U.S. Supreme Court Hands Win to Litigants Appealing Patent Denials in District Courts

Applicants not required to pay USPTO’s attorney fees, court says

The U.S. Supreme Court in a Dec. 11 opinion made short work of a case about attorney fees in litigation against the U.S. Patent and Trademark Office. In a unanimous ruling, the court decided there was not a reason to exempt patent cases from an established principle that parties pay their own litigation costs unless it’s made clear otherwise. 

Applicants challenging a patent denial have two paths: litigating in the Eastern District of Virginia or taking their case straight to the Court of Appeals for the Federal Circuit. In this case, Peter v. NantKwest, NantKwest filed a complaint in district court after the USPTO denied a patent for a method of treating cancer. Section 145 of the Patent Act requires patent applicants to pay the USPTO’s expenses if they appeal a denied patent in district court worded as “all expenses of the proceedings.” 

At issue in the case was whether “expenses” includes attorney fees. Historically, the USPTO interpreted the “expenses” wording to apply only to the government’s out-of-pocket expenses, such as travel. In this case, however, the office filed for reimbursement of its attorney costs as well. 

The Supreme Court squared its analysis on the “American rule,” which assumes parties are responsible for their own costs unless a specific law or contract says otherwise. Section 145 does not reference attorney fees, and in oral arguments the justices seemed skeptical of the government’s argument that it should be read to include them.

The government argued the American rule doesn’t apply to Section 145 because the section requires patent applicants to pay the government’s expenses regardless of who wins in the litigation, and the American rule’s presumption tends to intersect with statutes that award attorney fees to winning parties. 

The Supreme Court didn’t buy that argument. “This Court has never suggested that any statute is exempt from the presumption against fee shifting. Nor has it limited its American Rule inquiries to prevailing-party statutes,” wrote Justice Sonia Sotomayor. “Indeed, the Court has developed a ‘line of precedents’ ‘addressing statutory deviations from the American Rule that do not limit attorney’s fees awards to the ‘prevailing party.’” Sotomayor referenced cases that have analyzed a bankruptcy provision that doesn’t mention prevailing parties.  

John Posthumus, a shareholder at Polsinelli who practices trademark law, said the decision is unsurprising overall, but the one unexpected element is the court pointing out that this case is the first instance the USPTO has sought its attorney fees under Section 145. The USPTO has evidently not had trouble paying its attorney fees over the years, but he said it’s slightly surprising the court decided to point it out because it’s outside the rest of the analysis.

In the opinion, Sotomayor acknowledged the term “expenses” doesn’t provide much guidance about what it includes. But she wrote the context of the rest of Section 145 supports excluding attorney fees and gave a linguistics lesson in explanation, tracing the Latin roots of the phrase “expenses in the proceeding” to make a point that the term “has long referred to a class of expenses commonly recovered in litigation to which attorney’s fees did not traditionally belong,” she wrote. 

Sotomayor added that the statute says applicants have to pay “all” the USPTO’s expenses doesn’t expand the term to include attorney fees because the modifier can’t make the word include something it wouldn’t otherwise. 

Posthumus said the decision likely will affect trademark law as well, at least for now. The Lanham Act has an analogous section to the Patent Act’s 145 for trademarks, and a 2015 decision from the 4rth Circuit Court of Appeals, in Shammas v. Focarino, interpreted “expenses” to include attorney fees. He said the split between that court and the Federal Circuit is probably why the Supreme Court took NantKwest’s case. In oral arguments, deputy solicitor general Malcolm Stewart said he assumed “the government’s position on those two statutes will rise or fall together.”

“I have little doubt that the U.S. Patent and Trademark Office will recognize that and voluntary withdraw those demands [for attorney fees] in trademark cases,” Posthumus said. “And I would expect them to make some type of announcement at some point to make that official PTO policy. … You look at the statutory language, and there’s really no opportunity to distinguish the two.”

But Posthumus said he believes the NantKwest decision purposely avoids mentioning the Shammas case. Although the NantKwest decision seems to overrule the holding in Shammas, the Supreme Court has accepted another case that could revisit the issue in trademark law. 

The company Booking.com has appealed a denial for being too generic to register its name as a trademark. The 4th Circuit Court of Appeals upheld a $50,000 attorney fee award to the USPTO in light of the Shammas case. 

 —Julia Cardi

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