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On 11 December 2019 the Supreme Court unanimously ruled in Peter v NantKwest, Inc (18-801) that the US Patent and Trademark Office (USPTO) cannot shift the fees of its attorneys and paralegals to litigants in district court proceedings brought under Title 35, Section 145 of the US Code.
The Patent Act provides two pathways for patent applicants to appeal USPTO rejections in the federal courts:
- Title 35, Section 141 of the US Code allows applicants to appeal directly to the Federal Circuit but does not allow them to present new evidence.
- Title 35, Section 145 allows applicants to first appeal to the District Court for the Eastern District of Virginia and present new evidence there. However, Section 145 also requires applicants to pay all of the expenses of the proceedings.
In the Section 145 litigation underlying Peter v NantKwest, Inc, the USPTO moved the district court for reimbursement of expenses that included – for the first time in the 170-year history of Section 145 – the pro rata salaries of attorneys and a paralegal who had worked on the case. The district court denied the motion. On appeal, a divided Federal Circuit panel reversed, but the en banc Federal Circuit reversed the panel, holding that the USPTO could not recover attorneys' fees under Section 145.
In a decision by Justice Sotomayor, the Supreme Court affirmed the en banc Federal Circuit decision. Sotomayor explained that, under the centuries-old presumption commonly known as the 'American rule', each litigant pays its own attorneys' fees "win or lose, unless a statute or contract provides otherwise". Sotomayor rejected the USPTO's argument that the American rule did not apply to Section 145 because that statute does not award attorneys' fees to the prevailing party. According to Sotomayor, "[t]his Court has never suggested that any statute is exempt from the presumption against fee shifting", including those that do not explicitly award attorneys' fees to prevailing parties.
Sotomayor explained that "in common statutory usage, the term 'expenses' alone has never been considered to authorize an award of attorney's fees with sufficient clarity to overcome the American Rule presumption". In that regard, she noted that the term 'expenses of the proceedings' in Section 145 "is similar to the Latin expensæ litis, or 'expenses of the litigation.' This term has long referred to a class of expenses commonly recovered in litigation to which attorney's fees did not traditionally belong". Sotomayor also noted that the fact "that 'expenses' and 'attorney's fees' appear in tandem across various statutes shifting litigation costs indicates that Congress understands the two terms to be distinct and not inclusive of each other".
Last, Sotomayor asserted that "the Patent Act's history reinforces that Congress did not intend to shift fees in §145 actions", observing that until now the USPTO had never sought its attorneys' fees under Section 145 and that, "[i]n later years, when Congress intended to provide for attorney's fees in the Patent Act, it stated so explicitly". For example, Title 35, Section 285 of the US Code states that "[t]he court in exceptional cases may award reasonable attorney fees to the prevailing party".