SCOTUS Rules PTO Not Entitled to Attorney’s Fees in Appeals to E.D. Virginia from Adverse PTAB Decisions

In a unanimous decision on December 11, 2019, the US Supreme Court held that the US Patent and Trademark Office (PTO) is not entitled to recover its attorney’s fees in an appeal to the Eastern District of Virginia (E.D. Va.) from an adverse decision of the Patent Trial and Appeal Board (PTAB) under 35 U.S.C. § 145. Peter v. NantKwest, Inc., Case No. 18-801, 589 US ___ (December 11, 2019). Justice Sotomayor framed the question presented in this case as:

[W]hether such “expenses” [in § 145 proceedings] include the salaries of attorney and paralegal employees of the United States Patent and Trademark Office (PTO).

The answer was a resounding “No.”

Background

The Patent Act provides two options to patent applicants for judicial review of an adverse PTAB decision. The applicant may appeal directly to the Federal Circuit under 35 U.S.C. § 141, in which “[the court] shall review the decision from which an appeal is taken on the record before the [PTO],” 35 U.S.C. § 144. Alternatively, the applicant may file a civil action against the Director of the PTO in the E.D. Va. under 35 U.S.C. § 145, in which case the applicant may present additional evidence. If the applicant elects to bring such an action, Section 145 provides that “[a]ll the expenses of the proceedings shall be paid by the applicant.”

The en banc US Court of Appeals for the Federal Circuit previously reversed a divided Federal Circuit panel decision and held that 35 U.S.C. § 145 does not require applicants appealing to the E.D. Va. to pay the PTO’s attorney’s fees in the form of a pro rata share of the PTO personnel’s salaries. NantKwest, Inc. v. Iancu, 898 F. 3d 1177 (IP Update Vol. 21, No. 8).

In its en banc decision, the Federal Circuit found that “the American Rule prohibits courts from shifting attorney’s fees from one party to another absent a ‘specific and explicit’ directive from Congress.” The Federal Circuit held that the phrase ‘[a]ll the expenses of the proceedings’ falls short of this stringent standard.

However, in a case interpreting a similar provision of the Lanham Act, 15 U.S.C. § 1071(b)(3) (relating to appeals to the E.D. Va. from a Trademark Trial and Appeal Board’s decision denying a trademark application), the Court of Appeals for the Fourth Circuit previously held that Section 1071(b)(3) does require a trademark applicant to pay the pro rata share of the PTO’s personnel expenses in defending the trademark action, win or lose. Shammas v. Focarino, 784 F.3d 219 (4th Cir. 2015) (IP Update Vol. 18, No. 5).

The Supreme Court’s Decision

The Supreme Court resolved the question in favor of patent applicants, adopting the view of the Federal Circuit’s en banc decision that attorney’s fees are not encompassed in the phrase “[a]ll the expenses of the proceedings” in Section 145.

The Supreme Court agreed with the Federal Circuit’s en banc ruling that the “American Rule” is a bedrock principle that “[e]ach litigant pays its own attorney’s fees, win or lose, unless a statute or contract provides otherwise,” and provides a starting point for assessing whether §145 authorizes payment of the PTO’s legal fees.

The Supreme Court emphasized that it had never suggested that any statute is exempt from the presumption against fee shifting or limited its American Rule inquiries to prevailing party statutes. Instead, the Supreme Court stated that it has developed a line of precedents addressing statutory deviations from the American Rule that do not limit attorney’s fees awards to prevailing parties. The Court also stated that the presumption against fee shifting was particularly im­portant in this case because reading §145 to permit an unsuccessful govern­ment agency to recover attorney’s fees from a prevailing party “would be a radical departure from longstanding fee-shifting principles ad­hered to in a wide range of contexts.”

Further, the Supreme Court held that Section 145’s plain text does not overcome the American Rule’s presumption against fee shifting, stating that definitions of “expenses,” while broad enough to include attorney’s fees, provided little guidance. The mere failure to foreclose a fee award “neither specifically nor explicitly authorizes courts to shift [fees].” Rather, the Supreme Court found that the complete phrase “expenses of the proceeding” would not have been commonly understood to include attorney’s fees at the time §145 was enacted. The Court also found that the modifier “all” did not transform “expenses” to reach an outlay it would not otherwise in­clude.

Further, the Supreme Court found that in common statutory usage, the term “expenses” alone has never been considered to authorize an award of attorney’s fees with sufficient clarity to overcome the American Rule’s presumption. The Court stated that the appearance of “expenses” and “attorney’s fees” together across various statutes in­dicated that Congress understands the terms to be distinct and not in­clusive of each other. Other statutes that refer to attorney’s fees as a subset of expenses show only that “ex­penses” can include attorney’s fees when so defined. The Court also stated that its precedent did not support the Government’s po­sition that the Court has used “expenses” to mean “attorney’s fees.”

The Court held that the Patent Act’s history reinforces that Congress did not intend to shift attorney’s fees in § 145 actions, and there was no evidence that the Patent Office ever paid its personnel from sums collected from ad­verse parties. Also, the Court found that the PTO, until this litigation, had never sought its attorney’s fees under §145. The Court concluded that when Congress intended to provide for attorney’s fees in the Patent Act, it has stated so explicitly, citing as an example 35 U. S. C. §285.

Conclusion

The Supreme Court’s NantKwest decision maintains more than a century of practice under which a patent applicant who is dissatisfied with a PTAB decision may appeal to the district court under 35 U.S.C. § 145, without incurring an obligation to pay the PTO’s attorney’s fees.