On January 20, 2015, the Supreme Court held that the Court of Appeals must apply a "clear error" standard when it reviews factual extrinsic evidence determinations made by district courts in the course of claim construction in Teva Pharmaceuticals USA, Inc., et al. v. Sandoz, Inc. et al, No. 13-854, slip op. (S.Ct. Jan. 20, 2015). The Court explained that a district court's claim construction determination based only on intrinsic evidence is a determination of law, subject to de novo review but that a "clear error" standard applies if a district court resolves a factual dispute based on extrinsic evidence (such as expert testimony or reports), even when this dispute is resolved during the claim construction process. Previously, the Federal Circuit had used a de novo standard to review all claim construction issues. The Court clarified that the appropriate standard of review applying to the interpretation of patent claims – after any disputed factual issues have been resolved — remains a legal conclusion for the Court.

BACKGROUND

Teva brought a patent infringement action against Sandoz seeking to delay launch of Sandoz's generic to Teva’s Copaxone (glatiramer acetate injection) product. Sandoz argued that Teva's patent related to Copaxone was invalid as indefinite because, while the claims of the patent provided a "molecular weight" for the active ingredient, the patent did not specify which of three methods should be used to calculate the molecular weight. The parties disputed whether persons of ordinary skill in the art, reading the patent, would be able to confirm which applicable method should be used. Sandoz and Teva each submitted expert testimony in support of their arguments. The district court rejected the conclusions of Sandoz's expert while crediting Teva's expert's explanation. It held that Teva's patent was not invalid and was infringed. The Federal Circuit used a de novo standard to reverse the district court's determination and accepted the conclusion of Sandoz's expert.

Teva filed a petition for certiorari.

THE DECISION

In a 7-2 decision authored by Justice Breyer, the Court held that the Federal Circuit must apply a "clear error," not a de novo, standard of review when reviewing factual matters decided by the district court in the course of patent claim construction.

It reasoned that Federal Rule of Civil Procedure 52(a)(6) requires that a district court's finding of fact must not be set aside unless it is determined to be "clearly erroneous" and that Rule 52 applies to both subsidiary and ultimate facts. While Markman v. Westview Instruments, Inc., 517 U.S. 370 (1996), held that the ultimate question of claim construction is a matter of law, the Court noted that Markman did not create an exception to Rule 52. In support of its holding, the Court referenced other cases in which it had compared construing patent claims to construing contract terms. Interpretation of contract terms that are used according to their ordinary meaning presents a question of law. But the interpretation of technical terms in a contract may be resolved by extrinsic evidence that helps to establish a usage of trade or locality. And in contract matters, decisions with respect to extrinsic evidence (including usage or practice method) may involve questions of fact subject to the clear error standard of review.

The Court explained the steps that district courts should take when making claim construction determinations involving subsidiary factual disputes. After making the underlying factual determination, the district court must then proceed to the legal analysis: "whether a skilled artisan would ascribe that same meaning to that [patent] term in the context of the specific patent claim under review." It is this legal analysis that remains subject to the Federal Circuit's de novo review.

Therefore, the Court ruled that because the Federal Circuit did not first determine that the district court's factual determinations were clearly erroneous, the Federal Circuit's reversal of that decision was improper. The Court vacated the Federal Circuit's judgment and remanded the case for further proceedings.

Justice Thomas, with whom Justice Alito joined, dissented. The dissent rejected the majority's analogy of patents to contracts. Justice Thomas posited that contracts are necessarily based on determining what the parties understood the terms of the agreement to be when they entered into the agreement. Conversely, it is a "legal fiction" to determine "how a skilled artisan would understand a given term or phrase at a particular point in history." Therefore, the so-called "fact," per the dissent, should have still remained completely subject to de novo review.

IMPLICATIONS

As a result of the Court's decision, patent litigation may become more expensive than it currently is. The Federal Circuit may be less likely in some cases to overturn claim construction rulings, in which disputed factual issues are resolved by the district court. Parties may attempt to use additional extrinsic evidence to secure a favorable claim construction ruling and argue that there are underlying factual disputes.

Further, the decision opens the door to additional disputes over what is and is not a finding of fact pertinent to the specific patent claim at issue and may require the Federal Circuit to struggle with that additional determination until it resolves that issue.