Tuesday, January 20, 2015

Teva v. Sandoz: Fact Issues in Claim Construction Reviewed for Clear Error, Ultimate Decision De Novo

The Supreme Court released its opinion in Teva v. Sandoz this morning, holding 7-2 that fact issues in claim construction are reviewed for clear error, as required by Fed. R. Civ. P. 52(a)(6). As I predicted after watching the argument, Justice Breyer wrote the opinion vacating the Federal Circuit's judgment, though he got more votes than I expected: he was joined by everyone except Justices Thomas and Alito. Today's opinion joins a long line of Supreme Court decisions rebuking the Federal Circuit for patent law exceptionalism. But the opinion is also a partial win for the Federal Circuit and the many tech companies favoring de novo review, in that the ultimate claim construction decision will still be reviewed de novo.

The Court relies primarily on the clear language of Rule 52(a). Markman's holding that claim construction is a ultimately a question of law for the court, not the jury, "does not imply an exception to Rule 52(a) for underlying factual disputes." As in contract disputes, construction "often presents a question solely of law" when words "are used in their ordinary meaning," but when extrinsic evidence is helpful, review of these factual determinations must be for clear error. In addition to Rule 52(a), the Court also stated that clear error review was supported by precedent (citing a 1950 Learned Hand opinion on claim construction and the Supreme Court's 1986 Dennison opinion on obviousness) and by "practical considerations": Patent law "depends on familiarity with specific scientific problems and principles," and district judges have "a comparatively greater opportunity to gain that familiarity."

The Court rejects Sandoz's argument that separating factual and legal issues will simply lead to more confusion, noting that even if it could ignore Rule 52(a), "[c]ourts of appeals have long found it possible to separate factual from legal matters," and that "the Federal Circuit's efforts to treat factual findings and legal conclusions similarly have brought with them their own complexities." The Court also dismissed concerns over decreased uniformity, noting that there is no reason "divergent claim construction … should occur more than occasionally." And the Court rejected the dissent's argument that any factfinding involved in claim construction is more analogous to that underlying the interpretation of statutes, concluding that patents differ from public-focused statutes because they "typically (though not always) rest upon consideration by a few private parties, experts, and administrators of more narrowly circumscribed facts related to specific technical matters."

So how will this new rule be applied in practice? The Court notes that "[a]s all parties agree, when the district court reviews only evidence intrinsic to the patent," review is de novo. But when the district court "consult[s] extrinsic evidence in order to understand, for example, the background science or the meaning of a term in the relevant art during the relevant time period," the resulting "subsidiary factual findings" are reviewed for clear error. Interpretation of the patent claim in light of these facts remains a legal conclusion reviewed de novo, although "in some instances, a factual finding may be close to dispositive of the ultimate legal question."

Will the Teva decision create an incentive for parties to submit more extrinsic evidence in claim construction disputes, and for district courts to hold more evidentiary hearings and couch decisions in factual terms in order to decrease their likelihood of reversal? Will it reduce claim construction litigation at the appellate level, or will it simply increase appeals over whether conclusions are "factual"? As I noted in my argument preview, the parties and amici on both sides claimed that the opposing approach would decrease litigation costs, though the lawyers and the operating companies lined up on opposite sides of this question. As this new rule plays out in the lower courts over the coming months, we'll begin to get some answers to these questions.

Update: Here are some early reactions from the Twitterverse:

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