by Jo Dale Carothers
The IP Law Blog
The United States Supreme Court granted a writ of certiorari in Iancu v. NantKwest to determine whether a patent applicant, win or lose, must pay the salaries of the United States Patent and Trademark Office’s (“USPTO”) in-house attorneys in district court actions challenging the rejection of patent claims by USPTO patent examiners.
When a patent applicant files for a patent, the USPTO assigns an examiner to review the application and determine whether the claims are patentable and a patent should issue. If the patent examiner rejects claims in a patent application, the applicant can appeal that decision to the USPTO’s Patent Trial and Appeal Board (“PTAB”). If that appeal is not successful, the applicant has two options for challenging the rejection. The applicant can either 1) appeal the rejection directly to the Court of Appeals for the Federal Circuit or 2) file a civil action in the District Court for the Eastern District of Virginia. 35 U.S.C. §145. Unlike in an appeal to the Federal Circuit, if the applicant brings an action in the district court, “[a]ll the expenses of the proceedings shall be paid by the applicant” regardless of the outcome of the litigation. Id.
There are pros and cons to these two options for challenging an examiner’s decision. The Federal Circuit typically offers faster resolution, but it relies only on the record that was before the USPTO and does not review the matter de novo. In contrast, filing a civil action in district court is slower, litigation expenses may be higher, and the patent applicant is required to pay the USPTO’s expenses regardless of whether the applicant wins or loses. The district court, however, offers the applicant the option to present new evidence that was not presented to the USPTO, and the court must review that new evidence de novo.
While the statutory language requiring an applicant to pay all expenses in district court actions has long been in effect, the USPTO had not sought to recover attorneys’ fees in the past. The USPTO, however, argues that two things changed in 2013 that led it to seek attorneys’ fees. First, “in the America Invents Act, Congress directed the agency to set its fees so as ‘to recover the aggregate estimated costs to the [USPTO] for processing, activities, services, and materials relating to patents *** and trademarks.’” Second, proceedings under Section 145 “have grown increasingly expensive and the single largest expense to the USPTO is often the time that agency employees must devote to those matters.’”
Therefore, for the first time in Shammus, the USPTO sought attorneys’ fees as part of its expenses under Section 145’s trademark provision. Allowing recoupment of attorneys’ fees, the Court of Appeals for the Fourth Circuit explained that “the imposition of all expenses on a plaintiff in an ex parte proceedings, regardless of whether he wins or loses, does not constitute fee-shifting that implicates the American Rule.” Shammus v. Focarino, 784 F.3d 219 (4th Cir. 2015). The “American Rule” assumes each party pays its own attorneys’ fees absent explicit statutory authority to the contrary.
In Iancu, the USPTO has sought attorneys’ fees under Section 145’s patent provision. The question raised in Iancu is whether the “expenses” that the applicant must pay in a district court proceeding challenging an examiner’s rejection of patent claims include the salaries for attorneys’ employed by the USPTO who work on the case. In Iancu, the USPTO sought to recoup over $78,000 in attorney and paralegal salaries and over $33,000 in expert witness expenses. The district court allowed reimbursement for the expert witness expenses but not the salaries. The district court distinguished between the two types of expenses in finding that in light of the presumption under the “American Rule,” Section 145 was not sufficiently “specific and explicit” to cover attorneys’ fees or salaries. The Federal Circuit, in a divided decision, reversed finding that “expenses” include “attorneys’ fees.” Acting sua sponte, the Federal Circuit en banc reheard the case and ruled 7-4 that Section 145 does not cover attorneys’ fees because the statutory language “all the expenses” is not sufficiently “specific and explicit” to overcome that presumption of the “American Rule.”
In its petition for certiorari, the USPTO points to the Shammus ruling regarding trademark actions in support of its argument that the “American Rule” only applies in fee-shifting scenarios where a prevailing party is seeking to recoup expenses rather in cases such as this where the applicant must always pay the expenses. However, the Federal Circuit en banc stated “Shammas’s holding cannot be squared with the Supreme Court’s line of non-prevailing party precedent applying the American Rule.” The Federal Circuit “noted that a statute awarding attorneys’ fees to a losing party would represent ‘a particularly unusual deviation from the American Rule” because “[m]ost fee-shifting provisions permit a court to award attorney’s fees only to a prevailing party, a substantially prevailing party, or a successful litigant.’”
The USPTO also makes policy-based arguments for the reimbursement of attorneys’ salaries. It argues that applicants have an alternative appellate process where they do not have to pay the USPTO’s expenses, a substantial amount of attorneys’ time is devoted to Section 145 district court proceedings given the additional discovery and new evidence presented, and it is unfair to make other patent applicants effectively underwrite the cost of Section 145 proceedings.
In its opposition to the petition for certiorari, NantKwest pointed out that “expenses” in Section 145 is at best ambiguous. The fact that “expenses” could be construed to encompass attorneys’ fees or salaries is not sufficient to “specifically and explicitly” authorize attorneys’ fees and overcome the presumption of the “American Rule” that each party pays its own attorneys’ fees absent explicit statutory language to the contrary. The USPTO, however, argues that even if the American Rule applies, “[a]ll the expenses of the proceedings” “is sufficiently specific and explicit to overcome the presumption … and authorize reimbursement of the USPTO’s” attorneys’ salaries.
The Supreme Court will decide this issue in the upcoming months, so stay tuned.
See more writing about intellectual property, copyright, patent, and trademark law on The IP Law Blog