Teva Pharmaceuticals v. Sandoz: Supreme Court Sides with Teva in Patent Case, Holds That Appeals Court Must Review Factual Findings Underlying Claim Construction for “Clear Error”
The Supreme Court on Tuesday handed down an important decision regarding how patent claims are handled on appeal. The U.S. Court of Appeals for the Federal Circuit hears every patent appeal in the country. Until yesterday, the Federal Circuit gave no weight to a trial judge’s interpretation regardless of whether the district court had heard factual evidence outside of the patent documents themselves. In legal terms, the Federal Circuit reviewed every issue of claim construction de novo. Since the appeal gave no deference to the lower court, the Federal Circuit had an extraordinary amount of control over one of the fundamental issues affecting patent case outcomes.
In Teva Pharmaceuticals USA, Inc. v. Sandoz, Inc., the Court held 7-2 that the Federal Circuit was incorrect in applying this de novo standard in its review of factual findings underlying a claim construction–meaning the specific claims in a patent. The majority opinion, penned by Justice Stephen Breyer, stated that appellate review of factual matters relating to claim construction must not be set aside unless they are “clearly erroneous.” The construction of the claim itself, after taking into consideration all the facts, remains subject to de novo review at the Federal Circuit.
The facts of the case help to illuminate the issue.
The basic dispute in Teva v. Sandoz concerns the meaning of the words “average molecular weight” in Teva’s patent claim that covers a manufacturing method for Copaxone, Teva’s lucrative multiple sclerosis drug. Sandoz tried to market a generic version of Copaxone, and Teva sued Sandoz for patent infringement. Sandoz defended the suit by arguing that the patent was invalid. Part of the argument was that the claim was indefinite because the claim did not “particularly poin[t] out and distinctly clai[m] the subject matter which the applicant regards as his invention.” The specific phrase “average molecular weight of 5 to 9 kilodaltons,” argued Sandoz, did not satisfy this particularity requirement because in the context of the patent claim, the term “average molecular weight” might mean any one of three different ways to measure average molecular weights.
At the district court level, after taking evidence from experts on both sides, the District Court concluded that Sandoz was incorrect: Teva’s patent claim was indeed sufficiently definite and their patent was valid. On appeal, however, the Federal Circuit found the term “average molecular weight” to be indefinite. The Circuit consequently held the claims of the patent invalid. In reaching this conclusion, the Federal Circuit reviewed de novo all aspects of the District Court’s claim construction, including the District Court’s determination of subsidiary facts.
The Supreme Court reversed, with the Justices ruling 7-2 (Justices Thomas and Alito dissented) that when a trial court decides factual questions as part of claim construction, the Federal Circuit should reject those determinations on factual question only if they are clearly wrong.
Justice Breyer recognized that questions of law and fact are not exactly easy to define, especially in the patent context: “Simply because a factual finding may be nearly dispositive,” he argues, “does not render the subsidiary question a legal one.”
He writes:
This [decision] leaves the question of how the clear error standard should be applied when reviewing subsidiary factfinding in patent claim construction. 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.
Ultimately, the Court found that when the Federal Circuit reviewed the District Court’s decision, “it did not accept Teva’s expert’s explanation, and it failed to accept that explanation without finding that the District Court’s contrary determination was ‘clearly erroneous.'”
Ultimately, the Court found that when the Federal Circuit reviewed the District Court’s decision, “it did not accept Teva’s expert’s explanation, and it failed to accept that explanation without finding that the District Court’s contrary determination was ‘clearly erroneous.'” Because of this error, the Supreme Court remanded the case to the Federal Circuit to apply the correct legal standards and decide under those correct standards whether the claims are definite.
Implications of Teva v. Sandoz
The Supreme Court decision makes it more difficult for the Federal Circuit to overturn district court decisions in pharmaceutical patent cases moving forward. Giving the trial judges deference, as the decision did here, in some instances may mean fewer trials being overturned and may in turn reduce litigation costs or encourage more settlements, noted William Jay, the appellate lawyer at Goodwin Procter in Washington, D.C. who argued the case.
Ronald Mann at Scotus Blog found Teva v. Sandoz to be the latest example of the “Supreme Court rejections of ‘patent only’ doctrines that the Federal Circuit has articulated, all of which have had the general effect of increasing the Federal Circuit’s control – trial judges might say micro-management – of the course of patent litigation, and most of which had the effect of increasing the rights of patentees.”
Some sources see the Supreme Court decision as important, but ultimately not groundbreaking. Doug Cawley, a principal in Dallas’ McKool Smith who won the Cybor case at the Federal Circuit on behalf of FAS Technologies, spoke with the Texas Lawyer publication and noted that Teva will not have much of a practical effect on most claims construction appeals. “Basically what this decision says is in the overwhelming majority of cases where the appeals court decided the meaning of terms based on the patent itself—the intrinsic evidence—everything is still going to be the ways it has been. It’s still going to be de novo,” Cawley said. “In the rare cases where the court considers evidence outside the patent—what’s called extrinsic evidence—then the court is now going to give deference to what the district court below decided.”
Kyle Musgrove, a partner at Haynes and Boone, LLP, indicates that perhaps the real question is how will this change proceedings at the district court level? In the past, given the de novo review standard on all issues, many district court judges were unwilling to permit expert testimony during claim construction. Now that deference is provided to factual findings based on such expert testimony, however, will those judges change their practice and more readily admit such expert testimony? If so, claim construction hearing may begin to appear more like mini-trials rather than the summary legal presentations that they have been in the recent past.