In Teva Pharmaceuticals USA Inc v Sandoz Inc, a patent infringement case evolved into an opportunity for the Supreme Court of the United States (SCOTUS) to settle a decades-long controversy regarding how the Federal Circuit should review patent construction claims. By convention, the Federal Circuit has reviewed such claims de novo, ignoring Rule 52(a) of the Federal Rules of Civil Procedure, which requires appellate courts to give deference to the district court’s factual findings unless they are clearly erroneous. In its decision, the majority of SCOTUS distinguished evidence intrinsic to the patent as to be reviewed de novo, while extrinsic evidence such as underlying factual disputes that require expert testimony, should be treated as factual findings subject to appellate deference and “clear error” review.
Teva Pharmaceuticals developed a medication for the treatment of multiple sclerosis called Copaxone. Sandoz Pharmaceuticals submitted to the Food and Drug Administration to develop generic versions of Copaxone. Teva launched a suit in 2012 claiming patent infringement under 35 U.S.C. § 271(e)(2)(A). “Average molecular weight” was a disputed term which Sandoz claimed to be ambiguous.
After hearing expert evidence, the district court found the term to not be ambiguous, and that Sandoz infringed Teva’s patent. Sandoz appealed to the Federal Circuit Court of Appeal, arguing that “average molecular weight” was “insolubly ambiguous”. The Federal Circuit heard the case de novo without giving deference to the district court’s factual determinations, and unanimously reversed the lower court’s decision. Teva filed a petition for writ of certiorari to SCOTUS. The petition was granted and oral arguments were heard on October 15, 2014, and the decision was published on January 20, 2015.
Arguments by Sandoz
In the oral arguments, counsel for Sandoz relied heavily on Markman v Westview Instruments, a significant case where SCOTUS determined that the interpretation of patent claims are questions of law rather than questions of fact. Sandoz claimed that even fact-finding becomes a legal inquiry, since the district court has to make a legal inference of a fact to put it into context of the patents-in-suit. Being questions of law, Sandoz argued that the Federal Circuit need not give deference to district courts and was correct in reviewing such claims de novo. Moreover, enforcing deference to the district court will create a “cottage industry of trial lawyers fighting with the judge about which bucket some particular evidence fits into”.
Arguments by Teva
Counsel for Teva pointed to the convention of the judicial system where district court judges find the facts and the Courts of Appeal review those fact-findings deferentially under Rule 52(a). They argued that patent construction claims are hybrids, containing a mix of questions of law and fact. Some cases, like this case, is one where factual findings by themselves point to the correct outcome since the ultimate legal conclusion rests on fact-finding.
The majority of SCOTUS held that when reviewing a district court’s resolution of subsidiary factual matters made in the course of its construction of a patent claim, appellate courts must apply a “clear error”, not a de novo, standard of review. They distinguished between evidence intrinsic and extrinsic to the patent. In reviewing intrinsic evidence, a district court judge’s determination is solely a determination of law, which appellate courts can review de novo. When a district court requires extrinsic evidence and consults experts to settle factual disputes, the judge’s determination is a factual finding that must be given deference unless a clear error has been made.
With regards to Sandoz’s argument that it may be difficult to separate “factual” or “legal” questions, SCOTUS stated that courts of appeals have long been able to separate factual from legal matters. As a result, SCOTUS determined that the Federal Circuit in this case erred in law in failing to review factual findings only for clear error.
SCOTUS has settled the controversy in the applicability of Rule 52(a) in relation to patent construction claims that extends beyond the pharmaceutical industry. The decision promotes consistency in the law and judicial integrity of factual determinations at large. Moreover, with nearly a 30% reversal rate on appeal, reviewing patent construction claims de novo provides an incentive for unnecessary litigation, increases trial costs, and arbitrariness of decisions.
Long-term implications from this ruling are less clear. It is to be expected that district court judgments on patent construction claims will not be appealed as often as before, and litigators will shift the focus of their claims on factual determinations to gain higher certainty on appeal. Since fact-finding often requires expert testimony, litigants will spend a greater amount of resources hiring experts, adding to the complexity for district court judges to explain their judgments in areas where they themselves may not have expertise.
Beyond the pharmaceutical industry, the emphasis of fact-finding in the district court and what constitutes a “clear error” on appeal may have shifted patent litigation in favour of those with deeper pockets to hire experts. It is unclear how this ruling will affect smaller players who claim to have their patent rights infringed by large companies.
Nonetheless, Teva v Sandoz provides greater clarity in litigation for patent construction claims and resolves the controversy of the applicability of Rule 52(a) towards appellate courts.
Jason Ho is an IPilogue Editor and a JD Candidate at Osgoode Hall Law School.