2015 AIPLA IP Practice in Europe Committee June, 2015 Phil Swain Foley Hoag LLP Boston, MA - USA Teva v. Sandoz and other recent decisions and implications for US litigation 1 © AIPLA 2015

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Supreme Court calls for greater deference to trial court claim construction Overrules Federal Circuit precedent of treating all aspects of claim construction as purely legal questions to be reviewed de novo Federal Circuit must now apply deferential “clear error” standard of review to findings of fact underlying trial court claim construction Teva Pharmaceuticals USA, Inc. v. Sandoz, Inc. © AIPLA

Disputed claim term “molecular weight”  Defendants argued terms could have three meanings, and therefore was indefinite  Trial court heard evidence from parties’ experts, rejected indefiniteness defense, and construed “molecular weight” to mean “average molecular weight” Federal Circuit reviewed claim construction under de novo standard of review, and reversed trial court’s ruling  Held that “molecular weight” was indefinite and claim was invalid Teva background facts © AIPLA

No “patent law” exception to the “clear command” of Rule 52(a)  which requires a “clear error” standard of review of factual determinations underlying a trial court’s claim construction  consideration of extrinsic evidence regarding background science or meaning of term in the relevant art during relevant time is analogous to evidence concerning trade usage in contract disputes  practical considerations also support deferential review o trial judge has comparatively greater opportunity to gain familiarity with scientific principles at issue and can make credibility determinations about dueling experts Supreme Court’s reasoning in Teva © AIPLA

There are distinctions between intrinsic and extrinsic evidence  when trial court considers only intrinsic evidence (patent claims, specification, file history) – legal determination and de novo review  but when trial court makes subsidiary fact findings based on extrinsic evidence, those findings are subject to the “clear error” standard Federal Circuit erred in reviewing de novo the trial court’s conclusion, based on disputed expert testimony, as to how a person of skill in the art would understand a figure in the specification Justice Thomas dissent asserted that the majority decision undermined the public notice function of patents, because the ultimate meaning of a patent claim should not depend on the specific evidence presented in a particular case  “clear error” review would also undermine uniformity and lead to costly satellite litigation over what constitutes a subsidiary fact Supreme Court’s reasoning in Teva (2) © AIPLA

Gives litigants incentive to shift focus in claim construction  from intrinsic evidence (usually treated as dispositive) to extrinsic evidence warranting factual findings (which will be given greater deference on appeal) In Markman hearings, expect  increased reliance on expert testimony  additional claim construction briefing on fact issues  submission of proposed findings of fact  longer claim construction hearings  extensive battles over whether a contested issue is one of fact or law Teva’s implications for US patent litigation © AIPLA

Supreme Court reverses Federal Circuit holding that defendant/accused inducer’s good faith belief of invalidity “may negate requisite intent for induced infringement” Belief as to patent invalidity “cannot negate the scienter required for induced infringement” Thus defendant who believes patent is invalid may still be liable for inducing infringement if it turns out patent was valid Commil USA, LLC v. Cisco Systems, Inc. © AIPLA

Commil owned patent on wireless networks, sued Cisco for infringement, including induced infringement Jury found direct infringement, but no liability for inducement in first trial, but judge granted new trial on that issue In second trial, on inducement only, judge excluded Cisco’s evidence of “good faith belief that Commil patent was invalid”  Jury returned verdict for Commil and awarded $63.7 million Federal Circuit vacated and remanded the infringement holding  “It is axiomatic that one cannot infringe an invalid patent”  evidence of an infringer’s good faith belief in invalidity may negate the requisite intent for induced infringement  no principled difference between good-faith belief of invalidity and non-infringement for purposes of intent to induce infringement Commil background facts © AIPLA

Inducer must have knowledge that the induced acts constitute infringement The intent necessary to find inducement liability is the intent to infringe  therefore belief it is not causing customer to infringe is relevant to show lack of intent  but belief about invalidity in not relevant to that intent o because invalidity is not a defense to infringement, it is a defense to liability Practical reasons to reject good faith belief of invalidity defense  accused inducers can attempt to invalidate through declaratory judgment, PTAB, reexamination, or defense in patent infringement suit  Good faith invalidity defense would make patent litigation more costly Court reasoning in Commil 10 © AIPLA 2015

Acknowledged problem of frivolous patent suits to obtain nuisance value settlements Urged lower courts to “sanction attorneys for bringing such suits” using Rule 11 and section 285 of patent statute These safeguards militate in favor of maintaining the separation between infringement and validity  This “dichotomy means that belief in invalidity is no defense to a claim of induced infringement” Justice Scalia’s dissent asserts that barring the defense of perceived invalidity “increases the in terrorem power of patent trolls” Commil’s comments on “patent trolls” © AIPLA

For defendants  re-affirms the importance of the good-faith belief of non- infringement defense to inducement claims  accused infringer should develop evidence of that belief, such as opinion of counsel, and reliance on that belief  party evaluating a patent may conclude it would not infringe if construed narrowly, and would be invalid if construed broadly o opinion should address both issues under different claim constructions, even if invalidity opinion no defense to inducement For patent owners  If patent drawn to method claims, no need to contend with invalidity belief defense o may benefit some patents of questionable validity Implications of Commil © AIPLA

Direct/divided infringement steps out of the limelight in its return to the Federal Circuit  No direct infringement of method claim under section 271(a) of patent statute unless single actor performs all steps of the method or performs some of the steps and controls actions of others who perform the rest Section 271(a): “Whoever without authority makes, uses, offers to sell, or sells any patented invention, within the United States or imports into the United States any patented invention during the term of the patent therefor, infringes the patent.” Akamai Technologies, Inc. v. Limelight Networks, Inc. © AIPLA

Limelight performed all steps of Akamai’s patented method, except “tagging” step, which was done by customers  Limelight provided instructions to customers in manual  Contract explained the customers would have to perform tagging in order to use service, but did not mandate the tagging In 2014, the Supreme Court had ruled that Limelight was not liable for indirectly infringing Akamai’s patent because Federal Circuit did not rule there was 271(a) direct infringement  Akamai’s argument that Federal Circuit is “too narrowly circumscribing” 271(a) law did not change requirements of 271(b) On remand, Federal Circuit left its existing standard intact Akamai’s procedural history and background © AIPLA

Direct/divided infringement occurs only if all steps are performed or attributed to a single entity  As would be the case, for example, in principal-agent relationship, or a contractual arrangement o Contractual arrangement must mandate the performance of the claimed method  Legislative history of 1952 Patent Act eliminated liability for tortious types of infringing behavior, and imposed liability for the acts of others based only on vicarious liability  Judge Moore dissent asserted majority opinion left gaping loophole in infringement law” o Direct infringement should be found under broader set of circumstances  where one party directs or controls the actions of another to infringe  where two parties act in concert to perform the claimed method pursuant to a common goal, plan, or purpose o But recognized this will require en banc action Federal Circuit reasoning in Akamai © AIPLA

For accused infringers  Divided infringement defenses remain viable For patent owners  avoid construction of claims in litigation that could require multiple actors to perform all the steps of patented method  In prosecution, avoid drafting or issuing method claims that requiring multiple actors For all  Stay tuned for en banc review and return to the Supreme Court Akamai’s implications © AIPLA

Thank you for your attention 17 © AIPLA 2015