On June 23, 2017, the Federal Circuit held that, whether they win or lose, patent applicants who appeal adverse PTAB decisions directly to a district court must pay the PTO’s attorneys’ fees.
Patent applicants seeking judicial review of Board decisions have two options under the America Invents Act: appeal to the Federal Circuit under 35 U.S.C. § 141, or to the Eastern District of Virginia under 35 U.S.C. § 145. Appeals taken under Section 145 offer certain benefits to the applicant, such as allowing discovery and the introduction of further evidence. Section 145 also provides that applicants must pay “[a]ll the expenses of the proceeding.” When Dr. Hans Klingemann’s patent application directed to a method of treating cancer was rejected as obvious, Nantkwest, the assignee of the application, appealed under Section 145. After prevailing on the merits, the Director of the PTO moved for expert and attorneys’ fees, citing the “all expenses” provision of the statute.
The district court granted the PTO’s expert fees, but denied the requested attorneys’ fees, citing the “American Rule,” under which litigants pay their own attorneys’ fees regardless of the outcome. Though courts recognize an exception to this Rule when a statute “specific[ally]” and “explicit[ly]” authorizes an award of attorneys’ fees, the district court concluded that Section 145 did not satisfy the specificity requirement.
The Federal Circuit reversed. The Court found that the ordinary meaning of “expenses” was clear and includes attorneys’ fees. In support, the Court pointed to dictionary definitions and treatises, as well as a Supreme Court case that recognized a distinction between costs and fees, and which determined that fees include “expenses born by litigants for attorneys.” The Court rejected Nantkwest’s argument that the term “expenses” is ambiguous. According to Nantkwest, in approximately twenty other statutory provisions, Congress uses the term “expenses” to authorize attorneys’ fees either in addition to expenses, or as a component of them, demonstrating that the term can either include or exclude attorneys’ fees, depending on the statute. The Court, however, found this recitation of statutes insufficient to dislodge the reasonable and ordinary meaning of the term, stating: “At best, these examples demonstrate that Congress will not confine itself to a single word or phrase when referencing attorneys’ fees.”
Writing in dissent, Judge Stoll argued that the American Rule’s presumption against fee shifting in litigation is a “bedrock principle” that dates back more than 200 years. As such, the high bar it sets should be the starting point of the analysis. Judge Stoll found Section 145 ambiguous at best, citing contemporaneous dictionary definitions and other statutory provisions that distinguish “expenses” from “attorneys’ fees.” Further, she noted that if Section 145 were a fee-shifting statute, it diverts from the American Rule because it requires even successful plaintiffs to pay the PTO’s attorneys’ fees. Given such atypical circumstances, Judge Stoll maintained that Congress’s intent to shift fees should have been more clear. Moreover, Judge Stoll was concerned that, given the substantial fees involved, the majority’s interpretation “will likely deter applicants, particularly solo inventors and other smaller entities, from pursuing review under § 145.”
Notably, the Fourth Circuit reached the same result, though by different reasoning, in a 2015 case interpreting the almost identical “all expenses” provision in 15 U.S.C. § 1071(b)(3) of the Lanham Act, which governs appeals from the Trademark Trial and Appeal Board.