Supreme Court Changes Standard Of Review For Patent Claim Construction Rulings

Teva Pharmaceuticals USA, Inc. v. Sandoz, Inc. – No. 13-854 – January 20, 2015

In Teva Pharmaceuticals USA, Inc. v. Sandoz, Inc., the Supreme Court revised the standard of review used by the Federal Circuit for nearly twenty years in reviewing claim construction rulings, replacing a de novo standard with a “clearly erroneous” standard. Teva sued Sandoz for infringing its patent covering a method of manufacturing Copaxone, a drug used to treat multiple sclerosis. The relevant claim recited that the active ingredient has a particular “molecular weight.” Sandoz argued that the claim was indefinite under 35 U.S.C. §112 ¶2 because the term “molecular weight” could refer to any of three different methods of calculating molecular weight.

After hearing expert testimony, the District Court found that the patent was sufficiently definite because a skilled artisan would understand the term “molecular weight” referred specifically to one of the three allegedly possible interpretations. The District Court’s decision was based on the testimony of Teva’s expert regarding how one skilled in the art at the time of the invention would have understood the term. On appeal, the Federal Circuit reviewed the District Court’s decision, including the evaluation of expert testimony, under the de novo standard and found that the claims were indefinite. The Supreme Court reversed the Federal Circuit’s decision, finding that the Federal Circuit applied the incorrect standard of review.

Writing for the majority, Justice Breyer noted that Federal Rule of Civil Procedure 52(a)(6) prevents appellate courts from setting aside a district court’s findings of fact unless they are clearly erroneous. Justice Breyer further noted that although the ultimate question of claim construction is a question of law, underlying questions of fact that inform the claim construction determination are still subject to the “clearly erroneous” standard of Rule 52(a). For example, district courts often hear expert testimony regarding how a particular term is understood by those in the industry–a factual question that the trial court is better positioned to resolve than an appellate court. The majority distinguished between a district court’s consideration of solely intrinsic evidence (e.g., patent specification, drawings, claims, and prosecution history), and a consideration that includes evidence that is extrinsic to the patent (e.g., background science, meaning of a term of art during a particular time period, etc.). In the former, the appellate court’s review is de novo, while the latter constitutes a factual finding that is subject to review for clear error. However, even when a district court must decide a subsidiary factual dispute–e.g., resolving a dispute between competing experts about the meaning of a term at the time of invention–the court must still make a legal determination whether one skilled in the art would ascribe the same meaning to the term in the context of the specific patent at issue. That legal determination is reviewed de novo, but to overturn the district court’s construction on the basis of the underlying factual finding, the appellate court must find clear error.

In weighing the testimony of each side’s expert in this case, the District Court credited Teva’s expert’s testimony regarding how a skilled artisan would understand the term “molecular weight.” The Federal Circuit did not accept Teva’s expert’s explanation, but did not find that the District Court clearly erred in crediting the testimony of Teva’s expert. And for that reason, the Supreme Court remanded the case for the Federal Circuit to apply the correct standard of review.

Prior to the Teva decision, the Federal Circuit routinely overturned claim construction rulings under de novo review, which often led to increased uncertainty and litigation costs, as well as provided hope to parties dissatisfied with a claim construction ruling that it would be overturned on appeal. The Teva decision may reduce uncertainty and costs by ostensibly requiring greater deference to the trial court, but the ultimate effect may depend on how parties litigate claim construction and how district court judges craft their claim construction rulings. Litigants and judges may be inclined to rely more heavily on expert testimony during claim construction in order to insulate claim construction rulings from appellate review. The Federal Circuit’s deference to the lower court’s factual findings in connection with claim construction places a greater emphasis on the court’s already-critical function of construing claims. In view of this deference, litigants should carefully consider the use of experts during claim construction and whether the resultant limited appellate review helps or hurts their case.

Federal Circuit Reverses Course, Affirms Patent Ineligibility Ruling in View of Surpreme Court Alice Decision

Ultramercial, Inc. et al. v. Hulu, LLC, et al.,

No. 2010-1544 (November 14, 2014) (Lourie, Mayer, and O’Malley)

On November 14, 2014, after twice before reversing the lower court’s dismissal of Ultramercial’s complaint for failing to claim statutory subject matter, the Federal Circuit agreed with the lower court that Ultramercial’s patent claims are ineligible under 35 U.S.C. § 101. Applying the new test set forth in the Supreme Court’s recent decision in Alice Corp. v. CLS Bank International, 134 S. Ct. 2347 (2014). the Federal Circuit found that Ultramercial’s claims directed to distributing copyrighted media over the Internet at no charge in exchange for viewing an advertisement, claimed nothing more than an ineligible abstract idea.

According to the two-step test, the court first determines whether the claims are directed to one of the three exceptions to patent-eligible subject matter: laws of nature, natural phenomena, and abstract ideas. If so, it is then determined whether the claim contains “an element or combination of elements that is sufficient to ensure that the patent practice amounts to significantly more than a patent upon the [ineligible concept] itself.” Alice, 134 S. Ct. at 2355. The additional elements must be more than “well-understood, routine, conventional activity” in order to transform the abstract idea into patent-eligible subject matter. Slip. Op. at 10 (quoting Mayo Collaborative Services. v. Prometheus Laboratories, Inc., 132 S. Ct. 1289, 1298 (2012)). The Federal Circuit found that Ultramercial’s claims are directed to the abstract idea of “showing an advertisement before delivering free content.” Slip. Op. at 10. Although the claims included limitations such as the user selecting the advertisement to view, and recording the transaction in an activity log, the Court found that these limitations merely add a degree of particularity but the claim as a whole is still devoid of a concrete or tangible application. The Court was careful to note that not all software-based patent claims are directed to abstract ideas, but agreed with the lower court in this case that the claims are directed to the abstract idea of “using advertising as an exchange or currency.” Id.

Moving to the second step of the analysis, the Federal Circuit examined the remaining claim limitations to determine whether they constitute an “inventive concept” that renders the claim patent-eligible. The Court found that the majority of the eleven claimed steps are merely incidental to the abstract concept of offering media content in exchange for viewing an advertisement (e.g., receiving the media content, selecting the advertisement, making the content available subject to the condition that the consumer views the advertisement, displaying the advertisement, allowing access to the content, and receiving payment from the advertiser). The additional steps of updating an activity log, requiring a request from the user to view the advertisement, restricting public access, and using the Internet, are merely conventional steps that are “insufficient to supply an inventive concept.” Slip. Op. at 11. Although not necessary to finding the claims patent-ineligible, the Court also noted that the claims fail the machine-or-transformation test because the claims are not tied to particular machine or apparatus and do not transform a particular article into a different state or thing.

Writing in concurrence, Judge Mayer made several interesting points with respect to patent eligibility. First, Judge Mayer encouraged lower courts to address patent eligibility at the outset of litigation–like the trial court in this case did–to conserve judicial resources, reduce vexatious litigation by resolving disputes before engaging in expensive discovery, and to free the public from innovation-stifling patents. Second, Judge Mayer argues that no presumption of validity should attach when conducting a section 101 analysis, unlike the presumption of validity for prior art challenges. Third, Judge Mayer interprets Alice as essentially implementing a “technological arts” test. Judge Mayer’s interpretation relies on the Supreme Court’s finding claims ineligible where they did not “improve the functioning of the computer itself” or “effect an improvement in any other technology or technical field.” Alice, 134 S. Ct. at 2359. Under this interpretation advances in non-technical disciplines such as business, law, or the social sciences––seemingly, any business method patent–– would be patent-ineligible.

The Ultramercial decision is not surprising given the Supreme Court’s decision in Alice, and the recent flood of decisions invalidating patent claims on patent-eligibility grounds. The most interesting aspects of the case come from Judge Mayer’s concurrence arguing that there is no presumption of patent-eligibility and that the issue of patent-eligibility should be determined at the outset of litigation. Over the last several months, district courts have decided the patent-eligibility issue at the pleadings stage with increased frequency, as opposed to on summary judgment. Judge Mayer’s concurrence further encouraging this practice should result in even more trial courts addressing the issue earlier in litigation.