Teva Pharm. USA, Inc. v. Sandoz, Inc., U.S., No. 13-854, 1/20/15

Continuing its string of decisions reversing Federal Circuit precedent, today the Supreme Court rejected the Federal Circuit’s de novo standard for reviewing district court claim construction rulings. Rather, in view of the subsidiary fact findings that are typically integral to the claim construction process, the Supreme Court held that a district court’s claim construction must be reviewed for “clear error.”

Claim construction (often called a “Markman” proceeding after the Supreme Court’s decision in Markman v. Westview Instruments, Inc., 517 U. S. 370 (1996)) is a pivotal point in most patent infringement actions. During claim construction, the district court determines the meaning of key patent claim terms, which in turn determines the meaning and scope of the patent claims at issue. Unsurprisingly, therefore, claim construction orders are often appealed to the Federal Circuit. Since the Markman decision unambiguously vested district courts with the claim construction role, the Federal Circuit’s reversal rate on claim construction has been notoriously high, exceeding 30%. The high reversal rate is often attributed to the de novo review standard that the Federal Circuit has applied to such determinations.

In Teva, the Supreme Court noted that district court judge presides over and listens to the entire proceeding, and therefore has a greater opportunity to become familiar with the specific scientific problems and principles of the patented technology. Claim construction rulings, in some cases, depend heavily on such evidence. Federal Rule of Civil Procedure 52(a)(6), which states that an appeals court “must not… set aside” a district court’s “[f]indings of fact” unless they are “clearly erroneous,” does not provide an exception for patent cases.

Teva provides some guidance how the new standard should be applied. When a district lower court reviews intrinsic evidence relating to the patent itself (i.e., the evidence from the patent itself as well as the prosecution record from the US Patent and Trademark Office), the determination is solely one of law, and thus reviewed de novo on appeal. If the district court consults extrinsic evidence outside of the patent, such as expert reports, publications on the scientific background, or the meaning of a term in the scientific field, however, the court will make subsidiary factual findings about such evidence in determining the construction of claim terms in dispute. The ultimate claim construction may be reviewed de novo by appellate courts, but they must accept the district court’s subsidiary fact findings absent clear error. In other words, extrinsic evidence is subject to the ordinary fact-finding rules of court and are to be accorded deference of appeal.

We anticipate that Teva will significantly impact patent infringement litigation, including how claim construction is presented to district courts, how the Federal Circuit must now review claim construction determinations on appeal, and how lawyers counsel their clients on infringement and validity issues. Whether the decision tends to elevate the role of extrinsic evidence in the claim construction process – perhaps making such proceedings more reliant on expert witness testimony, for example, and perhaps more expensive – will bear watching.