In a rebuff to the U.S. Patent and Trademark Office (USPTO), the U.S. Supreme 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 USPTO decision in federal district court. The decision is good news for businesses that may have limited financial resources to challenge a USPTO decision.

Challenging Patent Decisions

The Patent Act provides applicants with two options when seeking judicial review of an adverse USPTO decision. Under 35 U.S.C. § 141, the applicant may appeal directly to the Court of Appeals for 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.

Suits under § 145 are attractive because they allow patent applicants to conduct discovery and introduce new evidence. At the conclusion of the proceeding, the district court must make a de novo finding. In comparison, the appellate review in § 141 proceedings is confined to the record already established before the USPTO. While patent challenges under § 145 are more expansive, they are also more costly. Section 145 provides: “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.

The USPTO has relied on these “expenses” provisions to recover USPTO attorneys’ travel expenses to attend depositions, printing expenses, court reporter fees, and reasonable fees for expert witnesses. However, more recently, the USPTO has also sought to recover attorney’s fees.

Facts of Nantkwest, Inc. v. Iancu

NantKwest, Inc. filed a §145 civil action after its patent application was denied. The District Court granted summary judgment to the USPTO, and the Federal Circuit affirmed. The USPTO subsequently moved for reimbursement of expenses, including  $78,592.50 in attorneys’ fees. The fees included the pro-rata salaries of the two USPTO attorneys and one paralegal who worked on the case.

The District Court denied the motion, concluding that the statutory language referencing expenses was not sufficient to rebut the “American Rule” presumption that parties are responsible for their own attorney’s fees. The en banc Federal Circuit affirmed. In reaching its decision, the Federal Circuit first rejected the USPTO’s argument that § 145 is not a fee-shifting that falls within the American Rule’s ambit, as it is not contingent upon which party prevails.  “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.”

Supreme Court’s Decisions in Nantkwest, Inc. v. Iancu

The Supreme Court affirmed. In a unanimous decision, the justices agreed that the USPTO may not recover the pro-rata salaries of its legal personnel under §145. “Simply put, 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 presumption,” wrote Justice Sonia Sotomayor.

In reaching its decision, the Court rejected the government’s interpretation of the American Rule. “This Court has never suggested that any statute is exempt from the presumption against fee-shifting,” Justice Sotomayor wrote. “Nor has it limited its American Rule inquiries to prevailing-party statutes.”

Justice Sotomayor went on to explain that “the presumption against fee-shifting not only applies but is particularly important because §145 permits an unsuccessful government agency to recover its expenses from a prevailing party.” She added: “Reading §145 to award attorney’s fees in that circumstance ‘would be a radical departure from longstanding fee-shifting principles adhered to in a wide range of contexts.’”

The Court further concluded that § 145’s plain text does not overcome the American Rule’s presumption against fee-shifting. Citing the Court’s decision in Baker Botts v. Asarco, Justice Sotomayor found that the term “expenses” “does not invoke attorney’s fees with the kind of ‘clarity we have required to deviate from the American Rule.’”

In further support of the Court’s conclusion, Justice Sotomayor noted that the Patent Act’s history reinforces that Congress did not intend to shift attorney’s fees in §145 actions. “There is no evidence that the original Patent Office ever paid its personnel from sums collected from adverse parties,” she wrote. “Neither has the PTO, until this litigation, sought its attorney’s fees under §145. When Congress intended to provide for attorney’s fees in the Patent Act, it has stated so explicitly.”

This decision may also render the same result, going forward, in analogous trademark cases. The U.S. Court of Appeals for the Fourth Circuit, in 2015, interpreted a nearly identical costly provision in the Lanham (Trademark) Act to include the USPTO attorney fees.   The Fourth Circuit decision is likely inconsistent with this new Supreme Court ruling.

If you have questions, please contact us

If you have any questions or if you would like to discuss the matter further, please contact me, David Einhorn, or the Scarinci Hollenbeck attorney with whom you work, at 201-806-3364.