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3 Things to Watch with USPTO Fee Rule Before SCOTUS

October 4, 2019 | Posted in : Articles, Expenses / Costs, Fee Doctrine / Theory, Fee Entitlement, Fee Issues on Appeal, Fee Jurisprudence, Fee Shifting, Legal Bills / Legal Costs

A recent Law 360 article by Bill Donahue, “3 Things to Watch as USPTO’s Fee Rules Hits the High Court, reports on the USPTO attorney fee rule that's before the U.S. Supreme Court.  The article reads:

With the U.S. Supreme Court set to hear arguments over the U.S. Patent and Trademark Office's controversial policy on attorney fees, Law360 asked legal experts what they’re expecting to hear from the justices.  The case, Peter v. NantKwest, will determine the legality of an unusual USPTO policy that demands reimbursement of the agency’s attorney fees in certain types of appellate proceedings — regardless of whether or not it wins the case.

The USPTO has argued that the tactic, first rolled out in 2013, is necessary to pay for a more expensive appellate option, but critics say it will harm small businesses and individual inventors who can’t afford to automatically pay the agency’s legal bills.  Lower appeals courts have split on whether the policy violates the so-called American Rule — a deep-rooted doctrine that says litigants must pay their own expenses unless Congress expressly says otherwise.

After the Federal Circuit struck down the policy last year in a case filed by the drugmaker NantKwest, the USPTO appealed to the high court, which agreed to hear the case in March.  With oral arguments set for Monday morning, here are three big issues that experts who have been tracking the case say they’ll be watching.

American Rule

One major factor to watch is the extent to which the justices focus on big questions about the American Rule and public policy or on narrow questions about exact statutory language.  The USPTO's fee policy is rooted in a novel interpretation of so-called de novo appeals — a longer and more fact-intensive route that allows a dissatisfied patent or trademark applicant to appeal to a district court rather than simply asking the Federal Circuit to review a refusal on the existing record.

At issue at the high court?  Language included in both the Patent Act and the Lanham Act that says applicants who choose the de novo route must reimburse "all expenses of the proceeding."  Crucially, that requirement applies regardless of whether an applicant wins or loses its appeal.

For decades, the USPTO interpreted that language to mean relatively minor expenses, like travel costs and expert fees.  But that changed in 2013, when the USPTO started demanding that applicants reimburse the substantially larger cost of the salaries paid to agency attorneys.  Whether that reinterpretation is legal has split the circuits courts.

In the current case against NantKwest, the Federal Circuit ruled that the policy violates the American Rule, saying that Congress did give the agency clear authority to win such fees.  But in a separate trademark case, the Fourth Circuit refused to apply the American Rule, and instead simply held that the definition of “all expenses” could reasonably include salaries paid to agency lawyers.

Experts will be watching whether the justices seem to be focusing, like the Federal Circuit did, on the bigger question of the American Rule or whether they merely want to analyze what “all expenses” means.  “If questions from the bench refer to the American Rule, it may mean the court views the government’s case skeptically,” said Theodore H. Davis, an attorney Kilpatrick Townsend & Stockton LLP who penned an amicus brief against the USPTO for the American Bar Association.  “But if the court zeros in on the definition of the word ‘expenses,’ that may suggest it’s leaning toward a reversal or a vacatur,” Davis said.

Across the Aisle

The challenge to the USPTO’s fee policy presents arguments that experts say could resonate on with both ideological wings of the high court.  Much of the criticism of the agency’s policy has been centered on the idea that it would limit access to justice for applicants with fewer resources.  The ABA said the rule means that applicants' “wealth would determine their access to the pathway to justice provided by Congress.”  The International Trademark Association warned that it would make de novo appeal unavailable “for all but the wealthiest applicants.”

Those policy arguments could strike a chord with the court’s liberal members, experts say.  “The more liberal justices may focus on the fact that fee-shifting creates an access to justice problem,” said Dyan Finguerra-DuCharme, an attorney at Pryor Cashman LLP.  “Those with less money will hesitate to pursue legitimate claims by civil action.”

For the conservatives, an abrupt about-face by a federal administrative agency that results in foisting large legal bills onto private companies might not sit well.  “I am particularly looking forward to the questions that Justices Neil Gorsuch and Brett Kavanaugh present to the parties,” said William Atkins, an attorney at Pillsbury Winthrop Shaw Pittman LLP who wrote an amicus brief against the USPTO for the Federal Circuit Bar Association.  “The views of administrative law may be on full display.”

Dissenting Voice

Ahead of arguments, the amicus briefs filed in the case have largely been one-sided, with almost all of them asking the court to strike down USPTO’s policy.  But one outside group, a conservative think tank called the R Street Institute, is pressing the court to uphold the agency’s interpretation.  According to R Street, administrative procedures at the USPTO for rejected patent applications largely replicate the advantages of a de novo appeal for a fraction of the cost, eliminating much of the “access to justice” policy arguments against the fee rule.

The real advantage of de novo appeals, according to R Street, is that they can be exploited to give “well-financed applicants” in the pharmaceutical industry extra time on the back end of a patent term.  Under separate provisions of the Patent Act, time spent litigating a de novo case is tacked onto the term.  For Charles Duan, the attorney at R Street who penned the group’s brief, the extent to which that argument gains traction with the justices will be another element to watch.