Trading Technologies Int'l. Inc. v. eSpeed Inc. (Fed. Cir. 2010)
By Kevin E.
In an otherwise unremarkable affirmance of jury verdicts and district court decisions on claim construction, the nascent Chief Judge of the Federal Circuit, Randall Rader, and District Court Judge Ron Clark (E.D Tex.) sitting by designation, provided remarkably similar views on the negative consequences of the de novo review standard for claim construction enunciated 13 years ago by the en banc court in Cybor Corp. v. FAS Technologies, Inc. That standard, whereby the appellate court gives no deference to the underlying factual determinations made by the district court in construing claims, is widely recognized as resulting in less than optimal administration or development of U.S. patent jurisprudence.
In the majority opinion, written by Judge Rader (at left), the panel reviews the development of the standard by the Federal Circuit stemming from the Supreme Court's decision in Markman v. Westview Instruments, Inc. "The Supreme Court recognized that claim construction 'falls somewhere between a pristine legal standard and a simple historical fact,' Id. at 388 (quoting Miller v. Fenton, 474 U.S. 104, 114 (1985))" said the CAFC. In addition, the opinion noted that the Supreme Court characterized claim construction as "not a purely legal matter," but "found 'sufficient reason to treat construction of terms of art like many other responsibilities that we cede to a judge in the normal course of trial, notwithstanding its evidentiary underpinnings.' Id. at 390." Nevertheless, however, the Federal Circuit "interpreted Markman as holding that claim construction was solely a question of law, which this court should review without deference," citing Cybor Corp. v. FAS Technologies, Inc., 138 F.3d 1448, 1451 (Fed. Cir. 1998) (en banc). The opinion restates the question presented to the Supreme Court in Markman as involving whether a litigant had a Seventh Amendment right to a jury determination of claim scope as the "the meaning of any disputed term of art about which expert testimony is offered." The opinion states that the Federal Circuit, in responding to Markman, understood the Supreme Court to have determined whether claim construction was a matter of fact or law, and rejected the view that "the Court endorsed a silent, third option -- that claim construction may involve subsidiary or underlying questions of fact," that may permit some deference to be given to factual determinations made by the district court judge.
The opinion then dissects the Supreme Court's Markman opinion with regard to the "factual components of claim construction:"
• "[C]onstruing a term of art following receipt of evidence" is "a mongrel practice." Id. at 378.
• Claim construction "falls somewhere between a pristine legal standard and a simple historical fact." Id. at 388.
• "We accordingly think there is sufficient reason to treat construction of terms of art like many other responsibilities that we cede to a judge in the normal course of trial, notwithstanding its evidentiary underpinnings." Id. at 390.
"These references in the Supreme Court opinion," according to Judge Rader, "leaves this court stranded between the language in the Court's decision and the language in this court's Cybor decision."
Turning to the case before it, the panel reviewed the factual findings made by the District Court, including the "technical background of the invention," the meaning of the claim terms at issue as understood by the "ordinary artisan," and the way that artisan would "interpret the patent applicant's statements made to the PTO examiner during [patent] prosecution." "In sum," the court opined, "claim construction involves many technical, scientific, and timing issues that require full examination of the evidence and factual resolution of any disputes before setting the meaning of the disputed terms." However,
[d]espite the Supreme Court's emphasis on the trial court's central role for claim construction, including the evaluation of expert testimony, this court may not give any deference to the trial court's factual decisions underlying its claim construction. This court's prior en banc decision requires a review of the district court's claim construction without the slightest iota of deference. See Cybor, 138 F.3d at 1451.
With that introduction, the opinion reviewed and affirmed the District Court's claim construction.
Judge Clark provided a district court's perspective in a separate concurring opinion. While agreeing with the result, Judge Clark states his purpose in writing separately was "to respectfully suggest that the current de novo standard of review for claim construction may result in the unintended consequences of discouraging settlement, encouraging appeals, and, in some cases, multiplying the proceedings." The task of construing a claim frequently requires a district court to determine "crucial facts" and may depend on the weight given conflicting evidence and sometimes evaluating the credibility of expert testimony. The standard of review, according to Judge Clark, "sets one of the important benchmarks against which competent counsel evaluates decisions regarding settlement and appeal," uniquely addressing consequences of the Federal Circuit's de novo review standard on litigation behavior (rather than merely litigation strategy).
The Judge sets forth two "practical" results of this standard, neither of which "furthers the goal of the 'just, speedy, and inexpensive determination of every action and proceeding.' Fed. R. Civ. P. 1." The first of these is that settlement becomes more difficult to negotiate, and appeal "almost compelled," when it is even "debatable" that a client's position on claim construction is valid. The Judge says it is "a natural reaction" to believe that the Federal Circuit, having generally more experience with patent cases, will better understand the facts underlying a party's claim construction arguments, and under the court's "own authoritative rule" will review claim construction "without regard to any determination the lower court has made." "What public policy," Judge Clark asks, "is advanced by a rule requiring the determination of underlying facts by more than one court?"
A second consequence of the Court's refusal to give any deference to the district court in claim construction (albeit less common according to Judge Clark) is that a party may "present [its] case with an eye towards appeal rather than the verdict." This may occur, for example, when "[s]killed counsel" recognize that her client "may not be well received by a jury," and hence may be motivated to introduce error into claim construction at the district court or limit the extent of argument she presents to the district court during claim construction. This would permit a litigant to present the "most sharply focused argument" on appeal rather than in the district court. These tactics, constituting some measure of gaming the system and introducing inefficiencies to that system, would be "less inviting if the district court's claim construction was officially accorded some measure of deference," even only if applied to the relatively rare cases where reference to extrinsic evidence was required.
These sentiments are reminiscent of the dissenting opinion of District Court Judge Vaughn R. Walker, Chief Judge, U.S. District Court for the Northern District of California, sitting by designation, in Medegen MMS, Inc. v. ICU Medical Inc. (Fed, Cir. 2008) (see "Claim Construction at the Federal Circuit: A District Court Judge's View"). In that case, Judge Walker pointed out rather more sharply than Judge Clark the "conundrum" faced by district courts arising from the "twin axioms" of claim construction: "[o]n the one hand, claims 'must be read in view of the specification'," citing Markman, while "[o]n the other hand, it is improper to read a limitation from the specification into the claims," citing Arlington Indus. Inc. v. Bridgeport Fittings, Inc. Judge Walker reminded the Court that these axioms "themselves seldom provide an answer, but instead merely frame the question to be resolved." While recognizing the sound policy reasons for a patent drafter to be required to include "all claim limitations in the claims of a patent," he also admonished that "patents must be read as well as written." Citing Phillips, he asserted that this analysis must be performed with due consideration of a term's "ordinary and customary meaning" informed by the "context of the entire patent, including the specification."
Both Judge Walker's dissent and Judge Clark's concurrence remind the Federal Circuit of the essential paradox of its practice under Cybor: by giving no deference to factual determinations by district courts in claim construction, the Federal Circuit must substitute its judgment for that of trial court judges more accustomed to make factual determinations "not well suited to appellate review."
In his dissent from the en banc opinion in Cybor, Judge Rader performed a rough calculus on the fate of district court claim construction determinations at the Federal Circuit in 1997. He found that the Court reversed claim construction 53% of the time (27% reversed completely, 26% reversed-in-part). Current academic research suggests that Federal Circuit reversal rates of district court claim construction has "improved" to 30-40%. This may reflect the vagaries of district court claim construction determinations, being done by courts having various levels of experience in patent cases. On the other hand, each panel of the Federal Circuit resolves claim construction issues idiosyncratically (depending, as it must, on the particular terms that must be construed in each case and the intrinsic evidence available to the Court in each case). While there may be some degree of consistency that arises from having the Federal Circuit make the final decision on claim construction, there are also inconsistencies and inefficiencies produced by the Court's review standard, as set forth by Judge's Walker and Clark. Judge Lourie has suggested a middle ground, that rather than giving any formal deference to district court claim construction the CAFC should exercise judicial restraint from reversing the district court unless there is "strong conviction of error." Phillips v. AWH Corp. It may be time for the Federal Circuit to consider again this option.