In a unanimous ruling on Dec. 11, 2019, the U.S. Supreme Court (the Court) in Peter v. Nantkwest, Inc., Case No. 18-801, struck down a U.S. Patent and Trademark Office (USPTO) policy regarding the recoupment of its legal fees in civil actions that challenge patent application refusals. Specifically, Section 145 of the Patent Act provides patent applicants the option to commence a civil action against the USPTO director as a way to challenge the USPTO’s refusal of a patent application. In such actions, the applicant must pay “[a]ll the expenses of the proceedings …” 35 U.S.C. § 145.

In 2013, the USPTO implemented a policy to seek recovery in Section 145 actions of expenses related to the salaries of the USPTO attorneys and paralegals who worked on the respective actions. The USPTO implemented this policy, regardless of whether the applicant or the USPTO prevailed in the case. It reasoned that such recovery was permissive under the ordinary meaning of “expenses” under Section 145.

In an opinion authored by Justice Sotomayor, the Court rejected the USPTO’s interpretation of Section 145. The Court held that the language of Section 145 will not be read as a departure from the “American Rule,” which provides that litigants must pay for their own attorneys’ fees absent a statutory or contractual exception. The Court determined that Congress did not intend to depart from the American Rule presumption when enacting Section 145, reasoning, in part, that “expenses” in Section 145 “does not invoke attorney’s fees with the kind of ‘clarity we have required to deviate from the American Rule.’” The Court also reviewed the Patent Act’s history to reaffirm its view that Section 145 does not specifically or explicitly authorize the USPTO to recoup its attorneys’ or paralegals’ salaries in Section 145 actions.

Indeed, Section 1071 of the Trademark (Lanham) Act also provides for similar civil actions when challenging refused trademark applications, and that section also provides that “all the expenses of the proceeding shall be paid by the party bringing the case, whether the final decision is in favor of such party or not.” 15 U.S.C. § 1071(b)(3). Since 2013, the USPTO has likewise interpreted “all of the expenses” in trademark actions to include legal personnel’s salaries. While the Court’s decision did not address the Lanham Act provision, it very likely will affect the USPTO’s policy in seeking to recover attorneys’ and paralegals’ salaries in current and future trademark civil actions.