covering its Copaxone® multiple sclerosis drug. Sandoz and other generic drug companies filed Abbreviated New Drug Applications seeking approval to market a generic form of the drug. In response, Teva filed an infringement action under the Hatch Waxman Act. 35 U.S.C. § 271(e)(2).

Sandoz argued that a group of claims in the Teva patents were invalid as indefinite, because the term “molecular weight” appearing in the claims was subject to multiple incompatible meanings, and the patents themselves and the relevant prosecution histories did not resolve the ambiguity. The United States District Court for the Southern District of New York ruled that the claims were not indefinite. Among other things, the district court based its determination on its construction of the disputed term, relying on expert testimony presented by Teva that the term "molecular weight" was not ambiguous.

On appeal, the Federal Circuit reversed, ruling that the claims were indefinite. The Federal Circuit reviewed the conflicting expert testimony Teva and Sandoz presented to the trial court on whether persons skilled in the art would understand the term “molecular weight.” The Federal Circuit concluded that “on de novo review of the district court's indefiniteness holding, we conclude that Dr. Grant's testimony [introduced by Teva] does not save Group 1 claims from indefiniteness." Teva appealed to the Supreme Court.

Supreme Court Decision

In a 7-2 decision, the Supreme Court reversed the Federal Circuit, holding that it should have accepted the district court’s determination that a person of ordinary skill in the art would understand the term “molecular weight” to have a specific meaning, unless the finding was clearly erroneous. Justice Breyer, writing for the majority, reasoned that Fed. R. Civ. P. 52(a)(6) mandates this more deferential standard of review and nothing in the Court’s jurisprudence or the rationales adopted by the Federal Circuit in Cybor permitted a different standard.

Breyer noted that although Markman gives the district judge sole responsibility to construe a patent claim, it recognizes that claim construction will require subsidiary factual findings. Analogizing a judge’s role in claim construction with a similar role in interpreting contracts or deeds, the Court observed that these subsidiary findings are subject to review for clear error, even when the ultimate interpretation of the documents receives de novo review. During the claim construction process, “courts may have to resolve subsidiary factual disputes. And . . . [Rule 52(a)(6)] requires appellate courts to review all such subsidiary factual findings under the ‘clearly erroneous’ standard.” Slip op. at 7.

The majority was not impressed with Teva’s policy argument that de novo review was important to ensure uniform interpretation of patents nationwide, preventing a “zone of uncertainty” that would discourage innovation. Instead, the Court stated that district court judges were reliable factfinders for scientific or technical disputes, noting that, “A district court judge who has presided over, and listened to, the entirety of a proceeding has a comparatively greater opportunity to gain . . . familiarity [with technical issues] than an appeals court judge who must read a written transcript or perhaps just those portions to which the parties have referred.” Slip op. at 7-8. Moreover, it predicted that inconsistent claim construction rulings by different trial courts would be infrequent and unlikely to cause uncertainty:

Neither the [Federal] Circuit nor Sandoz, however, has shown that (or explained why) divergent claim construction stemming from divergent findings of fact (on subsidiary matters) should occur more than occasionally. After all, the Federal Circuit will continue to review de novo the district court’s ultimate interpretation of the patent claims. And the attorneys will no doubt bring cases construing the same claim to the attention of the trial judge; those prior cases will sometimes be binding because of issue preclusion, see Markman, 517 U. S., at 391, and sometimes will serve as persuasive authority. Moreover, it is always possible to consolidate for discovery different cases that involve construction of the same claims. And, as we said in Markman, subsidiary fact-finding is unlikely to loom large in the universe of litigated claim construction.

Slip op. at 9.

 Finally, the Court provided specific guidance on how to apply both review standards in claim construction appeals. First, in situations where the district court relies only on the intrinsic evidence (claim language, specification and prosecution history), its ruling is subject to de novo review. Slip op. at 11-12. If the district court decision relies on factual underpinnings, however, such as evidence concerning the “background science or the meaning of a term in the relevant art during the relevant time period[,]” it should make specific factual findings and those findings are subject to review for clear error:

The district judge, after deciding the factual dispute, will then interpret the patent claim in light of the facts as he has found them. This ultimate interpretation is a legal conclusion. The appellate court can still review the district court’s ultimate construction of the claim de novo. But, to overturn the judge’s resolution of an underlying factual dispute, the Court of Appeals must find that the judge, in respect to those factual findings, has made a clear error. Fed. Rule Civ. Proc. 52(a)(6).

Slip op. at 13. The clear error standard applies even when the factual finding “is close to dispositive of the ultimate legal question of the proper meaning of the term in the context of the patent.” Id.

Applying this framework to the case on appeal, the Court held that the district court’s fact finding that a person skilled in the art would not have considered “molecular weight” ambiguous was entitled to deference. “The Federal Circuit should have accepted the District Court’s finding unless it was ‘clearly erroneous.’ Our holding today makes clear that, in failing to do so, the Federal Circuit was wrong.” Id. at 16. 

How Will Teva Affect Patent Litigation?

Teva’s practical effect on patent infringement actions will depend on how the Federal Circuit applies the “clear error” standard in subsequent cases. Since the ultimate question of claim construction remains a legal issue, it remains subject to de novo review. This could allow the Federal Circuit to reverse some faulty claim construction decisions. But claim construction proceedings may include voluminous evidence concerning matters outside the patent document and prosecution history. For example, courts regularly accept testimony from expert and fact witnesses (including the inventors) concerning such matters as the background science, the operation of the invention, and the patent’s significance to persons skilled in the art. Documentary evidence can include dictionaries, treatises, and prior art references. In future cases, the Federal Circuit will need to define more clearly how much of this information is part of the “factual underpinnings” of the claim construction process.

Teva may well affect the Markman strategies adopted by both patentees and accused infringers. If the new standard causes the Federal Circuit’s relatively high reversal rate on claim construction to decrease, parties may go to greater lengths to avoid litigation in forums with relatively inexperienced judges or uneven track records in determining patent cases. Both parties may opt to rely more extensively on expert testimony and factual arguments, in order to reduce the ability of the Federal Circuit to apply de novo review. District judges may have an incentive to base their claim construction orders largely on detailed factual findings in order to protect their decisions on appeal. Markman hearings, which today largely comprise oral argument,may become evidentiary hearings, including live testimony from, and cross-examination of, experts.

Teva may also lead to earlier settlements in some patent cases. A patentee receiving an unfavorable interlocutory Markman ruling may face increased pressure to settle, rather than stipulating to noninfringement in order to challenge the claim construction on appeal. An accused infringer may also feel more pressure to settle if it receives an unfavorable claim construction decision or a rejection of its indefiniteness defense.

Finally, Teva may lead to a subtle refocussing of the claim construction process on the factual question whether a disputed term in a claim had a particular meaning to a person skilled in the art at the relevant time. This factual finding may require the district court to weigh conflicting expert testimony, dictionary definitions, treaties, and prior art references. Even though it may be “close to dispositive” of claim interpretation issues in many situations, it is afforded deference under Teva. As a result, litigants and district judges may pay more attention to it, and somewhat less on intrinsic evidence such as the specification and prosecution history.