Shammas v. Focarino

Addressing the issue of attorneys’ fees in connection with a district court challenge of the U.S. Patent and Trademark Office’s (PTO’s) decision to reject a trademark registration, the U.S. Court of Appeals for the Fourth Circuit affirmed the district court’s decision and held that the trademark applicant will be liable for the PTO’s attorneys’ fees in defending that action, regardless of the evidence. Shammas v. Focarino, No. 14-1191 (4th Cir., 2015) (Niemeyer, J.)

Milo Shammas filed an application to register the trademark PROBIOTIC for fertilizer products. The PTO refused to register the trademark on the grounds that it was generic and descriptive. Under 15 U.S.C. § 1071, Shammas had two options to obtain judicial review: he could appeal to the Federal Circuit, or he could seek de novo review by a district court. Shammas chose the second option—filing a case at the district court. After the district court granted summary judgment to the PTO, it ordered Shammas to pay the PTO’s “expenses” under § 1071(b)(3), expenses that included the prorated salary of two lawyers and one paralegal from the PTO who defended the case. Shammas appealed, arguing that an award of attorneys’ fees was not authorized by the statute and contradicted the “American Rule,” which prohibits fee-shifting without explicit congressional authorization.

The Fourth Circuit affirmed the district court’s award of attorneys’ fees, holding that § 1071(b)(3) does not implicate the American Rule because it mandates the challenging litigant to pay the PTO’s expenses regardless of whether the litigant is successful in its challenge.Because the American Rule is not implicated, the court was entitled to rely on the plain meaning of the term “expenses” in determining whether Congress intended it to include attorneys’ fees. 
The Fourth Circuit then found that the plain meaning of the term “expenses” in § 1071(b)(3) included attorneys’ fees, which it reasoned were the largest expense the PTO incurred in defending such proceedings. The Court explained that the alternatives that § 1071 provides to an applicant challenging the PTO’s decision—either filing an appeal to the U.S. Court of Appeals for the Federal Circuit or initiating a de novo proceeding in district court—supported its interpretation. Whereas an appeal to the Federal Circuit was limited to the record before the PTO and accorded deference to the PTO’s decision, a proceeding before a district court permitted the applicant to introduce new evidence and called for the court’s de novo review, thus putting an uncommonly large burden on the PTO. According to the Court, § 1071(b)(3) is “intended as a straightforward funding provision, designed to relieve the PTO of the financial burden that results from an applicant’s election to pursue the more expensive district court litigation.” 

In dicta, the Fourth Circuit strongly suggested that it would interpret the analogous provision of the Patent Act, 35 U.S.C. § 145, the same way, and thus would require patent applicants who challenge the PTO’s decision in district court to compensate the PTO for attorneys’ fees incurred in that proceeding.

Practice Note: Although under the America Invents Act there are fewer situations where a patent appeal might end up in a district court, the Fourth Circuit’s decision still has significant implications for both trademark and patent applicants who wish to challenge the PTO’s decision in an ex parte proceeding (where such review is available), and is likely to lead to fewer district court challenges by disappointed applicants. The requirement of paying the PTO’s attorneys’ fees, win or lose, mitigates against a district court proceeding unless there is a pressing need to introduce additional evidence that was not in the record, and the trademark or patent registration sought is of significant importance.