February 13, 2015
Law360
By Michael J. Flibbert; Megan Leinen Johns
Authored by Michael J. Flibbert and Megan Leinen Johns
The U.S. Supreme Court recently held that the Federal Circuit must apply a "clear error" standard of review, not de novo, when reviewing a district court's subsidiary factual findings related to claim construction. Teva Pharmaceuticals USA Inc. v. Sandoz Inc., 135 S.Ct. 831 (2015). Now, for example, when a district court resolves a dispute between experts and makes findings about technical issues relevant to understanding a claim term, the Federal Circuit should not disturb those findings on appeal unless they are clearly erroneous.
In Teva, the parties disputed the definiteness of the claim term "molecular weight." The accused infringer argued that the term could mean three different things, depending on how one calculates molecular weight. After receiving evidence from experts, the district court found that a skilled artisan would understand that the term referred to peak average molecular weight, not number average molecular weight or weight average molecular weight. The Federal Circuit, reviewing de novo all aspects of the district court's claim construction, reversed the district court, finding the term indefinite and holding the patent invalid.
In its Jan. 20 decision in Teva, the Supreme Court reasoned that Federal Rule of Civil Procedure 52(a) sets forth a clear command, without excluding subsidiary facts, that an appeals court cannot set aside a district court's fact findings unless clearly erroneous. Even if the rule permitted exceptions, no convincing ground exists for creating an exception for claim construction. Markman referred to the evidentiary underpinnings of claim construction and noted that courts assess witness credibility, thus recognizing that courts may need to make subsidiary fact findings.
In addition, the court pointed out that other patent law inquiries, including obviousness, subject a district court's subsidiary findings to clear error review, and appellate courts have long found it possible to separate underlying factual matters from legal conclusions. Practical considerations, particularly in the patent law field, also favor clear error review. A district court judge, the court reasoned, presiding over an entire proceeding has a greater opportunity to gain familiarity with scientific problems and principles than an appeals court judge reading a written transcript.
Applying Teva, the Federal Circuit will still review a district court's ultimate claim construction de novo. And if the district court only relies on intrinsic evidence (the claims, specification, and prosecution history) to construe claim terms, the construction amounts solely to a determination of law that the appellate court can still review de novo. But if the district court consults extrinsic evidence such as expert testimony to understand background science or the meaning of a term and subsidiary facts are in dispute, necessitating subsidiary fact-finding, the Federal Circuit must now review the district court's subsidiary fact findings for clear error. This more deferential legal standard could lead to a higher affirmance rate of district court claim construction rulings, particularly in cases involving conflicting expert evidence.
Although Teva did not specifically address appellate review of claim construction rulings by the Patent Trial and Appeal Board of the U.S. Patent and Trademark Office, the Federal Circuit confirmed in its Feb. 4 decision in In re Cuozzo Speed Technologies that it will review the PTAB's claim constructions according to Teva. Consistent with the standard applied to other fact-finding by the PTAB, the Federal Circuit will review underlying factual determinations concerning extrinsic evidence for "substantial evidence" and the ultimate claim construction de novo.1
The Federal Rules of Civil Procedure do not apply to PTAB proceedings; however, the Administrative Procedure Act (APA), 5 U.S.C. § 706 applies to Federal Circuit review of PTAB decisions. Under Rule 52(a)'s "clear error" standard, the appellate court must have a definite and firm conviction that the district court committed an error.2 The APA's analogous "substantial evidence" standard asks whether a reasonable fact-finder could have arrived at the agency's decision.3 Accordingly, the APA's "substantial evidence" standard of review is generally considered more deferential than Rule 52(a)'s "clearly erroneous" standard, but the difference is subtle. And as a specialized appellate court, the Federal Circuit may properly examine PTAB fact findings through the lens of patent-related experience.4
The Federal Circuit has reviewed both district court and PTAB claim constructions after Teva, but it has yet to apply Teva's heightened standard for subsidiary fact findings in claim construction determinations. In In re Papst Licensing Digital Camera Patent Litigation, the Federal Circuit reviewed the district court's claim construction de novo because intrinsic evidence fully determined the proper constructions.5 Similarly, in In re Cuozzo Speed Technologies, the Federal Circuit explained that no issue existed as to extrinsic evidence and thus reviewed the PTAB's claim construction de novo.6
Teva may have important strategic implications for PTAB trials and subsequent appeals, including motivating parties to make greater use of expert opinions or other forms of extrinsic evidence on technical issues relating to claim construction. Parties that persuade the board to accept their expert testimony on subsidiary factual disputes relating to claim construction may have a better chance of defending that claim construction on appeal. Rather than simply briefing claim construction disputes, parties may choose to submit detailed proposed findings of fact to bolster their claim-construction positions, supported by expert testimony and other extrinsic evidence.
Similarly, Teva may also motivate the board to rely more heavily on extrinsic evidence to construe claim terms and make factual findings concerning disputed issues and expert witness credibility. If the board, for example, were to routinely include a detailed set of factual findings as part of its claim construction rulings, those findings may be quite difficult to overturn on appeal. Affirmance rates of board decisions are already quite high and could potentially rise if the evidentiary underpinnings of the board's claim construction rulings are subject to a substantial evidence standard of review on appeal.
Inter partes reviews proceed in two phases: In the first phase, the board determines whether to institute review and in the second phase, the board conducts the IPR proceeding and issues a final written decision. During the first phase, petitioners can submit expert affidavits with their petitions whereas patent owners generally cannot submit expert affidavits with any preliminary response, though they can argue that the petitioner's claim interpretation is unreasonable.7 The petitioner then may have the initial advantage of being able to support its proposed claim construction with expert testimony while a patent owner's claim interpretation positions risk being perceived as mere attorney argument.
If the board institutes review, it likely already considers the petitioner's expert reasonably credible, so a patent owner may face an uphill battle during the second phase to counter that perception and convince the board that its expert's opinions relevant to claim construction are more plausible. Unless the board begins permitting more live testimony, where witness credibility can be better assessed, opposing experts may be judged primarily based on their education credentials, professional accomplishments, and industry and peer recognition, as well as on the internal consistency of their opinions and whether they provide suitable support (i.e., citations) in their affidavits.
Although the board and district courts cannot use extrinsic evidence to vary or contradict the intrinsic evidence, they can admit expert testimony to better understand technologies relevant to the claims, even if the claim language is clear.8 Moreover, to determine how persons skilled in the art use a term, administrative patent judges (APJs) and district court judges can rely on prior art, including publications, patents, technical treatises, dictionaries, agency regulations and industry standards. Indeed, such evidence may be preferred over expert-opinion testimony in some circumstances.9
Judges have long recognized that such extrinsic evidence can guide the proper interpretation, indicating both the meaning of the term to the skilled artisan and that the patentee intended to adopt it. Teva may affect how parties present this extrinsic evidence, motivating them to propose subsidiary facts with supporting extrinsic evidence for the Board to consider for both background technology and claim construction.
It remains to be seen how the Federal Circuit, in practice, will treat claim construction determinations that are based on a mix of intrinsic and extrinsic evidence. Though Teva purports to articulate a bright-line rule, the line separating intrinsic evidence (de novo review) from extrinsic evidence (substantial evidence review) may be blurred at times. What if, for example, a party offers an expert's analysis of the technical disclosure and terminology of the specification of the patent under review in an IPR, relying on scientific literature or other extrinsic evidence to better understand the specification? If the board accepts the expert's analysis of the specification and makes subsidiary findings in connection with its claim construction rulings, will those findings be subject to a substantial evidence or de novo standard of review on appeal? The answer to this and other open questions may become clear only as the board and Federal Circuit grapple with the practical implications of Teva on a case-by-case basis.
Finally, potentially significant differences exist between PTAB trials and trials before district courts, which may soften Teva's impact on Federal Circuit review of PTAB claim constructions versus district court claim constructions. Notably, PTAB trials rarely include live testimony before APJs. Rather, parties must submit witness testimony in either affidavit- or deposition transcript-form. Though the board can allow or require live or video-recorded testimony, it envisions that cross-examination in the presence of an APJ and live testimony at oral argument will rarely be necessary and limited to when it considers the demeanor of a witness critical to assessing credibility. This could arise in cases where derivation is at issue, where misconduct is alleged, or where witnesses need interpreters.10
In addition, the board has indicated that factors favoring live testimony include when such testimony may be case-dispositive or when the witness is a fact witness, as the credibility of experts often turns on the plausibility of their theories and not their demeanor.11 Yet Teva notes that the district court's special competence in presiding over claim construction issues stems from having listened to the entire proceeding (majority), particularly the live testimony of expert witnesses (dissent).12 One must question, then, whether the Federal Circuit will afford the same level of deference to subsidiary fact findings made by the board on claim construction issues compared to findings made by a district judge who has heard live expert testimony and more directly assessed witness credibility.
We expect that intrinsic evidence will remain central to claim construction, but it will be interesting to see if Teva effectively opens the door to greater reliance on expert testimony and other extrinsic evidence in resolving claim construction disputes both before the board and during subsequent appeals to the Federal Circuit.
Endnotes
1 In re Cuozzo Speed Techs. LLC, No. 14-1301, slip op. at 19 (Fed. Cir. Feb. 4, 2015); In re Imes, No. 14-1206, slip op. at n.1 (Fed. Cir. Jan. 29, 2015).
2 Dickinson v. Zurko, 527 U.S. 150, 162 (1999).
3 Consol. Edison Co. v. NLRB, 305 U.S. 197, 229 (1938).
4 In re Zurko, 258 F.3d 1379, 1384 (Fed. Cir. 2001).
5 In re Papst Licensing Digital Camera Patent Litig. v. Fujifilm Corp., No. 14-1110, slip op. at 8 (Fed. Cir. Feb. 2, 2015).
6 In re Cuozzo, slip op. at 19; see also In re Imes, slip op. at n.1.
7 77 Fed. Reg. 48756, 48764.
8 Playtex Prods. Inc. v. Procter & Gamble Co., 400 F.3d 901, 908 n.1 (Fed. Cir. 2005); Altiris Inc. v. Symantec Corp., 318 F.3d 1363, 1369 (Fed. Cir. 2003).
9 Vitronics Corp. v. Conceptronic Inc., 90 F.3d 1576, 1585 (Fed. Cir. 1996); see also Plant Genetic Sys. NV v. DeKalb Genetics Corp., 315 F.3d 1335, 1346 (Fed. Cir. 2003).
10 37 C.F.R. § 42.53(a); 77 Fed. Reg. 48756, 48762 & 48768 (Aug. 14, 2012).
11 K-40 Elecs. LLC v. Escort Inc., IPR2013-00203, Paper No. 34 (PTAB May 21, 2014), Paper No. 44 (PTAB June 17, 2014), Paper No. 45 (PTAB Aug. 27, 2014).
12 Teva, 135 S.Ct. at 833, 851.
Originally printed in Law360 (www.law360.com). Reprinted with permission. This article is for informational purposes, is not intended to constitute legal advice, and may be considered advertising under applicable state laws. This article is only the opinion of the authors and is not attributable to Finnegan, Henderson, Farabow, Garrett & Dunner, LLP, or the firm's clients.
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