IP News

S. Ct.: Clear Error Standard Must Now Be Applied To District Court's Factual Claim Construction Findings

Majority decision rejects Federal Circuit's precedent set forth in Cybor Corp., which mandated de novo appellate review of all Markman rulings.

On Jan. 20, 2015, a 7-2 ruling was issued by the U.S. Supreme Court in Teva Pharm. USA, Inc. v. Sandoz, Inc., Case No. 13-854, holding that, pursuant to Federal Rule of Civil Procedure 52(a)(6), the Federal Circuit must apply a clear error standard of review to all factual findings regarding claim construction rulings by district courts. The opinion overturned the long-standing Federal Circuit precedent set forth in Cybor Corp. v. FAS Techs., Inc., 138 F.3d 1448 (Fed. Cir. 1998), that all findings of fact related to claim construction were subject to de novo review on appeal. Justices Thomas and Alito dissented.

The petitioners, Teva Pharmaceuticals (and other related firms), market the multiple sclerosis drug Copaxone'. The respondents, Sandoz (and several other firms), sought to manufacture and sell a generic version of the drug. In 2011, Teva sued in the U.S. District Court for the Southern District of New York, alleging patent infringement under the Hatch-Waxman Act. Sandoz countered that the patent-at-issue was invalid, arguing that the claim term “molecular weight” was indefinite. The district court considered expert testimony from both parties in construing the term. Ultimately, the court agreed with petitioners and determined that the claim “molecular weight” was sufficiently definite and would be understood by the ordinarily skilled artisan as referring to the “peak average molecular weight.”

On appeal, the Federal Circuit reversed and held “molecular weight” to be indefinite as used in the patent. In reaching this conclusion, the Federal Circuit reviewed de novo the district court's findings on claim construction, including the district court's determination of subsidiary facts. Teva filed a petition for certiorari, which was granted in March 2014.

Writing for the majority, Justice Breyer held that the Federal Circuit's review of the district court's underlying factual findings for claim construction should be governed by the “clear error” standard, dictated by Federal Rule of Civil Procedure 52(a)(6), as opposed to the de novo standard of review which had been employed by the Federal Circuit for almost two decades. See, Slip op. at 1'2. Citing the language of Rule 52(a)(6), the Court emphasized that an appellate court “'must not ' set aside' a district court's 'findings of fact' unless they are 'clearly erroneous.'” Id. at 4. For the majority, “the Rule sets forth a 'clear command'” that should be applied to both ultimate and subsidiary facts. Id . The opinion pointed out that Rule 52(a)(6) did not allow for any exceptions, nor did the Court's landmark case on claim construction, Markman v. Westview Instruments, Inc., 517 U.S. 370 (1996), which held that a judge's factual findings in patent construction should not be disturbed absent clear error. Id. at 4'7. To further its position, the Court also pointed to precedential cases decided prior to the establishment of the Federal Circuit, which supported application of the clearly erroneous standard. Id. at 7.

The Court explained how the Federal Circuit must apply the clear error standard of review in patent claim construction determinations. Justice Breyer recognized: “As all parties agree, when the district court reviews only evidence intrinsic to the patent ' the judge's determination will amount solely to a determination of law, and the Court of Appeals will review that construction de novo.” Id. at 12. However, in instances where the district court must look beyond the intrinsic evidence to make subsidiary findings of fact concerning the extrinsic evidence, these would be considered “the 'evidentiary underpinnings' of claim construction that we discussed in Markman , and this subsidiary fact finding must be reviewed for clear error on appeal.” Id.

In his dissent, Justice Thomas, joined by Justice Alito, agreed there is no special exception to Rule 52(a)(6),but disagreed with the majority on the applicability of the Rule to claim construction determinations. Dissent at 1. For the dissent, claim constructions do not involve findings of fact, only conclusions of law. Id. Accordingly, Justice Thomas argued that Rule 52(a)(6) does not apply to Markman issues, and that the de novo standard of review for claim construction rulings on appeal should be upheld.

No Article III Case Where Suit Lacked Subject Matter Jurisdiction

On Dec. 5, 2014, a unanimous Federal Circuit panel of Judges Dyk, Taranto, and Chen issued an opinion, authored by Judge Taranto, in Sandoz Inc. v. Amgen Inc., Case No. 2014-1693. The panel upheld the lower court's dismissal for lack of Article III controversy of Sandoz's declaratory judgment suit that Amgen's two patents directed to the biologic arthritis drug, Enbrel', are invalid and unenforceable and will not be infringed if Sandoz uses, offers to sell, sells, or imports a drug product “biosimilar” to Amgen's Embrel'. See, Slip Op. at 2.

Hoffman La-Roche owns two patents directed to proteins and related pharmaceutical compositions disclosing the protein etanercept, which is the active ingredient in the biological product, Enbrel'. Amgen is the exclusive licensee of Enbrel', a therapeutic drug used to treat rheumatoid arthritis. Sandoz sought to manufacture and market a generic version of the drug and, in 2010, began a series of meetings with the FDA to plan for an Abbreviated New Drug Application (ANDA) based on biosimilarity with Enbrel'. On June 24, 2013, Sandoz announced a large-scale, Phase III clinical trial for its contemplated etanercept product. The trial was expected to run through 2015, and had to be completed prior to Sandoz filing its ANDA with the FDA for approval of its generic product.

On the day that Sandoz began its Phase III trial, the company filed a complaint against Amgen and Hoffman La-Roche seeking a declaratory judgment that the manufacture, use, sale, offering for sale, or importation of its etanercept product will not infringe, directly or indirectly, any valid claim of the two Hoffman La-Roche patents directed to etanercept. When Sandoz filed the complaint, and through the time that the Federal Circuit issued its December 2014 decision, Sandoz had not filed an FDA application to market its generic etanercept product. The defendants moved to dismiss the complaint for lack of subject matter jurisdiction, arguing that no real, immediate controversy yet existed between the parties. The district court granted the motion to dismiss. Sandoz appealed.

On appeal, the panel affirmed the lower court's decision. First, the panel explained that the inquiry should focus “on related questions of timing and contingency regarding the existence and content of any needed patent adjudication, as well as current concrete harms to the declaratory-judgment plaintiff from delaying an adjudication.” Id. at 7. In determining that “the present case does not meet the requirements of immediacy and reality,” the panel underscored the fact that Sandoz was only in the midst of Phase III trials when seeking declaratory judgment of non-infringement. Id . at 10. In addition, Sandoz had not yet filed its ANDA, and any potential FDA approval of Sandoz's generic version of Enbrel' was years away. Id. The panel further stated, “Any dispute about patent infringement is at present subject to significant uncertainties ' concerning whether it will actually arise and if so what specific issues will require decision.” Id. at 11. Finally, the Federal Circuit noted Sandoz's failure to demonstrate “that it will suffer an immediate and substantial adverse impact from not being able to seek or secure a patent adjudication before filing an application for FDA approval.” Id. at 14.

Howard J. Shire is Editor-in-Chief of this newsletter and a Partner in the New York office of Kenyon & Kenyon LLP. Brooke Hazan is an associate at the firm.

S. Ct.: Clear Error Standard Must Now Be Applied To District Court's Factual Claim Construction Findings

Majority decision rejects Federal Circuit's precedent set forth in Cybor Corp., which mandated de novo appellate review of all Markman rulings.

On Jan. 20, 2015, a 7-2 ruling was issued by the U.S. Supreme Court in Teva Pharm. USA, Inc. v. Sandoz, Inc., Case No. 13-854, holding that, pursuant to Federal Rule of Civil Procedure 52(a)(6), the Federal Circuit must apply a clear error standard of review to all factual findings regarding claim construction rulings by district courts. The opinion overturned the long-standing Federal Circuit precedent set forth in Cybor Corp. v. FAS Techs., Inc., 138 F.3d 1448 (Fed. Cir. 1998), that all findings of fact related to claim construction were subject to de novo review on appeal. Justices Thomas and Alito dissented.

The petitioners, Teva Pharmaceuticals (and other related firms), market the multiple sclerosis drug Copaxone'. The respondents, Sandoz (and several other firms), sought to manufacture and sell a generic version of the drug. In 2011, Teva sued in the U.S. District Court for the Southern District of New York, alleging patent infringement under the Hatch-Waxman Act. Sandoz countered that the patent-at-issue was invalid, arguing that the claim term “molecular weight” was indefinite. The district court considered expert testimony from both parties in construing the term. Ultimately, the court agreed with petitioners and determined that the claim “molecular weight” was sufficiently definite and would be understood by the ordinarily skilled artisan as referring to the “peak average molecular weight.”

On appeal, the Federal Circuit reversed and held “molecular weight” to be indefinite as used in the patent. In reaching this conclusion, the Federal Circuit reviewed de novo the district court's findings on claim construction, including the district court's determination of subsidiary facts. Teva filed a petition for certiorari, which was granted in March 2014.

Writing for the majority, Justice Breyer held that the Federal Circuit's review of the district court's underlying factual findings for claim construction should be governed by the “clear error” standard, dictated by Federal Rule of Civil Procedure 52(a)(6), as opposed to the de novo standard of review which had been employed by the Federal Circuit for almost two decades. See, Slip op. at 1'2. Citing the language of Rule 52(a)(6), the Court emphasized that an appellate court “'must not ' set aside' a district court's 'findings of fact' unless they are 'clearly erroneous.'” Id. at 4. For the majority, “the Rule sets forth a 'clear command'” that should be applied to both ultimate and subsidiary facts. Id . The opinion pointed out that Rule 52(a)(6) did not allow for any exceptions, nor did the Court's landmark case on claim construction, Markman v. Westview Instruments, Inc., 517 U.S. 370 (1996), which held that a judge's factual findings in patent construction should not be disturbed absent clear error. Id. at 4'7. To further its position, the Court also pointed to precedential cases decided prior to the establishment of the Federal Circuit, which supported application of the clearly erroneous standard. Id. at 7.

The Court explained how the Federal Circuit must apply the clear error standard of review in patent claim construction determinations. Justice Breyer recognized: “As all parties agree, when the district court reviews only evidence intrinsic to the patent ' the judge's determination will amount solely to a determination of law, and the Court of Appeals will review that construction de novo.” Id. at 12. However, in instances where the district court must look beyond the intrinsic evidence to make subsidiary findings of fact concerning the extrinsic evidence, these would be considered “the 'evidentiary underpinnings' of claim construction that we discussed in Markman , and this subsidiary fact finding must be reviewed for clear error on appeal.” Id.

In his dissent, Justice Thomas, joined by Justice Alito, agreed there is no special exception to Rule 52(a)(6),but disagreed with the majority on the applicability of the Rule to claim construction determinations. Dissent at 1. For the dissent, claim constructions do not involve findings of fact, only conclusions of law. Id. Accordingly, Justice Thomas argued that Rule 52(a)(6) does not apply to Markman issues, and that the de novo standard of review for claim construction rulings on appeal should be upheld.

No Article III Case Where Suit Lacked Subject Matter Jurisdiction

On Dec. 5, 2014, a unanimous Federal Circuit panel of Judges Dyk, Taranto, and Chen issued an opinion, authored by Judge Taranto, in Sandoz Inc. v. Amgen Inc., Case No. 2014-1693. The panel upheld the lower court's dismissal for lack of Article III controversy of Sandoz's declaratory judgment suit that Amgen's two patents directed to the biologic arthritis drug, Enbrel', are invalid and unenforceable and will not be infringed if Sandoz uses, offers to sell, sells, or imports a drug product “biosimilar” to Amgen's Embrel'. See, Slip Op. at 2.

Hoffman La-Roche owns two patents directed to proteins and related pharmaceutical compositions disclosing the protein etanercept, which is the active ingredient in the biological product, Enbrel'. Amgen is the exclusive licensee of Enbrel', a therapeutic drug used to treat rheumatoid arthritis. Sandoz sought to manufacture and market a generic version of the drug and, in 2010, began a series of meetings with the FDA to plan for an Abbreviated New Drug Application (ANDA) based on biosimilarity with Enbrel'. On June 24, 2013, Sandoz announced a large-scale, Phase III clinical trial for its contemplated etanercept product. The trial was expected to run through 2015, and had to be completed prior to Sandoz filing its ANDA with the FDA for approval of its generic product.

On the day that Sandoz began its Phase III trial, the company filed a complaint against Amgen and Hoffman La-Roche seeking a declaratory judgment that the manufacture, use, sale, offering for sale, or importation of its etanercept product will not infringe, directly or indirectly, any valid claim of the two Hoffman La-Roche patents directed to etanercept. When Sandoz filed the complaint, and through the time that the Federal Circuit issued its December 2014 decision, Sandoz had not filed an FDA application to market its generic etanercept product. The defendants moved to dismiss the complaint for lack of subject matter jurisdiction, arguing that no real, immediate controversy yet existed between the parties. The district court granted the motion to dismiss. Sandoz appealed.

On appeal, the panel affirmed the lower court's decision. First, the panel explained that the inquiry should focus “on related questions of timing and contingency regarding the existence and content of any needed patent adjudication, as well as current concrete harms to the declaratory-judgment plaintiff from delaying an adjudication.” Id. at 7. In determining that “the present case does not meet the requirements of immediacy and reality,” the panel underscored the fact that Sandoz was only in the midst of Phase III trials when seeking declaratory judgment of non-infringement. Id . at 10. In addition, Sandoz had not yet filed its ANDA, and any potential FDA approval of Sandoz's generic version of Enbrel' was years away. Id. The panel further stated, “Any dispute about patent infringement is at present subject to significant uncertainties ' concerning whether it will actually arise and if so what specific issues will require decision.” Id. at 11. Finally, the Federal Circuit noted Sandoz's failure to demonstrate “that it will suffer an immediate and substantial adverse impact from not being able to seek or secure a patent adjudication before filing an application for FDA approval.” Id. at 14.

Howard J. Shire is Editor-in-Chief of this newsletter and a Partner in the New York office of Kenyon & Kenyon LLP. Brooke Hazan is an associate at the firm.