Teva – The Supreme Court rules 7-2 that when reviewing a district court’s resolution of subsidiary factual matters made in the course of its ‎construction of a patent claim, the Federal Circuit is to apply a “clear error,” not a de novo, standard of ‎review. However, the Court provides that de novo review will still apply to claim constructions that are based on the intrinsic evidence, which should continue to cover many such district court decisions.

Teva Pharmaceuticals USA, Inc. v. Sandoz, Inc., 134 S.Ct. 1761 (2014)

Before explaining how to apply the de novo/clear error dichotomy, the Court begins its discussion with an explanation as to why it is ruling the way it is: “Federal Rule of Civil Procedure 52(a)(6) states that a court of appeals ‘must not. . . set aside’ a district ‎court’s ‘findings of fact’ unless ‘clearly erroneous.’ It sets out a ‘clear command,’ Anderson v. Bessemer ‎City, 470 U. S. 564, 574, and ‘does not make exceptions or exclude certain categories of factual findings’ ‎from the court of appeals’ obligation.” … “Markman v. Westview Instruments, Inc., 517 U. S. 370, neither created, nor argued for, such an ‎exception. There, the Court held that the ultimate question of claim construction is for the judge, not the ‎jury, but it did not thereby create an exception from the ordinary rule governing appellate review of ‎factual matters. Instead, the Court pointed out that a judge, in construing a patent claim, is engaged in ‎much the same task as the judge would be in construing other written instruments, such as deeds, ‎contracts, or tariffs. Construction of written instruments often presents a ‘question solely of law,’ at least ‎when the words in those instruments are ‘used in their ordinary meaning.’ Great Northern R. Co. v. ‎Merchants Elevator Co., 259 U. S. 285, 291.” ‎This brief reference to “how” to apply the de novo/clear error analysis is significant when, later in the opinion, the Court talks about review of the intrinsic evidence involving legal issues that are to continue to be reviewed de novo.

The Court continues: “But if a written instrument uses ‘technical words or phrases not commonly understood,’ those words may give rise to a factual dispute. If so, extrinsic evidence may help to ‘establish a usage of trade or locality.’ And in that circumstance, the ‘determination of the matter of fact’ will ‘preced[e]’ the ‘function of construction.'” Ibid. This portion of the opinion tells us that if expert testimony or other extrinsic evidence is to be used to construe the claim language, that portion of the district court’s ruling will be reviewed for clear error.

“Clear error review is ‘particularly’ important in patent cases because a district court judge who ‎has ‎presided over, and listened to, the entire proceeding has a comparatively greater opportunity to gain ‎the ‎necessary ‘familiarity with specific scientific problems and principles,’ Graver Tank & Mfg. Co. v. ‎Linde ‎Air Products Co., 339 U. S. 605, 610, than an appeals court judge who must read a written ‎transcript or ‎perhaps just those portions referenced by the parties.” ‎

‎”Sandoz claims that separating ‘factual’ from ‘legal’ questions may be difficult and, like the Federal ‎Circuit, posits that it is simpler for the appellate court to review the entirety of the district court’s claim ‎construction de novo than to apply two separate standards. But courts of appeals have long been able ‎to separate factual from legal matters, and the Federal Circuit’s efforts to treat factual findings and legal ‎conclusions similarly have brought with them their own complexities. As for Sandoz’s argument that ‘‎‎clear error’ review will bring about less uniformity, neither the Circuit nor Sandoz has shown that ‎divergent claim construction stemming from divergent findings of fact on subsidiary matters should ‎occur more than occasionally.” ‎

Getting back to “how” the de novo/clear error analysis should be applied, the Court continues: “When the district court reviews only evidence intrinsic to the patent, the judge’s determination is solely a ‎determination of law, and the court of appeals will review that construction de novo. However, where the ‎district court needs to consult 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, and where those ‎subsidiary facts are in dispute, courts will need to make subsidiary factual findings about the extrinsic ‎evidence. The district judge, after deciding the factual dispute, will then interpret the patent claim in light ‎of the facts as he has found them. The ultimate construction of the claim is a legal conclusion that the ‎appellate court can review de novo. But to overturn the judge’s resolution of an underlying factual ‎dispute, the appellate court must find that the judge, in respect to those factual findings, has made a ‎clear error.‎”

Justice Thomas dissents, joined by Justice Alito, arguing that the standard of review for claim ‎construction should continue to be solely on a de novo basis.‎

Comment: As we know, many claim constructions are resolvable by reference solely to the intrinsic ‎evidence. Often, when one party attempts to reference extrinsic evidence, the other party argues ‎that the proffered extrinsic evidence should be excluded because it is inconsistent with the intrinsic evidence. In view of this, litigants will want to give careful consideration as to when and how they use expert witnesses during claim construction in the district courts. If expert witnesses are permitted to testify as to what the intrinsic evidence and the terminology used therein means to someone with ordinary skill in the art, it is easily imagined that this will convert an analysis of the intrinsic evidence, which is to be reviewed de novo, into factual rulings to be reviewed under a clear error standard of review.

Counsel having little faith in the construction they think will be ‎adopted by the district court will want to do all they can to argue that expert testimony is not necessary or is to be excluded as being inconsistent with the intrinsic record. Those ‎believing that a judge is leaning their way will want to present and argue the extrinsic evidence, hoping that consideration of that evidence by the district court will be reviewed for clear error.‎ This hybrid approach will also provide the district courts with an opportunity to protect their constructions by focusing their opinions on the extrinsic evidence that has been presented.

It is not at all clear that the Teva decision will reduce the number of appeals or reversals since in addition to claim construction, the parties now will be arguing about which rulings are based on the intrinsic evidence and therefore subject to de novo review, and which have considered extrinsic evidence and should be reviewed for clear error.

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