More deference, more evidence

The U.S. Supreme Court's Markman decision reshaped patent litigation by crystallizing claim construction as a legal question separate from the factual question of infringement. Before and after Markman, the U.S. Court of Appeals for the Federal Circuit reviewed claim constructions de novo. Tuesday, in Teva Pharmaceuticals USA Inc. v. Sandoz Inc., 2015 DJDAR 741, the Supreme Court held that claim construction may involve subsidiary factual findings and that those findings must be reviewed for clear error when the district court has decided "to look beyond the patent's intrinsic evidence and to consult extrinsic evidence." Teva, slip op. at *12.

There is an argument to be made that Teva will barely make a ripple in the sea of patent law: It is not clear that any Federal Circuit appeal to date would have come out differently if subsidiary fact findings were reviewed for clear error. During the Lighting Ballast oral argument at the Federal Circuit, the Patent and Trademark Office solicitor admitted that he had not identified a single example of such a case. Lighting Ballast, 744 F.3d 1272, 1285 (citing Tr. at 1:07:30-1:08:00). Extrinsic evidence can only be considered to the extent it is "not used to contradict claim meaning that is unambiguous in light of the intrinsic evidence." Id. at 1324. And, even where district courts consider extrinsic evidence, the Federal Circuit could decide the legal question of claim meaning without giving much deference to the district court's ultimate conclusion: The Federal Circuit has "viewed extrinsic evidence in general as less reliable than the patent and its prosecution history in determining how to read claim terms." Phillips v. AWH Corp., 415 F.3d 1303, 1318 (Fed. Cir. 2005).

Phillips marked an important shift in both reliance on extrinsic evidence and the predictability of claim construction outcomes. Prior to Phillips, "the Federal Circuit was increasingly reliant on some form of extrinsic evidence in claim construction determinations. A decline in the use of extrinsic evidence followed the decision. On average, before Phillips, the Federal Circuit looked to extrinsic evidence with 33.2 percent of terms. Since then, the court has examined extrinsic evidence with only 26.3 percent of terms it has construed." Peter Menell and Jonas Anderson, "Informal Deference: A Historical, Empirical, and Normative Analysis of Patent Claim Construction," 108 Nw. U. L. Rev. 1, 45 (2013). Reversal rates have also gone down from a high of close to 50 percent before Phillips to 24 percent thereafter, making the odds of affirmance 75 percent higher post-Phillips. Id. at 40 & n.245

The Supreme Court was nevertheless persuaded that a more deferential standard of review will increase predictability, encourage settlement, and lower the expense and time required to litigate patent cases. See e.g., Teva, slip op. at *9 (quoting Peter Menell Amicus Curiae Br. 5). It does seem likely that Teva will result in fewer reversals. But a lower reversal rate does not necessarily equate with predictability ex ante: While the import of the intrinsic evidence can be determined before a case is even filed, the impact of expert testimony cannot be assessed until that testimony is actually presented. And in some cases, reversals can be predicted too.

Teva is also likely to lead to increased reliance on extrinsic evidence. At least one of the parties may have an incentive to introduce extrinsic evidence as a way to insulate the resulting decision from review. And, in that circumstance, the opposing party may have to bring in an expert to counter the other side. Experts are expensive, and reliance on expert testimony is likely to increase the cost of claim construction proceedings considerably. It may also make courts more likely to defer claim construction to be heard at the same time as summary judgment to avoid the need for multiple rounds of expert discovery.

Indeed, we may see more live evidentiary hearings, because findings based on such a record may be particularly insulated from appellate scrutiny given Teva's emphasis on the benefits of credibility judgments made by "[a] district court judge who has presided over, and listened to, the entirety of a proceeding." Id. at *7. But putting so much weight on credibility determinations at claim construction is somewhat odd in light of Markman's emphasis on the internal consistency of a patent over credibility: "In the main, we expect, any credibility determinations will be subsumed within the necessarily sophisticated analysis of the whole document, required by the standard construction rule that a term can be defined only in a way that comports with the instrument as a whole." Markman v. Westview Instruments Inc., 517 U.S. 370, 389 (1996).

Finally, the stakes in transfer motions just got that much higher. The Federal Circuit previously predicted that a more deferential standard of review "could restore the forum shopping that the Federal Circuit was created to avoid." Lighting Ballast, 744 F.3d at 1286. If some districts prove over time to be more amenable to reviewing extrinsic evidence then others, parties will pick districts where the treatment of evidence during claim construction works to their advantage. In sum, Teva likely will result in fewer reversals of district claim construction decisions, but that does not mean that it will make litigation outcomes more predictable. On the other hand, Teva does seem likely to make claim construction a more expensive and time-intensive process.