In a unanimous decision authored by Justice Sotomayor, the Supreme Court of the United States held that the US Patent and Trademark Office (PTO) is not entitled to recover its attorney’s fees in an appeal to a district court from an adverse decision of the Patent Trial and Appeal Board (PTAB) under 35 USC § 145. Peter v. NantKwest, Inc., Case No. 18-801 (Supr. Ct. Dec. 11, 2019) (Sotomayor, Justice).
The question posed in this case was:
[W]hether such “expenses” [in § 145 proceedings] include the salaries of attorney and paralegal employees of the United States Patent and Trademark Office (PTO).
The answer was a resounding “no.”
The Patent Act provides two options to patent applicants for judicial review of an adverse PTAB decision. The applicant may appeal directly to the US Court of Appeals for the Federal Circuit under 35 USC § 141, in which case “[the court] shall review the decision from which an appeal is taken on the record before the [PTO],” 35 USC § 144. Alternatively, the applicant may file a civil action against the director of the PTO in the Eastern District of Virginia under 35 USC § 145, in which case the applicant may present additional evidence. If the applicant elects to bring such an action, § 145 provides that “[a]ll the expenses of the proceedings shall be paid by the applicant.”
The en banc Federal Circuit previously reversed a divided Federal Circuit panel decision and held that § 145 does not require applicants to pay the PTO’s attorney’s fees in the form of a pro rata share of the PTO personnel’s salaries. NantKwest, Inc. v. Iancu (IP Update, Vol. 21, No. 8).
In its en banc decision, the Federal Circuit found that “the American Rule prohibits courts from shifting attorneys’ fees from one party to another absent a ‘specific and explicit’ directive from Congress.” The Federal Circuit held that the phrase “[a]ll the expenses of the proceedings” falls short of this stringent standard.
However, in a previous case interpreting a similar provision of the Lanham Act, 15 USC § 1071(b)(3) (relating to appeals to the Eastern District of Virginia from a Trademark Trial and Appeal Board decision denying a trademark application), the US Court of Appeals for the Fourth Circuit held that § 1071(b)(3) does require a trademark applicant to pay the pro rata share of the PTO’s personnel expenses in defending the trademark action, win or lose. Shammas v. Focarino (IP Update, Vol. 18, No. 5).
The Supreme Court’s Decision
The Supreme Court resolved the question in favor of patent applicants, adopting the view of the Federal Circuit’s en banc decision that attorney’s fees are not encompassed in the phrase “[a]ll the expenses of the proceedings” in § 145. The Supreme Court agreed with the Federal Circuit that the “American Rule” is a bedrock principle that “[e]ach litigant pays its own attorney’s fees, win or lose, unless a statute or contract provides otherwise,” and provides a starting point for assessing whether § 145 authorizes payment of the PTO’s legal fees.
The Supreme Court emphasized that it has never suggested that any statute is exempt from the presumption against fee shifting or limited its American Rule inquiries to prevailing party statutes. The Supreme Court stated that it instead has developed a line of precedents addressing statutory deviations from the American Rule that do not limit attorney’s fees awards to prevailing parties. The Court also stated that the presumption against fee shifting was particularly important in this case because reading § 145 to permit an unsuccessful government agency to recover attorney’s fees from a prevailing party “would be a radical departure from longstanding fee-shifting principles adhered to in a wide range of contexts.”
The Supreme Court concluded that § 145’s plain text does not overcome the American Rule’s presumption against fee shifting, stating that definitions of “expenses,” while broad enough to include attorney’s fees, provided little guidance. Mere failure to foreclose a fee award “neither specifically nor explicitly authorizes courts to shift [fees].” Rather, the Supreme Court explained that the complete phrase “expenses of the proceeding” would not have been commonly understood to include attorney’s fees at the time § 145 was enacted. The Court also found that the modifier “all” did not transform “expenses” to reach an outlay that it would not otherwise include.
The Supreme Court also noted 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’s presumption. The Court stated that the appearance of “expenses” and “attorney’s fees” together across various statutes indicates that Congress understands the terms to be distinct and not inclusive of each other. Other statutes that refer to attorney’s fees as a subset of expenses show only that “expenses” can include attorney’s fees when so defined. The Court also stated that its precedent did not support the government’s position that the Court has used “expenses” to mean “attorney’s fees.”
Justice Sotomayor also noted that the Patent Act’s history reinforces that Congress did not intend to shift attorney’s fees in § 145 actions, and that there was no evidence that the PTO ever paid its personnel from sums collected from adverse parties. The Court also found that until this litigation, the PTO had never sought its attorney’s fees under § 145. The Court concluded that when Congress intended to provide for attorney’s fees in the Patent Act, it stated so explicitly, citing as an example 35 USC § 285.