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U.S. Supreme Court Refuses to Require Applicants to Pay USPTO’s Attorney Fees in District Court “Appeals” of Prosecution Decisions

Joshua R. RichDecember 11, 2019 (snippets Alert)

A patent applicant dissatisfied with a decision by the USPTO’s Patent Trial and Appeal Board (“PTAB”) has two options for review of that decision. Most commonly—by far—the applicant can appeal the decision to the U.S. Court of Appeals for the Federal Circuit under 35 U.S.C. § 141, with the review limited to the record before the PTAB. But the applicant can also file a civil action in the U.S. District Court for the Eastern District of Virginia under 35 U.S.C. § 145 and introduce new evidence. One downside of the second route is that “[a]ll of the expenses of the proceeding shall be paid by the applicant.” In NantKwest, Inc. v. Lee, the USPTO argued for the first time that those expenses included the salaries of the USPTO attorneys and paralegals trying the case, regardless of the outcome of the case. Today, with the case recaptioned Peter v. NantKwest, Inc., the unanimous Supreme Court rejected the USPTO’s approach and found that the Patent Act’s reference to “expenses” does not include the USPTO’s attorney’s fees.

The starting point for the Supreme Court’s decision was the “American Rule” on attorney’s fees: “Each litigant pays his own attorney’s fees, win or lose, unless a statute or contract provides otherwise.” The USPTO argued that the American Rule didn’t apply to § 145 because fee-shifting statutes usually reward only prevailing parties and § 145 doesn’t require the USPTO to be a prevailing party in order to recover expenses. The Court noted that there are exceptions to the prevailing party requirement, but those exceptions are—and are required to be—extremely clear in intending to exempt a case from the American Rule.

Here, § 145 provides no such clarity. The word “expenses” is ambiguous as to whether it includes attorney’s fees. The phrase “expenses of the proceeding” is similar to “expenses of the litigation,” which is the translation of a traditional Latin phrase that has excluded attorney’s fees. And the preceding word “all” does not broaden the type of expenses recoverable, just the extent to which appropriate expenses are recoverable. Thus, the American Rule applies, and the USPTO cannot recover its attorney’s fees as expenses as a matter of right under § 145.

To the extent that there was any remaining question as to whether the USPTO’s attorney’s fees were expenses under § 145, the Court considered both statutory usage of the term “expenses” in other contexts and the USPTO’s history of conduct in § 145 actions. The terms “expenses” and “attorney’s fees” appear in tandem numerous times in statutes, suggesting that the latter is not always included in the former. And when expenses are defined as including attorney’s fees, it is made clear in the definition (in a way that it is not under § 145). Perhaps most damning to the USPTO’s case, however, was its own course of conduct. For over 170 years, the USPTO never argued that expenses under § 145 included attorney’s fees. Thus, neither the Patent Act nor other statutes provided a basis to vary from the American Rule. The USPTO cannot recover its attorney’s fees as a matter of right as expenses in a § 145 proceeding.

Decided December 11, 2019

The opinion can be found at https://www.supremecourt.gov/opinions/19pdf/18-801_o758.pdf.

Joshua R. Rich, a partner and General Counsel of McDonnell Boehnen Hulbert & Berghoff LLP, has over 20 years of litigating intellectual property cases and counseling clients, wherein he has built up broad experience in dealing with complex and difficult issues. He has successfully litigated in Federal and state trial and appellate courts throughout the United States, in cases involving patent, trade secret, trademark, copyright, and other commercial issues. He has also represented clients before the United States Patent and Trademark Office in inter partes review, reexamination, and interference proceedings, as well as in arbitrations around the world. rich@mbhb.com

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