​USPTO May Not Collect Attorneys’ Fees in Section 145 Actions​

The U.S. Patent and Trademark Office is not entitled to an award of attorneys' fees under the statutory language in 35 U.S.C. 145 stating that "[a]ll the expenses of the proceedings shall be paid by the applicant," the en banc Federal Circuit held July 27, 2018 in a 7-4 decision.  Nantkwest, Inc. v. Iancu, Fed. Cir., No. 16-1794, 7/27/2018.

According to an opinion written by Judge Stoll, the American Rule prohibits courts from shifting attorneys’ fees from one party to another absent a “specific and explicit” directive from Congress. The statutory phrase “[a]ll the expenses of the proceedings” falls short of this stringent standard, she explained.

Background

The USPTO in 2010 rejected a patent application directed to a method of treating cancer for obviousness, and the Patent Trial and Appeal Board affirmed that decision in 2013. The applicant sought review in the district court under 35 U.S.C. §145, and the district court issued a summary judgment for the Office.  The Office then moved for reimbursement of the expenses of the proceeding under Section 145, which included more than $78,000 in attorneys’ fees. 

The district court denied the reimbursement as to the attorneys’ fees, citing the American rule, which provided that “[e]ach litigant pays his or her attorney’s fees, win or lose.”  On appeal, a Federal Circuit panel reversed the district court in a 2-1 ruling, and that decision was subsequently ordered for review sua sponte by the en banc Federal Circuit.

American Rule Applies Even If Statute Does Not Mention “Prevailing Party”

The USPTO argued that the American Rule is inapplicable here because Section 145 is not a fee shifting statute.  It cited the Fourth Circuit’s decision in Shammas v. Focarino, 784 F. 3d 219 (4th Cir. 2015), which interpreted virtually identical language in the trademark statute (15 U.S.C. 1071(b)(3)).  According to Shammas, the American Rule is applicable only to shifting of attorney fees from a “prevailing” party to a losing party, whereas the patent and trademark texts require applicants to pay fees win or lose.  The USPTO argued that since Section 145 imposes “all expenses” on the applicant, win or lose, it is not a fee shifting statute.

The Federal Circuit rejected the argument, observing that the absence of a “prevailing party” requirement does not render the American Rule inapplicable to the fee shifting inquiry.  

Section 145 Does Not Displace American Rule

Because it is a common law doctrine, Congress can overcome the American Rule with specific and explicit statutory provisions allowing attorney fee awards, Judge Stoll wrote, adding however that no “magic words” are required. 

In examining the word “expenses,” the Court referred to dictionary definitions contemporaneous with the 1839 enactment of this language in the predecessor to Section 145. The definitions are vague, Judge Stoll observed, and fail to establish that a statutory right to “expenses” includes an implicit authorization to award attorney’s fees. The better authority is Congress’s use of the terms “expenses” and “attorneys’ fees” in other statutes, which demonstrate Congress’s understanding that the ordinary meaning of “expenses” does not include attorneys’ fees, the Court found. 

Statutes awarding both expenses and attorneys’ fees suggest that Congress viewed them as distinct tools in its toolbox of recovery items that can be shifted at its discretion to accomplish a policy objective. If “expenses” necessarily included “attorneys’ fees,” the numerous statutes providing for both would have superfluous words and, as a general rule, courts should “avoid an interpretation of a statute that ‘renders some words altogether redundant.’” 

Likewise, Congress would have no reason to permit the recovery of “expenses”—and then specify whether it included “attorneys’ fees”—if the former always encompassed the latter. To us, the logical implication of Congress’s prior usage is that “attorneys’ fees” are not even ordinarily, let alone necessarily, included in “expenses” absent an express expansion of “expenses” to include “attorneys’ fees.” At best, whether “expenses” includes “attorneys’ fees” is ambiguous. But ambiguity cannot satisfy the exacting standard erected by the American Rule for shifting attorneys’ fees.

The existence of several Patent Act provisions awarding “attorneys’ fees” demonstrates Congress’s use of “specific and explicit” language in the Patent Act to shift fees when it so desired, Judge Stoll wrote, adding “we are aware of no statute that requires a private litigant to pay the government’s attorneys’ fees without regard to the party’s success in the litigation.”  The Court declined to “invade the legislature’s province by redistributing litigation costs” in a way that would create such an anomalous statute here.

Dissenting Opinion

Judge Prost wrote a dissenting opinion, joined by Judges Dyk, Reyna and Hughes, arguing that the text of Section 145 displaces the American Rule. She cited case law where attorneys’ fees were recognized as encompassed by expenses and costs.  According to Judge Prost, the majority has transformed the statute requiring the payment of “[a]ll the expenses” to one demanding reimbursement for only “some” of the expenses. She also relied on the legislative history of Section 145, and the unfair burden on other applicants that is caused by the costs shouldered by the USPTO in Section 145 proceedings.

This decision was consistent with AIPLA's amicus brief.