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Could Teva Pharmaceuticals Ruling Benefit Patent 'Trolls'?

The U.S. Court of Appeals for the Federal Circuit has frequently been criticized as a "rogue" court, and the Supreme Court has been reining it in of late. (Of course, the Federal Circuit was also helped with the resignation of former Chief Judge Randall Rader, who never met a patent he wouldn't enforce.)

Earlier this week, the Supreme Court took the Federal Circuit down a notch again, in the long-watched case Teva Pharmaceuticals v. Sandoz.

That's 'Clear Error' to You, Buddy

Teva is nominally about a multiple sclerosis drug. Teva had a patent for it, Sandoz tried to make it too, and Teva sued Sandoz. Sandoz's defense was that Teva's patent was invalid because it was indefinite. The District Court said that the patent was definite.

But the Federal Circuit reversed, reviewing the District Court's claim construction de novo. And that's the problem. The Federal Circuit always reviews claim constructions de novo. The Supreme Court, in its 7-2 ruling, said that the Federal Circuit has been doing it wrong the entire time: Claim construction is a factual issue, not a legal one, and as such, it's reviewable only for "clear error," a much higher standard.

Justice Breyer, writing for the majority, pulled a little bit of sorry-not-sorry (as in, "I'm sorry you were offended") when he took us back to the Court's decision in Markman v. Westview Instruments. In that decision, the Court said that claim construction was a legal issue -- which would lead one to think that it's de novo review on appeal, right?

Well, Breyer explained that we, and the Federal Circuit, have all been reading Markman wrong for the last 20 years: "[W]hen we held in Markman that the ultimate question of claim construction is for the judge and not the jury, we did not create an exception from the ordinary rule governing appellate review of factual matters," he said. Man, how could we possibly have missed that part?

I Sense a Disturbance in the Patent Bar

OK, the snark is over. At least as far as it's directed toward Breyer, who's very upset that we just didn't see the nuance in Markman. This is a time to rejoice, right? The capricious Federal Circuit has finally lost some of its power! Cue the Ewok party on Endor.

But Mike Masnick of TechDirt points out that might not be such a good thing. With the loss of Rader (which rhymes with "Vader"; go figure), and now that Alice v. CLS Bank is part of its bag of tricks, the Federal Circuit has been less and less likely to find valid claims on appeal. Masnick posits that Teva could be beneficial to patent "trolls," the nominal companies that exist only to extract licensing fees out of people using dubious patents.

Several patent holding companies' stock prices went up following the Teva decision. Effectively, claim construction -- which is where many of these cases live or die -- ends at the District Court stage, absent "clear error," which is hard to find. No one will get another shot at claim construction at the appellate level, so let's hope those district judges are really, really good at what they do.

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