NantKwest, Inc. v. Iancu, No. 2016-1794 (Fed Cir. July 27, 2018)

The en banc Federal Circuit held that applicants challenging the denial of a patent application in the district court are not required to pay the U.S. Patent and Trademark Office’s (PTO) attorneys’ fees.

Section 145 of the Patent Act permits patent applicants to challenge the denial of an application by civil action in the Eastern District of Virginia. Applicants must pay “[a]ll the expenses of the proceedings.” 35 U.S.C. § 145. Historically, the PTO has relied on the statutory language to recover, among other things, attorneys’ travel and printing expenses. It has not previously sought attorneys’ fees. But after successfully defending the rejection of a cancer-treatment-method patent sought by NantKwest, the PTO moved to recover its attorneys’ fees pursuant to 35 U.S.C. § 145. 

The district court denied the request, based on the American Rule, which provides that each litigant pays his or her own expenses, win or lose. Where the American Rule applies, it may only be displaced by Congress’s “specific and explicit” direction. Alyeska Pipeline Serv. Co. v. Wilderness Soc’y, 421 U.S. 240, 260-62 (1975). On appeal, a Federal Circuit panel reversed the district court, holding that Section 145 contained just such a direction from Congress in its categorical award of “expenses” to the PTO.

Rehearing the case en banc, the Federal Circuit held, first, that the American Rule applied “broadly to any statute that allows fee shifting to either party” and therefore applied to Section 145. The Federal Circuit rejected the PTO’s argument that only the words “prevailing party” in a fee-shifting statute would trigger application of the American Rule.

Second, the Federal Circuit determined that Congress’s use of “expenses” in Section 145 was not a direct reference to attorneys’ fees that would displace the American Rule. The court concluded from its reading of contemporaneous statutes that Congress “understood the ‘ordinary, contemporary, common meaning’ of ‘expenses’ as being something other than ‘attorneys’ fees’ unless expressly specified.” The court rejected the Fourth Circuit’s holding in Shammas v. Focarino, which addressed an analog to § 145 in the Lanham Act by concluding that it could not be squared with Supreme Court precedent.

Four judges dissented, perceiving an unnecessary circuit split in the majority’s repudiation of Shammas.

A copy of the opinion can be found here