Canada: Canadian Federal Court Of Appeal Says Patent Construction Findings Should Only Be Reversible For "Palpable And Overriding Error"

The Federal Court of Appeal recently opined that appellate courts should defer to trial court findings on patent construction in the absence of a "palpable and overriding error", when such findings are heavily dependent on expert testimony (Cobalt Pharmaceutical Company v Bayer Inc, 2015 FCA 116 ("Cobalt decision")). This would reflect a departure from the "correctness" standard of review that has traditionally been applied to patent construction.

Background

When a trial decision is appealed, the appellate court must determine the standard of review it should apply in reviewing the trial decision.

Generally, there are two standards of review that an appellate court may apply in Canada:

• Palpable and overriding error – under this standard, the appellate court will only disturb the trial decision if it finds that the trial judge made a palpable and overriding error. Otherwise, the trial decision will be upheld. This standard of review is typically applied to questions of fact and questions of mixed fact and law. In its leading decision on standard of review, Housen v Nikolaisen,  2002 SCC 33, the Supreme Court of Canada explained why this deferential standard of review is applied to issues involving questions of fact: "The trial judge is better situated to make factual findings owing to his or her extensive exposure to the evidence, the advantage of hearing  testimony viva voce, and the judge's familiarity with the case as a whole".
• Correctness – under this standard, the appellate court is free to replace the opinion of the trial judge with its own. This standard typically applies to questions of law, so that appellate courts can ensure consistency in the legal rules that are applied in similar situations, and exercise their law-making function.

Historically, the law has held that issues of patent construction are reviewable by appellate courts on the "correctness" standard, since construction has traditionally been considered a matter of law.

However, as a practical matter, patent construction is in most cases underpinned by the trial judge's assessment of expert evidence regarding the state of the art in the technical field to which the patent relates, and as to how a "person skilled in the art" would read and understand the patent. Accordingly, jurisprudence has held that the trial judge's assessment of such expert evidence is a question of fact, and is only reviewable by an appellate court for palpable and overriding error.

Recent developments

There have recently been pertinent developments on standard of review in both Canada and the United States.

In Canada, the Supreme Court recently overhauled the standard of review for contractual interpretation. In Sattva Capital Corp v Creston Moly Corp, 2014 SCC 53 (Sattva Capital), the Supreme Court held that interpretation of contract should no longer be considered a question of law to be reviewed on a correctness standard, but instead should be treated as a matter of mixed fact and law reviewable by appellate courts only for palpable and overriding error, since it involves a consideration of the "factual matrix" surrounding the contract. The same could be said for issues of patent construction, given courts' regular reliance on expert evidence regarding the state of the art, and the understanding of skilled persons, as part of the construction exercise.

In the U.S., the Supreme Court, applying a similar approach to the Supreme Court of Canada in Sattva Capital, has recently changed the standard of review for patent construction. Pursuant to the U.S. Supreme Court's decision in Teva Pharmaceuticals USA, Inc v Sandoz, Inc, 574 U.S. __(2015), the standard of review for patent construction in the U.S. is now the more deferential "clear error" standard of review, rather than the previously applied "de novo" standard. The majority of the U.S. Supreme Court viewed the de novo standard (essentially equivalent to the "correctness" standard in Canada), which is typically applied to pure legal questions, to be inappropriate for patent construction, which is based on "evidentiary underpinnings" and thus requires "subsidiary fact finding".

Cobalt decision

In the recent Cobalt decision, the Canadian Federal Court of Appeal was dealing with an appeal from the trial judge's construction of the "promise of the patent".

Although the Court of Appeal applied the established "correctness" standard of review to the construction issues before it, the Court suggested that issues of construction ought to be subject to the "palpable and overriding error" standard of review when the trial judge's findings are heavily dependent on expert testimony.

The Court of Appeal noted the practical reality that trial judges nearly always construe patents through "goggles supplied by the experts whom the judge considers to be credible and accurate". As such, trial judges are best positioned to make the factual and credibility findings that underlie the construction exercise. The Court observed that it is often difficult for appellate courts to "cleave off those aspects of claim construction that flow from the trial judge's appreciation of expert evidence from the words of the claim per se".

The Court of Appeal also cited the growing acceptance, as reflected in the U.S. Supreme Court's decision in Teva, that deference should be accorded to the interpretation of patents reached by those who have seen and evaluated the experts.

The Court also cited the Supreme Court of Canada's Sattva Capital decision in support of the proposition that the interpretation of legal documents (such as contracts, and in the Court of Appeal's view, patents) may be subject to review on a deferential standard.

Conclusion

The Cobalt decision, as well as the above-noted Sattva Capital and Teva decisions from the Canadian and U.S. Supreme Courts, suggest that appellate courts' views regarding the standard of review that should be applied to construction issues are shifting in favour of greater deference to the trial judge.

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