Do "Expenses" Include the PTO's Attorney's Fees in a New Civil Action Filed to Challenge the PTO's REfusal of an Application

On October 7, 2019, the Supreme Court heard oral arguments in Peter v. Nantkwest, Inc., Case No. 18-801.  This case addresses the question of whether an applicant must pay the attorney’s fees incurred by the Patent and Trademark Office (“PTO”) in defending against a civil action to challenge the PTO’s refusal of an application to register a patent or trademark – whether the applicant prevails in the action or not.  The Fourth Circuit and the Federal Circuit decided this issue differently, thus creating a Circuit split that the Supreme Court needed to resolve.

When an application for a trademark or patent is refused by the PTO in a final decision, the applicant has two options to challenge such refusal.  Under the first or “standard appeal” option, the applicant can appeal the PTO’s refusal of an application directly to the United States Federal Circuit Court of Appeals.  See 35 U.S.C. § 141 (patent); 15 U.S.C. § 1071(a)(1) (trademark).  Under the second or “trial” option, the applicant can file a new civil action in United States District Court for a trial to decide if a patent or trademark should issue from an application.  See 35 U.S.C. § 145 (patent); 15 U.S.C. § 1071(b)(1) (trademark).  Under the standard appeal option, each party normally bears its own attorney’s fees.  However, under 35 U.S.C. § 145, which governs the trial option for refused patent applications, “All the expenses of the proceedings shall be paid by the applicant.”  Similarly, 15 U.S.C. § 1071(b)(3), which applies to the trial option for refused trademark applications, provides that “all of 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.”

For 170 years, the PTO did not attempt to recover “attorney’s fees” as part of the recoverable “expenses” in a civil action challenging the PTO’s refusal of a patent application.  Instead, the PTO only sought to recover other types of expenses under 35 U.S.C. § 145 (or its predecessor statute), including travel expenses, lodging expenses, court reporter expenses, printing expenses, and, more recently, expert witness expenses.  In the same way, for more than sixty years after the Lanham Act was adopted in 1946, the PTO did not seek to recover “attorney’s fees” as part of recoverable expenses under 15 U.S.C. § 1071(b)(3).  However, beginning in 2013, the PTO changed its policy and began claiming that “attorney’s fees” were part of the “expenses” to which it was entitled under these statutes.

In Shammas v. Focarino, 784 F.3d 219 (4^th Cir. 2015), an unsuccessful trademark applicant challenged the PTO’s claim to attorney’s fees incurred in defending against a civil action brought under 15 U.S.C. § 1071(b)(1).  However, the Fourth Circuit sided with the PTO and found that the term “expenses” in § 1071(b)(3) does include “attorney’s fees.”  Thus, according to the Fourth Circuit, whether the trademark applicant wins or loses, § 1071(b)(3) “requires a dissatisfied ex parte trademark applicant who chooses to file an action in a district court challenging the final decision of the PTO, to pay, as ‘all expenses of the proceeding,’ the salaries of the PTO’s attorneys and paralegals attributed to the defense of the action.”  Shammas,  784 F.3d at 227.

In contrast, in Nantkwest, Inc. v. Iancu, 898 F.3d 1177 (Fed Cir. 2018), the Federal Circuit sided with the applicant on the “expenses” issue in a civil action to challenge the PTO’s refusal of a patent application brought under 35 U.S.C. § 145, and held that the term “expenses” does not include “attorney’s fees.”  As explained by the Federal Circuit:

The general rule in the United States is that each party pays for its own attorneys.  To deviate from the status quo embodied in the American Rule, Congress must draft legislation – “specific and explicit” legislation – demonstrating its intent to make the award of attorneys’ fees available under that statute.  Awarding “[a]ll the expenses” simply cannot supply the “specific and explicit” directive from Congress to shift attorneys’ fees, and nothing else in the statute evinces congressional intent to make them available.  Other than Shammas’s interpretation of the trademark analogue, we are not aware of any statute requiring a private litigant to pay the government’s attorneys’ fees without regard to the party’s success in the litigation.  We are unwilling to “invade the legislature’s province by redistributing litigation cost” in a way that would create such an anomalous statute here.

Nantkwest, 898 F.3d at 1196.

During oral argument on October 7, the Supreme Court appeared to be very skeptical of the government’s position that the applicant should pay the PTO’s attorney’s fees, regardless of whether the applicant was successful or not. For example, if the term “expenses” is interpreted to include the PTO’s personnel expenses, Justice Gorsuch wondered, “Is there anything that would inhibit the government from suggesting that other forms of overhead might also be allocated to litigants?  The electric bill? The sewage bill?”  Nantkwest Transcript, at 8.  Justice Kavanagh inquired, “[W]hat sense does it make to think that Congress wanted the winning party to turn around and pay the government’s legal fees, given how unusual that is?”  Nantkwest Transcript, at 24.

Several of the Justices also emphasized the fact that the PTO did not try to collect “attorney’s fees” under the patent statute at issue for over 170 years:

Justice Breyer:  You do have that interpretation through action by the agency itself over the period of 190 years or something.

. . .

Justice Sotomayor:  But we do have a doctrine, the American Rule, that says that unless a clear statement of attorneys’ fees is encompassed, we won’t impose them.  So for 170 years the PTO didn’t think of expenses, including attorneys’ fees.  Very consistent with the American Rule.

Nantkwest Transcript, at 48.

Based on the tenor of the Court’s questions, it appears likely that the Court will affirm the Federal Circuit’s finding that the term “expenses” does not include “attorney’s fees,” and overrule the Fourth Circuit’s finding to the contrary.  As a result, once a decision issues, it is likely that an unsuccessful applicant will not have to pay for the PTO’s attorney’s fees if the applicant brings a new civil action to challenge the PTO’s refusal of a trademark or patent application.  The Court will issue its decision during its 2019-20 term.

For more information on PTO attorney fees, contact your Intellectual Property Counsel at Smith, Gambrell & Russell.

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