February 25, 2020

Peter v. NantKwest Inc.

PATENT LAW

Does the Phrase “[a]ll the expenses of the proceedings” in 35 U.S.C. § 145 Encompass the Personnel Expenses the United States Patent and Trademark Office Incurs When Its Employees, Including Attorneys, Defend the Agency in Section 145 Litigation?

CASE AT A GLANCE

The Court will consider whether the text of 35 U.S.C. § 145, which provides for a patent applicant who is dissatisfied by the decision of the Patent Trial and Appeal Board with respect to patentability, to seek remedy by civil action against the Director of the United States Patent and Trademark Office (USPTO) in the United States District Court for the Eastern District of Virginia, and which provides for the recovery of “[a]ll the expenses of the proceedings,” allows the Director of the USPTO to discretionarily seek to recover the personnel-related expenses that the USPTO incurs in defending applicant-instituted Section 145 proceedings. The district court held that the phrase “[a]ll the expenses of the proceedings” in Section 145 was not sufficiently “specific and explicit” to encompass the recovery of USPTO’s attorney and paralegal personnel expenses, given the presumption under “the American Rule…that each litigant pays his own attorney’s fees.” A divided panel of the court of appeals reversed the district court, holding that under Section 145, the term “expenses” should properly include attorney’s fees. Acting sua sponte, the en banc court of appeals vacated the panel opinion and reaffirmed the district court’s denial of the USPTO’s motion for personnel expenses. The Supreme Court will now consider the propriety of the en banc court of appeals holding that Section 145 “lacks the ‘specific and explicit’ congressional authorization required to displace the American Rule’s presumption against fee-shifting, particularly when compared to other Patent Act provisions that expressly authorize shifting of attorney’s fees.”

Docket No. 18-801
Argument Date: October 7, 2019
From: The Federal Circuit
by Kean DeCarlo
Womble Bond Dickinson (US) LLP, Atlanta, GA

ISSUE

Does the phrase “[a]ll the expenses of the proceedings” in 35 U.S.C. § 145 encompass the personnel expenses the United States Patent and Trademark Office incurs when its employees, including attorneys, defend the agency in Section 145 litigation?

INTRODUCTION

The American Rule provides that “[e]ach litigant pays his own attorney’s fees, win or lose, unless a statute or contract provides otherwise.” Hardt v. Reliance Standard Life Ins., 560 U.S. 242 (2010). The Supreme Court has held that the American Rule applies whenever a litigant seeks to recover attorney’s fees and only “specific and explicit provisions for the allowance of attorneys’ fees under selected statutes” establishing a clear Congressional intent to deviate from the American Rule can displace this time-honored presumption. Alyeska Pipeline Serv. Co. v. Wilderness Soc’y, 421 U.S. 240 (1975).

Section 145 of the Patent Act provides that an applicant “dissatisfied with the decision of the Patent Trial and Appeal Board” (Board) of the USPTO may “have remedy by civil action against the Director in the United States District Court for the Eastern District of Virginia” and that “[a]ll the expenses of the proceedings shall be paid by the applicant.” (Emphasis added).

In practice, an applicant who is dissatisfied with the Board’s decision with respect to patentability of the applicant’s invention may seek judicial review through either a direct appeal to the Federal Circuit or a civil action in district court. 35 U.S.C. §§ 141(a), 145. In a direct appeal under Section 141, the Federal Circuit reviews the Board’s decision on the record before the USPTO and applies the deferential standards of review prescribed by the Administrative Procedure Act. Alternatively, an unsuccessful applicant may have remedy by civil action under Section 145, with a subsequent appeal of that civil action to the Federal Circuit. Unlike a direct appeal under a Section  141 proceeding, a Section 145 proceeding is not limited to the administrative record. The applicant may conduct discovery and introduce evidence that was not presented to the USPTO, and the proceedings may culminate in a trial. If the applicant introduces new evidence in a Section 145 proceeding, the district court must make de novo factual findings that take account of both the new evidence and the administrative record before the USPTO.

Section 145 is the current embodiment of a statutory provision that has authorized judicial review of the decisions of the USPTO (or its predecessor, the Patent Office) since 1836, when Congress first created an agency responsible for the examination of patents. To finance the agency’s operations, Congress created a “patent fund,” into which applicants were required to pay fees for examinations. 1836 Act § 9, 5 Stat. 121. The fund was used for the payment of the salaries of the officers and clerks herein provided for, and all other expenses of the Patent Office. An applicant who was dissatisfied with the agency’s decision could seek review before a board of examiners and in some circumstances could obtain judicial review by filing a bill in equity. In 1839, Congress permitted disappointed applicants to appeal to the chief judge of “the district court of the United States for the District of Columbia” who was required to “hear and determine all such appeals * * * on the evidence produced before the” agency. Act of Mar. 3, 1839 (1839 Act), ch. 88, § 11, 5 Stat. 354, 355. Congress also extended the bill-in-equity provision “to all cases where patents are refused for any reason whatever.” Section 10, 5 Stat. 354. The hallmark of the bill-in-equity proceeding, as distinct from the appeal, was that new evidence could be submitted and “the whole of the expenses of the proceeding shall be paid by the applicant, whether the final decision shall be in his favor or otherwise.” Section 10, 5 Stat. 354. Subsequently, after the merger of law and equity, Congress replaced the term “bill in equity” with “civil action,” while still mandating that “[a]ll the expenses of the proceedings shall be paid by the applicant.” Patent Act of 1952, ch. 950, § 145, 66 Stat. 803.

Historically, the USPTO has invoked the expense-recoupment provisions of Section 145 and its predecessors to recover a variety of expenses that the agency has incurred when disappointed applicants have elected to proceed in district court rather than taking direct appeals. The USPTO has typically exercised discretion in determining whether to seek the full range of expenses permitted by the statute and generally attempts to negotiate the amount of expenses to be paid rather than seeking a judicial ruling.

It is noteworthy that the USPTO began to more aggressively seek recovery of the expenses the agency incurs when its employees, including attorneys, devote their time to defending the agency in proceedings under Section 145 in response to the passage of the Leahy-Smith America Invents Act (AIA) in 2013. Under the AIA, Congress directed the USPTO to set or adjust fees charged for its services so as to recover the aggregate estimated costs to the USPTO for processing, activities, services, and materials relating to patents and trademarks and to recover escalating costs associated with participating in increasingly complex litigation under Section 145 proceedings.

The instant case requires the Court to assess whether the en banc court of appeals erred in holding that the USPTO was not entitled to expenses that extended to attorney’s fees because Section 145 lacks the “specific and explicit” congressional authorization required to displace the American Rule’s presumption against fee-shifting.

FACTS

This dispute arises from a Section 145 proceeding brought by respondent as the assignee of a patent application that claimed a method of treating cancer. The USPTO examiner concluded that the claimed method was obvious and the Board affirmed. Respondent then brought a Section 145 action to challenge the Board’s decision. In the Section 145 proceeding, respondent presented a new expert witness, who submitted three expert reports and who claimed that the Board had misunderstood the teachings of the prior art. The USPTO was required to retain an expert to rebut the testimony. After extended discovery and oral argument, the district court granted summary judgment to the USPTO on the issue of patentability and the court of appeals affirmed in an unpublished decision.

After the USPTO prevailed at summary judgment, the agency moved for reimbursement of $111,696.39 in expenses under Section 145. Those expenses included $78,592.50 in personnel costs for the time the USPTO attorneys and paralegal had spent on the proceeding and $33,103.89 in expert-witness expenses. The district court granted the USPTO’s request for reimbursement of expert-witness fees but denied the request for reimbursement of personnel expenses. In distinguishing between the two types of expenses, the district court, citing Baker Botts L.L.P. v. ASARCO LLC, 135 S. Ct. 2158 (2015), stated that the phrase “all the expenses of the proceedings” in Section 145 is not sufficiently specific and explicit to encompass the USPTO’s attorney and paralegal personnel expenses, given the presumption under the American Rule that each litigant pays his own attorney’s fees.

A divided panel of the court of appeals reversed, with the panel majority concluding that Section 145 authorizes an award of fees because “expenses” under Section 145 would include attorney’s fees. The majority based that conclusion on evidence of ordinary usage in 1839, when Congress first required plaintiffs in suits like this one to pay the attendant expenses, on the history and purpose of the patent statute, and on Supreme Court precedent, including the Court’s observation that the nontaxable expenses borne by litigants, as distinct from taxable costs, include expenses for attorneys. Taniguchi v. Kan Pac. Saipan, Ltd., 566 U.S. 560 (2012). Acting sua sponte, the en banc court of appeals vacated the panel opinion and reheard the case. After rehearing, the court affirmed the district court’s denial of the USPTO’s motion for personnel expenses, holding in a 7–4 decision that the term “expenses” in Section 145 does not encompass the USPTO’s attorney’s fees.

The en banc majority first held that the American Rule applies to Section 145 even though the agency’s entitlement to reimbursement of its expenses for a particular suit does not turn on whether it is the prevailing party. The majority recognized that the Fourth Circuit had rejected an analogous premise in  Shammas v. Focarino, 784 F.3d 219 (2015), cert. denied, 136 S. Ct. 1376 (2016), and had interpreted the nearly identical provision of the Lanham Act, 15 U.S.C. § 1071(b)(3), to authorize the USPTO to recover its personnel expenses. See Shammas at 227 (concluding that Section 1071(b) requires an applicant “to pay, as ‘all the expenses of the proceeding,’ the salaries of the PTO’s attorneys and paralegals attributed to the defense of the action”). In the en banc majority’s view, Section 145 lacked the specific and explicit congressional authorization required to displace the American Rule and acknowledged that the word “expenses” is broad and is sometimes used in judicial opinions to refer to a variety of burdens incurred by a litigant, including attorney’s fees. The majority looked to Congress’s usage of the terms “expenses” and “attorney’s fees” in other statutes currently in force and noted that statutes that define expenses to include attorney’s fees do so explicitly, which is not done in the Patent Act.

Chief Judge Sharon Prost dissented, joined by three other members of the court, opining that Section 145 requires the applicant to pay all the expenses of the proceedings, including the USPTO’s personnel expenses. The dissenting judges explained that, both in modern usage and when Section 145’s first antecedent was enacted, the ordinary meaning of “expenses” encompasses expenditures for personnel. The dissenting judges further observed that reading “expenses” to include the USPTO’s personnel expenses is consistent with the statute’s purpose to ensure that the expenses of Section 145 proceedings fall on the applicants who elect the more expensive district court proceedings over the standard appeal route.

Peter petitioned the Court for a writ of certiorari on December 21, 2018 and, on March 4, 2019, the Court granted the petition.

CASE ANALYSIS

In this case, the Court must determine whether the en banc court of appeals’ holding that the term “expenses” in Section 145 does not encompass the USPTO’s attorney’s fees is consistent with the statutory text and the specific and explicit congressional intent of Section 145.

On the issue of whether a disappointed patent applicant who files a civil action under Section 145 must reimburse the USPTO for the expenses the agency incurs when its personnel devote time to the invoked proceedings, petitioner and respondent frame the issue before the Court in different ways. Petitioner frames the issue as a misconstruction of the statutory structure and purpose of Section 145 and a misapplication of the implication of the American Rule, particularly in light of Section 145’s requirement that a disappointed patent applicant who elects district court review must pay all the expenses of the proceedings without regard to the outcome of the suit. Contrarily, respondent suggests that the question be framed as whether the American Rule is applied in Section 145 proceedings when there is no specific and explicit statutory authorization to conflate the phrase “all expenses” to allow for the recovery of both expenses and attorney fees.

Petitioner argues that the Federal Circuit erred in construing the term “expenses” in Section 145 to exclude attorney salaries and further erred in holding that Congress must use more explicit language in Section 145 to displace the American Rule.

Petitioner argues that the plain text of the relevant provision, Section 145, requires that the disappointed applicant bear all the expenses of the proceedings and that the term “expenses” includes the expenses the agency incurs when its personnel, including attorneys and paralegal, devote their time to a Section 145 proceeding. The petitioner suggests that in the specific context of civil litigation, the term “expenses” is broader than “costs,” which is a term of art that refers to a specific set of expenditures identified by statute, and should properly encompass payments to personnel after Congress enacted the first antecedent to Section 145’s expense-recoupment requirement in the 1839 Act. Indeed, because the 1836 Act, which the 1839 Act amended, explicitly included the salaries of agency personnel among the “expenses of the Patent Office,” petitioner argues that Section 145’s statutory structure and purpose confirms that the term “expenses” should properly be construed to include expenditures for agency personnel.

The petitioner suggests that the construction of the term “‘expenses’ should be sufficiently broad to include attorney’s fees and paralegals fees.” Shammas (interpreting parallel language in 15 U.S.C. 1071(b)). The petitioner suggests that it is reasonable to reach a conclusion that the USPTO’s expenditures on attorneys and paralegals are just as much an “expense,” in the ordinary and dictionary sense of that term, as are the agency’s outlays to hire expert witnesses, travel to depositions, and print briefs for a Section 145 proceeding.

Further, petitioner notes that the term “expenses” has likewise been commonly used to encompass expenditures on attorneys in the specific civil litigation context to which Section 145 applies. The petitioner argues that the Court has previously reflected the commonsensical approach to the understanding of the term “expenses,” noting that the Court had observed that Congress may authorize the award of “litigation expenses,” and identified “attorney’s fees” as an example of such expenses. Rimini St., Inc. v. Oracle USA, Inc., 139 S. Ct. 873 (2019). The petitioner further argues that the modifier “all” in Section 145 refutes any inference that Congress intended applicants to be liable for only a subset of the agency’s “expenses” and confirms that the word “expenses” in Section 145 should not be given an artificially constricted scope. See Shammas (explaining that the term “all” in Section 1071(b) “clearly indicat[es] that the common meaning of the term ‘expenses’ should not be limited”).

Petitioner argues that Congress has long paired the disappointed applicant’s right to introduce new evidence in a trial court proceeding with the requirement to pay all the expenses of that proceeding in fashioning statutory mechanisms for judicial review of agency denials of patent applications. Petitioner notes that Section 145 trial court proceedings have traditionally been viewed as part of the patent-application process, which has traditionally been funded by user fees to cover the agency’s expenses, including personnel expenses. Petitioner therefore argues that it is reasonable to require applicants to reimburse the agency for the personnel expenses it incurs in a Section 145 proceeding and, although the USPTO only recently sought recoupment of the personnel  expenses it incurs in Section 145 proceedings, that forbearance does not cast doubt on the USPTO’s current authority to act.

Respondent further argues that the USPTO errs in suggesting that the American Rule presumption does not apply because recoupment of expenses under Section 145 requires that the USPTO is the prevailing party. Respondent notes that the Court’s precedents make clear that the American Rule presumption applies whenever a party asserts that a statute shifts fees regardless of whether the provision at issue mentions prevailing parties or not. See Hardt (noting that the American Rule applies to fee-shifting provisions of “various forms,” including provisions that do not have a “prevailing party” requirement). Respondent suggests that the American Rule presumption is at its strongest where a party contends that it would be entitled to attorney’s fees even when it lost, as the USPTO asserts here and that Congress would not enact such a radical departure from established principles without doing so explicitly.

Respondent further rejects the USPTO’s contentions that it should be entitled to recover attorney’s fees based on the purpose and statutory history of Section 145. Respondent notes the potential harm that could result from the adoption of the USPTO’s position by suggesting that potential applicants with meritorious claims may be deterred from seeking relief under Section 145 if they have to pay the USPTO’s attorney’s fees even when they prevail. Because of the chilling effects to applicants, respondent suggests that it should be up to Congress to amend Section 145 to include the explicit support for the reward of attorney’s fees for Section 145 proceedings if such expense reimbursement to the USPTO is desired.

In response, petitioner argues that the term “expenses” is neither “vague” nor “insufficient” to displace the American Rule presumption against fee-shifting. Petitioner notes that the American Rule does not require that Congress use the words “attorney’s fees,” and, because the ordinary meaning of the term “expenses” arguably includes personnel expenditures, Congress’s use of that term in Section 145 provides sufficiently clear and specific authority to satisfy the American Rule presumption. Petitioner argues that the Court could reach the same result by concluding, as the Fourth Circuit held in construing Section 145’s sister provision in the Lanham Act, that the American Rule has no bearing on the interpretation of the expense recoupment provision at issue in Section 145. Thus, the petitioner stresses, the text and structure of Section 145, not the American Rule presumption, should dictate the finding that “expenses” allows for the recovery of incurred attorney’s fees. Respondent also notes that the USPTO reasonably reconsidered its prior forbearance and began seeking reimbursement to ensure that those expenses, like examination fees, generally fall on the particular applicants that cause the agency to incur them, rather than on other fee-paying users of the USPTO’s services.

R Street Institute (R Street), as amicus in support of petitioner, notes that the disappointed patent applicant has two judicial review options under Sections 141 and 145 as well as a non-judicial option using lower cost administrative remedies within the USPTO. R Street argues that the lower court’s textual construction of Section 145 that ensures that Section 145 actions would not be cost prohibitive to small businesses and individuals is contrary to the plain language of the statue and is appropriate in view of the availability of the lower cost and robust administrative remedies within the USPTO. R Street argues that existing administrative remedies within the USPTO offer a disappointed patent applicant largely the same remedies and opportunities that may be had in a Section 145 action. R Street notes that the applicant may file a “continuation application” and/or a “request for continued examination” to restart examination proceedings in the USPTO, which enable an applicant to obtain many of the benefits sometimes described as unique to Section 145 proceedings. R Street further argues that if the lower court is reversed and Section 145 is interpreted to permit recovery of USPTO staff expenses, any financial burden will tend to fall on patent applicants able to afford it without difficulty as small inventors will likely opt for, and be better served by, using the existing USPTO’s administrative remedies.

The Federal Circuit Bar Association (FCBA), as amicus in support of neither party, argues that the term “expenses” under Section 145 has never been interpreted to include attorney’s fees. The FCBA notes that the USPTO’s arguments over various definitions of the term “expenses” in Section 145 are inapposite as the USPTO has continually failed to seek attorney’s fees under either Section 145 or its predecessor statutes for well over a century and failed to seek legislative changes to clarify that the statute’s “expenses” should include attorney’s fees.

As amicus in support of respondent, the New York Intellectual Property Law Association (NY IPLA) argues that neither Section 145 of the Patent Act nor Section 1071(b)(3) of the Lanham Act provide sufficiently specific and explicit language to allow for fee-shifting of “attorney’s fees” such that a challenger of government action would bear the costs of the salaries of the government employees defending such actions. The NY IPLA suggests that the use of the term “expenses” in Section 145 without also using the more common term of “fees” is not sufficient to trump the American Rule presumption and supports that argument by noting that, at the time Section 145 of the Patent Act was enacted in 1952, Congress included a specific fee-shifting provision in Section 285 of the Patent Act that allowed for the award of reasonable attorney’s fees to the prevailing party. Finally, the NY IPLA argues that reversing the lower court holding and allowing the USPTO to recover attorney’s fees as expenses would have a chilling effect and discourage patent applicants, especially those of limited means, from seeking de novo reviews of flawed PTO decisions.

The American Bar Association (ABA), as amicus in support of respondent, submits that imposing governmental attorney’s fees on patent applicants who choose civil actions under Section 145 will hamper equal access to justice and chill the assertion of meritorious claims. The ABA notes that the statutory text does not show a congressional intent to require patent applicants to pay the government’s attorney’s fees and suggests that under traditional rules of construing fee-shifting provisions, the “expenses of the proceedings” provision in Section 145 should be read to exclude attorney’s fees. The ABA also argues that the imposition of governmental attorney’s fees as expenses is also contrary to the express language of Section 145, which does not overcome the presumption of the American Rule that each party pays its own attorney’s fees.

Petitioner further argues an interpretation that Section 145 should properly be construed to include expenditures for agency personnel, such as attorneys and paralegals, and acts to protect the USPTO from the increased financial exposure and burdens that result from an applicant’s assertion of a Section 145 proceeding. Petitioner notes that requiring the particular applicants who cause the USPTO to incur the expenses of Section 145 civil actions to bear those expenses protects other fee-paying users of the USPTO’s services by minimizing required cost shifting or allocations within the agency to cover Section 145 expenditures.

The petitioner suggests that Section 145 does not implicate the American Rule as the statue requires a disappointed patent applicant who elects district court review to pay all the expenses of the proceedings without regard to the outcome of the suit. Because the American Rule is a presumption that a successful litigant must pay its own attorney’s fees, unless a statute or contract provides otherwise, petitioner argues that application of the American Rule to Section 145 is misplaced due to the unconditional expense-reimbursement requirement that Congress imposed on applicants who elect to proceed under Section 145. In determining the scope of that unusual requirement, petitioner suggests that the plain text of the statute, and not the American Rule, should be the appropriate starting point.

Petitioner alternatively argues that the language of Section 145 is sufficiently specific and expresses that it would displace the American Rule even if that Rule were properly implicated in a Section 145 proceeding. Petitioner notes that the Federal Circuit based its contrary holding primarily on the fact that some other federal fee-shifting statutes refer to both “expenses” and “attorney’s fees,” or to “expenses, including attorney’s fees.” The petitioner suggests that the Federal Circuit’s reliance upon other federal fee-shifting statutes’ specific use of the phrase “attorney’s fees” provides no sound basis for construing the umbrella term “expenses” in a textually narrow manner. Thus, petitioner argues, despite an absence of an express reference to attorney’s fees in Section 145, Congress is not required to use that precise language in order to authorize recovery of all the USPTO’s litigation expenses to include both expenses and attorney’s fees.

Respondent argues that the Court should not deviate from the presumption of the application of the American Rule in which each party to a litigation must bear its own attorney’s fees. Respondent notes that the Court has held that such statutory authorization must be “specific and explicit.” Baker Botts L.L.P. v. ASARCO LLC, 135 S. Ct. 2158 (2015) (quoting Buckhannon Bd. & Care Home, Inc. v. West Virginia Dept. of Health and Human Resources, 532 U.S. 598 (2001)). Thus, respondent argues, vague or open-ended phrases that could be construed broadly in some contexts to encompass attorney’s fees should not suffice to confer the necessary statutory authorization.

Respondent argues that the phrase “all expenses” in Section 145 is not sufficient to displace the American Rule presumption and that the history of judicial and statutory usage as well as contemporaneous legal dictionary definitions demonstrate that the terms “expenses” and “attorney’s fees” have historically been treated as distinct concepts. The respondent notes that courts often award expenses and attorney’s fees as separate items and that there are a multitude of exiting statutes that expressly authorize an award of attorney’s fees in addition to expenses. Respondent suggests that, while Congress has enacted hundreds of statutes that contain fee-shifting provisions, the petitioner fails to identify a single statute, aside from the disputed Section 145 provision at issue, in which Congress uses the word “expenses” standing alone to authorize an award of attorney’s fees. Respondent argues that numerous courts have historically held that the term “expenses” does not include attorney’s fees, which respondent suggests supports the inference that the mere inclusion of the term “expenses” in Section 145 does not unambiguously or explicitly include “attorney’s fees” as required to satisfy the American Rule.

Respondent further suggests that the USPTO’s historical behavior in not seeking attorney’s fees under Section 145 proceedings demonstrates that the term “expenses” in Section 145 has not been understood to include attorney’s fees. Respondent notes that the USPTO’s arguments that the agency was merely exercising discretion by declining to seek such attorney’s fees are implausible as the statutory language in Section 145 stating “[a]ll the expenses of the proceedings shall be paid by the applicant” is mandatory, not permissive. Thus, the respondent notes, the USPTO’s own long-term historical prior behavior demonstrates that the term “expenses” has not been, and should not be, understood to be inclusive of attorney’s fees.

Respondent argues that the historical development of the text of the Patent Act supports the presumption that Congress did not intend for “expenses” to include attorney’s fees. Respondent notes that Congress has amended portions of the Patent Act at least five times to authorize an award of attorney’s fees, and in every single instance, Congress has used the term “attorney’s fees” or similar explicit language, not simply the term “expenses.” In support of that position, respondent looked to the analogous trademark statute, the Lanham Act, and noted that when Congress drafted Section 1701 of the Lanham Act, it chose to retain the term “expenses” of its Patent Act counterpart while other portions of the Lanham Act were amended to expressly authorize an award for attorney’s fees.

The respondent argues that the petitioner errs in suggesting that the term “expenses” necessarily includes attorney’s fees. Respondent argues that the USPTO errs in asserting that the “ordinary” meaning of the term “expenses” could encompass attorney’s fees. Respondent contends that the USPTO’s reliance upon generic dictionary definitions has no bearing on the distinct legal meaning of the terms “expenses” and “attorney’s fees” under Section 145, as illustrated by the long history of judicial and statutory usage, contemporaneous legal dictionaries, judicial precedent dating back at least 150 years, the text of the Patent Act, and the USPTO’s own long term conduct. Respondent reasons, contrarily, that the USPTO’s broad interpretation of the word “expenses” illustrates the vague and open-ended nature of the term “expenses” and, as such, is insufficient to displace the American Rule presumption.

As amicus in support of respondent, the Intellectual Property Owners Association (IPOA) argues that the USPTO errs in suggesting that Section 145 avoids the American Rule presumption because, unlike most fee-shifting statutes, Section 145 does not limit fees to the prevailing party. IPOA argues that the American Rule is a strong background presumption that is applicable to all cases where fee-shifting is sought. Because the American Rule applies, IPOA argues that the government is not entitled to attorney’s fees as Section 145 fails to explicitly and unambiguously provide for them. IPOA notes that Section 145 grants the government “all expenses of the proceeding,” which is the English translation of the Latin “Expensce Litis,” a term of art referring to “generally allowed” costs of court proceedings that do not include attorney’s fees. Thus, IPOA argues, the term “expenses of the proceeding” fails to provide the explicit statutory authority necessary to overcome the American Rule’s presumption as the term “expenses” is too ambiguous to do so on its own.

As amicus in support of respondent, the Intellectual Property Law Association of Chicago (IPLA Chicago) argues that the Court should affirm the Federal Circuit’s en banc decision and interpret Section 145 under the American Rule and find that the USPTO is precluded from being awarded attorney's fees because the phrase “all the expenses of the proceedings” in Section 145 is at best ambiguous with respect to fee-shifting, and the American Rule requires clear and explicit authorization of fee-shifting to award fees. IPLA Chicago suggests that the term “expenses” is not clearly and explicitly broad enough to include fees on its own, and the language modifying “expenses” in Section 145 fails to provide the necessary clarity under the American Rule. Further, IPLA Chicago argues that the term “all” defines the proportion of expenses paid, and the phrase “of the proceedings” limits the scope of expenses to those incurred at the district court.

The Association of Amicus Counsel (AAC), as amicus in support of respondent, suggests that the Federal Circuit’s en banc decision correctly noted that a mandatory (non-discretionary) award to the USPTO of its legal costs in every case, on top of its litigation costs, regardless of the degree of the USPTO’s success or failure on the merits would set an anomalous precedent, because an aggrieved applicant who appeals to the district and wins would have to compensate the USPTO’s lawyers for their services in failing to successfully defend the USPTO. AAC argues that such a result would be unfair and fundamentally flawed. AAC further argues that the USPTO’s interpretation of “expenses” would violate the “equity-of-the-statute rule” against construing a statute contrary to its legislative purpose when doing so would create injustice by erecting an unjust financial barrier that would undermine Section 145 by discouraging aggrieved applicants from exercising their statutory right to seek de novo judicial review of adverse USPTO decisions.

The International Trademark Association (ITA), as amicus in support of respondent, suggests that any statute that purports to require that a party must always pay the opponent’s attorney’s fees regardless of who wins should be subject to greater scrutiny, not less. Under Section 145, the ITA argues that the Federal Circuit correctly held that “expenses of the proceedings” is ambiguous and therefore failed the American Rule’s requirement that Congress must be clear and explicit if it wants to deviate from the American Rule. ITA notes that a review of the legislative history of Section 145 does not indicate that Congress intended “expenses” to include attorney’s fees. ITA argues that Congress has never instructed the USPTO that the costs of defending such appeals should be funded by recovering the USPTO’s attorney’s fees as Section 145 “expenses.” Rather, ITA suggests, Congress has always instructed and expected the USPTO to set fees sufficient to fund its overall operations. Finally, ITA argues that the USPTO’s proposed approach would have a chilling effect and introduce such a prohibitive expense that it would effectively remove district court review under Section 145 as a viable procedure for all but the wealthiest applicants.

As amicus in support of respondent, the American Intellectual Property Law Association (AIPLA) notes that the meaning of “expenses” in Section 145 was historically undisputed, with private litigants, the PTO, and courts all interpreting it to require payment only for the Government’s out-of-pocket expenses. The AIPLA argues that the Court should reject the PTO’s interpretation as an affront to the American Rule because the rule is entitled to the respect of the court till the rule is changed, or modified, by statute. As Section 145 contains no explicit authorization to shift attorney's fees, AIPLA argues that the USPTO’s view be rejected. Further, AIPLA argues, the USPTO’s interpretation would be unprecedented and would erect a significant obstacle to plaintiffs as even successful Section 145 action applicants would be required to pay the government’s attorneys’ fees.

Similarly, as amicus in support of respondent, the Association of the Bar of the City of New York (AB NY) and the IEEE-USA both argue that, under the American Rule, attorney’s fees can be awarded only when they are expressly authorized by statutory language and, since Section 145 mentions only “expenses” and never mentions “attorney’s fees,” the USPTO should not properly be able to recover attorney’s fees under Section 145. The amici further note that a departure from the American Rule for Section 145 proceedings can have a chilling effect on patent applicants of limited means, who may not have the resources to mount a Section 145 proceeding were they required to pay not only their own attorney’s fees, but those of the USPTO as well.

SIGNIFICANCE

A decision reversing the Federal Circuit’s holding that the term “expenses” in Section 145 does not encompass the USPTO’s attorney’s fees would allow for the USPTO to reasonably recover personnel expenses it incurs in Section 145 proceedings that are instituted by disappointed applicants. Such a holding would act to protect the USPTO from the unforeseen financial exposure and burdens that result from an applicant’s assertion of a Section 145 proceeding and can prevent increases in fees that would otherwise have to be attributed to other non-interested parties doing business with the USPTO in order to properly fund the operations of the USPTO.

Affirmation of the Federal Circuit’s holding could minimize the potential for aggrieved applicants being discouraged financially from exercising their statutory right to seek de novo judicial review of adverse USPTO decisions under Section 145.

Kean DeCarlo is a partner with Womble Bond Dickinson (US) LLP. His practice encompasses all areas of IP prosecution and counseling, with particular emphasis on patent and trademark prosecution, licensing, and counseling. Mr. DeCarlo’s patent and trademark experience includes both domestic and international patent and trademark prosecution, trials and post-grant patent proceedings before the USPTO’s Patent Trial and Appeal Board, or PTAB, (formerly the Board of Patent Appeals and Interferences), portfolio and competitor analysis, strategic due diligence guidance, and trade secret and misappropriation guidance, to companies, universities, and investors. Mr. DeCarlo is also an adjunct professor of law in Intellectual Property at Georgia State University College of Law and Mercer University College of Law. He may be reached at 404.962.7536 or kean.decarlo@wbd-us.com.

PREVIEW of United States Supreme Court Cases 47, no. 1 (October 7, 2019): 8–14. © 2019 American Bar Association

ATTORNEYS FOR THE PARTIES

  • Attorney for Petitioner Laura Peter, Deputy Director, United States Patent and Trademark Office (Noel J. Francisco, 202.514.2217)
  • Attorney for Respondent NantKwest, Inc. (Morgan Chu, 310.277.1010)

AMICUS BRIEFS

In Support of Petitioner Peter

  • R Street Institute (Charles Duan, 202.525.5717)
  • In Support of Respondent Nantkwest, Inc.
  • New York Intellectual Property Law Association (Charles R. Macedo, 212.336.8000)
  • American Bar Association (Robert M. Carlson, 312.988.5000)
  • Intellectual Property Owners Association (Gregory A. Castanias, 202.879.3939)
  • Intellectual Property Law Association of Chicago (Charles W. Shifley, 312.463.5000)
  • Association of Amicus Counsel (Charles E. Miller, 212.419.5210)
  • International Trademark Association (Lawrence K. Nodine, 678.420.9300)
  • American Intellectual Property Law Association (Jeffrey I.D. Lewis, 212.318.3363)
  • Association of the Bar of the City of New York (Phillip L. Hirschhorn, 212.440.4400)
  • IEEE-USA (Rick Neifeld, 703.415.0012)

In Support of Neither Party

  • Federal Circuit Bar Association (William P. Atkins, 703.770.7900)