Are Patent Office attorney fees awardable under Section 145?

OT19

On Monday, the U.S. Supreme Court granted certiorari to review the question of whether applicants who have appealed the decision of the U.S. Patent and Trademark Office in a district court proceeding are required to pay the PTO's attorney fees. Iancu v. NantKwest Inc., 18-801, will resolve a circuit split between the U.S. Courts of Appeals for the Federal Circuit and the 4th Circuit regarding their interpretations of a nearly identical statute involving attorney fees to be paid by applicants who appeal the decisions of patent and trademark examiners in district court proceedings.

NantKwest involves an invention on a method for treating cancer assigned to biotech company NantKWest, whose patent application was rejected by the PTO on the grounds that the invention was obvious. NantKWest appealed the PTO's rejection by filing a lawsuit in the U.S. District Court for the Eastern District of Virginia. This little-used procedure for pursuing an appeal is permitted by the Patent Act. 35 U.S.C. Section 145. Filing such a lawsuit has distinct advantages over regular appeals to the Federal Circuit, including the ability to take discovery, call witnesses and experts, and cross examine the PTO's witnesses at trial.

The advantages of a live trial were not enough for NantKWest, which lost its appeal of the PTO's rejection of its patent application. The PTO then filed a motion seeking its attorney fees under Section 145, which requires that "[a]ll the expenses of the proceedings shall be paid by the applicant." Historically, however, this language has been applied to recover only travel, printing costs and, more recently, expert witness fees. In NantKWest, the PTO argued that its attorney fees were also "expenses," and it calculated those fees based on the roughly $100 per hour that it paid its employees for the time they spent on the trial.

The district court granted the PTO's request for expert-witness fees but denied its request for reimbursement of attorney fees. On appeal, a divided panel of the Federal Circuit reversed. The panel majority held that Section 145 "authorizes an award of fees" because the PTO's "expenses" included attorney fees. Acting sua sponte, however, the Federal Circuit vacated the panel decision and held in a 7-4 en banc decision that the term "expenses" in Section 145 does not encompass the PTO's "attorneys' fees."

A majority of the en banc majority held that under the "American Rule," each litigant must pay its own attorney fees, win or lose, and that to deviate from the American Rule Congress must draft "specific and explicit" legislation demonstrating its intent. The majority noted that a version of Section 145 had existed for more than 170 years, and in each version, Congress had required the patent applicant to bear the expenses of the proceedings, but the PTO had never before argued that this meant attorney fees. And Congress, in the meantime, amended the patent laws numerous times, including to specifically provide for the recovery of attorney fees when it wanted to, i.e., "reasonable attorneys' fees to the prevailing party" in exceptional patent infringement litigation.

The Federal Circuit's Chief Judge Sharon Prost dissented, joined by three other judges, arguing that the majority's opinion created an "an unfortunate and unnecessary conflict between the circuits." In Shammas v. Focarino, a 2015 decision, the 4th Circuit decided that an almost identical statute in the Lanham Act requires trademark applicants to pay the PTO's attorney fees when they file district court actions to review a trademark examiner's decision. The dissenters also noted that Congress' American Invents Act amendments made the PTO an entirely user-funded agency. Unless "all expenses" is interpreted to include attorney fees, they noted, the costs of expensive district court challenges will be paid by applicants who do not use or benefit from these proceedings.

It was not surprising that the Supreme Court would agree to resolve the circuit split between the 4th Circuit and Federal Circuit on what "all expenses" means. The court resolved another circuit split involving attorney fees in January. In Culbertson v. Berryhill, 2019 DJDAR 151, the court held that an attorney fee cap of 25 percent of past-due Social Security benefits set by the Social Security Act applied only to court representation, not to proceedings before the agency itself. But if the court were to agree with the PTO in NantKwest that "all expenses" includes the salaries of PTO attorneys, it would effectively make these proceedings unavailable to small companies and individual inventors. That's because, win or lose, they would have to pay for the salaries of the PTO employees who disagreed that they were entitled to a patent. This would not only be a blow to the American Rule, but also could also be seen by the court's new conservative justices, Neil Gorsuch and Brett Kavanaugh, as an overreach by an administrative agency that has run amok.