On January 20, 2015 the U.S. Supreme Court upended a longstanding rule on the extent to which U.S. district courts’ patent claim construction decisions deserve deference on appeal, thus making it more important for litigators to succeed in presenting often technologically complex factual arguments to district court judges. Teva Pharmaceuticals USA Inc. et al. v. Sandoz Inc. et al., case number 13-854 (January 20, 2015). The U.S. Court of Appeals for the Federal Circuit, with the aid of tech-savvy personnel, had been reviewing district courts’ findings of fact on claim construction on a de novo basis. Teva requires that the Federal Circuit hereafter give substantial deference to district courts’ findings of fact, and reverse only when district courts commit “clear error.”
Teva is important because many patent cases turn on claim construction decisions. Claim construction determines the metes and bounds of a patent and often foretells whether or not the court will find accused products or practices to be infringing. Teva makes district courts’ fact findings less susceptible to reversal, and this in turn will make it more important for patent owners and alleged infringers to present facts in a way that is understandable to the district court judge. Parties’ reliance on expert testimony and district courts’ use of special masters with technical expertise will likely increase, especially in high-tech cases. The added importance of district courts’ decisions will sometimes increase litigation costs at the district court level, and will enhance the prevailing party’s bargaining position in ensuing settlement discussions.
Importantly, Teva only requires that the Federal Circuit give substantial deference to findings of fact based on “extrinsic” evidence, that is, evidence that was not previously a part of the patent record made in the U.S. Patent and Trademark Office. Extrinsic evidence can include expert testimony as to the meaning that should be given to a claim term and expert testimony introduced to characterize a person having ordinary skill in the relevant art. Extrinsic evidence can also include dictionary definitions used to help interpret claim terms.
Findings of law, on the other hand, will continue to be subject to de novoreview. Findings of law include the way a district applies legal precedent when construing the claims and findings based on so-called “intrinsic” evidence. Intrinsic evidence consists of the record previously made in the Patent Office and includes the patent claims, patent specification, and papers filed by the applicant and the U.S. examiner during examination of the underlying application. District courts must first attempt to interpret claims solely on the basis of intrinsic evidence, and rely on extrinsic evidence only when the intrinsic evidence is ambiguous. Most district court claim construction decisions have been based on intrinsic evidence alone, and in such cases the Federal Circuit will continue to review claim construction on a wholly de novo basis, as it did prior to Teva.
New strategies will nevertheless emerge as litigators deal with the impact of the Supreme Court’s decision, including strategies to encourage or discourage district courts from relying on findings of fact that can only be reversed upon a finding of clear error. Parties that anticipate unfavorable district court decisions on claim construction may work to limit the courts’ findings to findings of law that are subject to de novo review. Parties that anticipate favorable decisions will be more prone to argue the importance of extrinsic evidence and urge courts to support their claim constructions with findings based on expert testimony, dictionary definitions and the like. Teva may cause some patent owners to put more emphasis on extrinsic evidence in district courts that statistically tend to favor patent owners and cause some alleged infringers to emphasize extrinsic evidence in district courts that tend to favor alleged infringers. By convincing district courts to rely on findings of fact based on extrinsic evidence, prevailing parties will help shield favorable decisions from reversal on appeal.
The Supreme Court’s Teva decision has added significance in view of its 2014 decisions in Octane Fitness, LLC v. ICON Health and Fitness, Inc.and Highmark Inc. v. Allcare Health Mgmt. Sys., Inc. In those cases, the Supreme Court made it easier for the prevailing party in a patent case, whether the patent owner or the alleged infringer, to be awarded attorneys’ fees. Under Octane, fees can now be awarded if a party’s case is merely “one that stands out from others with respect to the substantive strength of a party’s litigating position,” and in Highmark, the Court instructed the Federal Circuit to give more deference to district courts’ decisions on attorney fee awards. Patent cases can be technologically complex, and many district courts, unlike the Federal Circuit, are not well equipped to understand and decide technologically complex issues. Notwithstanding that fact, district courts will now have greater leeway to decide those issues and award attorneys’ fees based on their decisions, without the Federal Circuit’s full and unimpeded review.