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Federal Circuit Denies USPTO’s Recovery of Attorney Fees in §145 Actions


November 9, 2018
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In Nantkwest, Inc. v. Iancu, the Federal Circuit Court of Appeals Ruled that 35 U.S.C. § 145 Does Not Require Patent Applicants to Pay the USPTO’s Attorneys’ Fees When Challenging a Decision in District Court

Challenging a decision by the U.S. Patent and Trademark Office (USPTO) just became less cost prohibitive, thanks to the Federal Circuit Court of Appeals. The court recently ruled in Nantkwest, Inc. v. Iancu that 35 U.S.C. § 145 does not require patent applicants to pay the USPTO’s attorneys’ fees when challenging a decision in district court.

Federal Circuit Denies USPTO’s Recovery of Attorney Fees in §145 Actions

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Challenging a USPTO Decision

The Patent Act provides applicants with two avenues for seeking judicial review of an adverse USPTO decision. Under 35 U.S.C. § 141, the applicant may appeal directly to the Federal Circuit. Alternatively, the applicant may file a civil action against the Director of the USPTO in the United States District Court for the Eastern District of Virginia pursuant to 35 U.S.C. § 145.

The proceedings differ in several ways. Notably, appellate review in § 141 proceedings is confined to the record before the USPTO. Meanwhile, § 145 allows patent applicants to conduct discovery and introduce new evidence. At the conclusion of the proceeding, the district court must make a de novo finding. The more expansive challenge, however, comes at a cost. Section 145 states: “All the expenses of the proceedings shall be paid by the applicant.” Accordingly, an aggrieved applicant who proceeds under § 145 must shoulder not only his own significant expenses and fees but also the USPTO’s “expenses of the proceedings, “ without regard to that party’s success in those proceedings.

As highlighted by the Federal Circuit, the USPTO has relied on these “expenses” provisions to recover PTO attorneys’ travel expenses to attend depositions, printing expenses, court reporter fees, and reasonable fees for expert witnesses. Not until recently has the USPTO sought to recover attorney’s fees.

Facts of Nantkwest, Inc. v. Iancu

In 2001, Dr. Hans Klingemann filed a patent application directed to a method for treating cancer using natural killer cells. Dr. Klingemann’s application was eventually assigned to NantKwest, Inc. The examiner rejected the application as claiming obvious subject matter in 2010, and the Board affirmed the rejection in 2013.

Pursuant to § 145, NantKwest challenged the Board’s decision by filing a complaint against the Director of the USPTO in the U.S. District Court for the Eastern District of Virginia. After discovery concluded, the USPTO successfully moved for summary judgment that the application’s claims were obvious. After prevailing on the merits, the USPTO filed a motion for reimbursement of the “expenses of the proceedings” under § 145.

The $111,696.39 sum sought by the USPTO included $78,592.50 in attorneys’ fees—calculated based on the pro rata salaries of the two PTO attorneys and one paralegal who worked on the case—and $33,103.89 in expert witness fees. The district court denied the PTO’s motion with respect to attorneys’ fees, citing the American Rule, which requires each party to pay its own attorney’s fees, no matter who wins or loses. It also prohibits courts from shifting attorneys’ fees from one party to another absent a “specific and explicit” directive from Congress.

The USPTO appealed the denial of its motion to recover attorneys’ fees, and a divided panel of the Federal Circuit Court reversed. The majority relied on the Fourth Circuit’s opinion in  The Shammas v. Focarino, which interpreted a nearly identical provision of the Lanham Act, 15 U.S.C. § 1071(b)(3). In that case, the Fourth Circuit held that the American Rule only applies to statutes awarding fees to a “prevailing party.”

Federal Circuit’s En Banc Decision

However, The Federal Circuit, sitting en banc, affirmed the district court ruling. In reaching its decision, the court first rejected the USPTO’s argument that § 145 is not a fee-shifting that falls within the American Rule’s ambit. “Given the primary purpose of the American Rule—protection of access to courts—the PTO’s alleged distinction makes little sense,” the court reasoned. “We submit that the policy behind the American Rule would be even more strongly implicated where attorneys’ fees would be imposed on a winning plaintiff.”

The Federal Circuit next turned to whether § 145 displaces the American Rule. It concluded that “the phrase ‘[a]ll the expenses of the proceedings’ falls short of this stringent standard.” As the court further explained:

The general rule in the United States is that each party pays for its own attorneys. To deviate from the status quo embodied in the American Rule, Congress must draft legislation—“specific and explicit” legislation— demonstrating its intent to make the award of attorneys’ fees available under that statute. Awarding “[a]ll the expenses” simply cannot supply the “specific and explicit” directive from Congress to shift attorneys’ fees, and nothing else in the statute evinces congressional intent to make them available. Other than Shammas’s interpretation of the trademark analogue, we are not aware of any statute requiring a private litigant to pay the government’s attorneys’ fees without regard to the party’s success in the litigation. We are unwilling to “invade the legislature’s province by redistributing litigation costs” in a way that would create such an anomalous statute here.

Given that the Federal Circuit’s departure from the Fourth Circuit’s decision in Shammas has created a split among Circuits, it is possible that the issue may ultimately end up before the U.S. Supreme Court.  David A. Einhorn is Chairman of Scarinci Hollenbeck’s Technology Law Group.  Scarinci Hollenbeck’s technology law attorneys will continue to monitor this case and post updates as they become available. 

If you have any questions, contact us

If you have any questions or if you would like to discuss how the Court’s decision may impact your company’s patent rights, please contact me, David Einhorn, at 201-806-3364.

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