On 27 July 2018 the Federal Circuit, sitting en banc in Nantkwest, Inc v Iancu (16-1794), affirmed a district court's denial of the US Patent and Trademark Office's (USPTO's) request for reimbursement of its attorneys' fees, which the USPTO had incurred in defending a district court action brought against it by a patent applicant under 35 USC § 145.
The Patent Act provides two options for patent applicants seeking judicial review of an adverse decision by the USPTO Patent Trial and Appeal Board:
- directly appealing to the Court of Appeals for the Federal Circuit under 35 USC § 141; or
- filing a civil action, pursuant to 35 USC § 145, against the director of the USPTO in a US district court.
Under the latter option, Section 145 states that all of "the expenses of the proceedings shall be paid by the applicant" (ie, even if the applicant prevails). In the 170 years since the predecessor to Section 145 was enacted, the USPTO has recovered various district court litigation expenses under Section 145 and its predecessor (eg, expenses for travel, court reporters and expert witnesses), but has never sought or received attorneys' fees. In Nantkwest, the USPTO sought to recover its attorneys' fees from a Section 145 district court case in which Nantkwest had tried, unsuccessfully, to challenge the USPTO's obviousness rejection of its patent application.
Judge Stoll authored the Federal Circuit's majority opinion, joined by Judges Newman, Lourie, Moore, O'Malley, Wallach and Taranto. The majority held that Section 145's expenses do not include attorneys' fees because:
- any statute seeking to depart from the default 'American Rule' – under which each litigant bears its own attorneys' fees, win or lose – must do so using specific and explicit language; and
- Section 145 lacks such specific and explicit language.
As to the first point, the majority held that the American Rule applies to win or lose cases such as those brought under Section 145, rejecting the USPTO's argument that the American Rule "only governs the interpretation of statutes that shift fees from a prevailing party to a losing party". In support of that argument, the USPTO relied on Shammas v Focarino, a Fourth Circuit decision holding that the American Rule did not apply to similar language from the Lanham Act. The majority rejected the Shammas decision as being inconsistent with Supreme Court precedent which has resisted the shifting of attorneys' fees.
As to the second point, the majority distinguished Section 145 from various statutes:
- authorising the award of both expenses and attorney's fees as separate recovery items; and
- explicitly defining 'expenses' to include attorneys' fees.
The majority further noted that 35 USC § 285 of the Patent Act expressly provides for recovery of attorneys' fees in exceptional cases. In comparison with those statutes, the majority concluded that the language of Section 145 is at best ambiguous as to whether expenses encompasses attorneys' fees and falls short of the specific and explicit language required to depart from the American Rule.
Judge Prost dissented, joined by Judges Dyk, Reyna and Hughes. According to the dissent, Section 145 includes attorneys' fees because it refers to all expenses, and the ordinary meaning of 'expenses' encompasses expenditures for personnel. The dissent noted that USPTO salaried employees, including its attorneys, do not bill individual hours or collect fees, and asserted that their overhead is more akin to a USPTO expense rather than a fee. The dissent also criticised the majority's reliance on Section 285, asserting that this section applies to patent litigation, whereas Section 145 applies to disputes over patent examination.
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