Appellate Law

Tackling Teva and More at the U.S. Supreme Court

MCC: On January 20, 2015, the U.S. Supreme Court issued its opinion in the closely watched Teva Pharmaceuticals v. Sandoz case. Can you give us some background on the case and talk about what was at stake and what was decided?

Dragseth: Teva had sued Sandoz on its patent covering a method for making its multiple sclerosis drug Copaxone. The patent required that the active ingredient in the drug have a particular “molecular weight.” The question in the case was whether the patent adequately identified which method should be used to measure the molecular weight. The question on appeal was whether the Federal Circuit had to give deference to certain findings the trial court made on its way to concluding that the patent was adequate (reversing only if there was “clear error”), or whether the Federal Circuit could start from scratch (“de novo” review).

The Supreme Court overturned the Federal Circuit’s approach to applying de novo review to claim constructions by lower tribunals and held that the Federal Circuit could make its own determinations for evidence inside the patent (intrinsic evidence), but had to defer to determinations made on evidence outside the patent (extrinsic evidence), such as testimony from experts regarding how a particular term would be understood in the field of the invention.

The Court’s main reasoning was that its Markman opinion did not mark a departure from, and there is no good reason to depart from, normal practice under Federal Rule of Civil Procedure 52(a) and general rules for document construction. In particular, while the ultimate meaning of a document may be a legal issue, complicated terminology in a document may require introduction of extrinsic evidence, and resolving that evidence may be a fact question. Under Rule 52(a), appellate courts review such fact questions for clear error, and not de novo.

So claim construction is now a mixed question – and what it is will depend on the particular case. For example, if the parties merely point to the patent itself and its prosecution history (the intrinsic evidence), review will be de novo. But if the parties point to dictionaries, treatises and expert testimony about the manner in which a skilled artisan would interpret the claim language, a district court’s findings on those particular points will be reviewed for clear error – though its findings on other points may be reviewed de novo.

MCC: Are there particular industries that will be most impacted by this decision?

Dragseth: The ruling could affect patents in all industries, but is more likely to matter in technologically complex or cutting-edge fields whose terminology is not settled and for which courts need to consult outside technology experts. Pharmaceuticals and biotechnology are good examples, as is software, which sometimes has loose and free-flowing terminology.

At a big-picture level, you could see this decision as another from the Supreme Court emphasizing that patents are, for the most part, no different than various other areas of law and should thus be decided using the same rules as those other areas of law.

MCC: How do you expect district courts and litigants to respond to the high court, casting aside the Federal Circuit's longstanding rule that all district court claim construction rulings must be reviewed afresh on appeal?

Dragseth: District courts can perform claim construction many ways, and some judges might realize they can insulate their rulings from reversal by making explicit findings on extrinsic evidence – especially from experts. They might go further by explicitly stating that one expert was “credible” while the other was not, because credibility findings are hard to overturn on appeal. Savvy parties will try to help district courts along that route (at least if they think a court is likely to lean that way), which may raise the cost of Markman proceedings, with more expert witness preparation and involvement. Parties that want to save money need to consider how to reach agreement with their opponent on the use of extrinsic evidence – e.g., with both sides agreeing not to use experts.

MCC: Do you think Teva will further drive down an already low reversal rate for Patent Office appeals?

Dragseth: The Patent Office generally applies a “broadest reasonable interpretation” (BRI) standard for claim construction. The nature of that standard alone seems to grant at least some deference to the Office. The reversal rate of Patent Office rulings – typically around 10 percent – would suggest the Federal Circuit is already giving some deference. But Teva may give victors extra power on appeal in the Patent Office – particularly petitioners in covered business method (CBM) and inter partes review (IPR) proceedings. Conversely, appellants in CBM and IPR cases will need to be particularly skillful.

But it is important to note that the Federal Circuit could still reverse, for example, by finding the extrinsic evidence to be contrary to the patent document, and by determining that the factual finding was not really supported. In the end, I don’t think it will change the reversal rate by much.

MCC: What is your advice to companies with pending appeals?

Dragseth: Parties with pending appeals need to figure out whether to supplement their submissions to the Federal Circuit. Parties that have won on Markman but are still in district court need to consider whether to pass their judge some reversal insulation for good measure. And parties who have received a claim construction reversal from the Federal Circuit need to think really hard to figure out whether it can be unraveled at this point.

MCC: Is there any additional fallout that you expect from the Teva decision?

Dragseth: Parties are going to have a lot of hand wringing about whether to use an expert. If you think you have a winning argument, you generally want to rely on logic and not complicate things with an expert. But you’ll be worried the other side may gain an advantage if it has an expert and you do not, especially if the court takes live testimony.

Teva might also cause courts to change when they perform patent claim construction, e.g., waiting until trial to hear testimony. This will create complications for parties as they will need to present evidence to the jury for all decisions a court might make about the meaning of the patent claims. Given the many options that district courts have available to them, it is possible that more suits will be brought in districts where the claim construction procedure is believed to be favorable, though I doubt that will change where parties are already bringing suit.

MCC: What other IP cases are you watching at the Supreme Court?

Dragseth: The two big pending cases are Commil v. Cisco and Kimbel v. Marvel. Commil is the more important case by far. It concerns the scienter level a patentee must prove in order to establish that a defendant induced others to infringe a patent. Inducement can be an important theory in many cases, because frequently an invention is used only by the customers of your competitor and not by the competitor itself, so that it can be hard to sue for direct infringement. An affirmance in Commil would be good news for defendants, and bad for patentees.

The Kimbel appeal asks the Supreme Court to overturn a decades-old prohibition on having royalties paid on a patent extend beyond the patent’s expiration. It is less important because smart parties generally know how to deal with it and work it into their licenses.

MCC: You have directly handled over 50 appeals to the U.S. Court of Appeals for the Federal Circuit and the Supreme Court. What do you think are the most important IP decisions that have been decided in the past year? The past three years?

Dragseth: Alice v. CLS Bank is clearly the most important. In less than a year since Alice issued, around 80 percent of patents that have faced Alice motions have been invalidated. Alice is also important because it made clear that the analysis in Mayo v. Prometheus did not just apply to life sciences areas but was applicable universally across all technologies, and the Federal Circuit post-Alice has been using rulings from software cases in life sciences cases, and vice versa.

VirnetX v. Cisco is also an important case because it tends to push down the amount of damages that many patent owners can receive. And I’d be watching any decision relating to inter partes review in the Patent Office, because over 2000 reviews are in progress now. St. Jude v. Volcano, which Fish & Richardson won at the Federal Circuit in April 2014, was the first and most important case of first impression because it announced that the Patent Office was completely insulated from review on decisions it makes on whether or not to start an inter partes review.

MCC: What hot button IP issues are ripe for Supreme Court review – issues that they haven’t taken up yet, but should?

Dragseth: At some point, we are going to have a damages case that sharply asks the Supreme Court to identify how much discretion juries have in making patent damages awards and when district courts can take damages away from the jury (and essentially wipe out a patentee’s case). There are also many issues relating to the exploding Patent Office proceedings, such as whether the Office is insulated from appellate review and whether the Office should apply standards that are more consistent with standards applied by district courts. The Federal Circuit’s treatment of patent claims that are recited wholly in functional terms (particularly for software) is also an issue that the Court could take up under a variety of legal doctrines.

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