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Category: Fee Doctrine / Theory

ABA Calls USPTO Attorney Fee Rule ‘Radical’

July 22, 2019

A recent Law 360 story by Bill Donahue, “ABA Rips USPTO Attorney Fee Rule as ‘Radical’,” reports that the American Bar Association asked the U.S. Supreme Court to strike down the U.S. Patent and Trademark Office's "radical" and "unprecedented" policy of seeking attorney fees regardless of the outcome of a case.  In an amicus brief, the ABA told the justices that the fees policy — rooted in reinterpretation of a century-old statute — was clearly not what Congress had in mind when it authorized USPTO to recoup “all expenses” after certain types of appeals.

“Congress does not hide elephants in mouseholes,” the group wrote.  “Here, it did not hide an unprecedented government-only, regardless-of-outcome, attorney-fee-shifting intent in the word ‘expenses.’”  The filing came in the closely watched case of Iancu v. NantKwest, which will determine the legality of the USPTO’s fee policy.  Federal appeals courts have split on whether the fee policy violates the American Rule, a doctrine that says litigants must pay their own expenses unless Congress expressly says otherwise.

First rolled out in 2013, 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.  Crucially, both the Patent Act and the Lanham Act say that applicants who choose the de novo appellate route must reimburse "all expenses of the proceeding," and that requirement applies regardless of whether applicants win or lose their appeals against the USPTO.

For decades, the agency interpreted that language to mean relatively minor expenses, like travel costs and expert fees.  But that changed in 2013, when USPTO started demanding that applicants reimburse the substantially larger cost of the salaries paid to agency attorneys.  That figure can be tens of thousands of dollars, and the agency has sought — and won — such fees even when it loses a case.

The USPTO has argued that the change was justified to pay for a more expensive type of appellate process, but critics say the rule will make the de novo appeals too expensive for all but the wealthiest patent and trademark applicants.  In the filing, the ABA echoed those access-to-justice concerns, saying the policy would have the “intolerable results."

“The PTO’s interpretation would mean that applicants’ wealth would determine their access to the pathway to justice provided by Congress,” the group wrote.  “Those benefits would remain open to large corporations and affluent individuals able to shoulder the burden of paying for the government’s lawyers.”

IP Group: USPTO’s ‘Peculiar’ Attorney Fee Rule Hurts Inventors

June 27, 2019

A recent Law 360 story by Bill Donahue, “USPTO’s ‘Peculiar Fee Rule Hurts Inventors, IP Attys Say,” reports that a prominent group of intellectual property attorneys is urging the U.S. Supreme Court to strike down the U.S. Patent and Trademark Office's controversial policy of seeking attorney fees regardless of the outcome of a case, warning it will “penalize emerging inventors.”  The amicus brief, filed by the New York Intellectual Property Law Association, came three months after the justices granted certiorari in Iancu v. NantKwest, a case that will decide whether the policy runs afoul of the so-called American Rule that litigants must typically pay their own legal fees.

In the brief, the NYIPLA sharply criticized the USPTO’s fee rule as “a rather peculiar circumstance where the government is seeking to recoup the salaries of its staff attorneys and paralegals from an adversary.”  And the new rule, the group warned the justices, will have a “chilling effect” on patent applicants.

“Allowing the [USPTO]’s interpretation … to stand would penalize parties for merely commencing a lawsuit to such a degree that many parties of limited means simply could not have their statutorily granted day in court,” the group wrote.  “This would particularly penalize emerging inventors and entrepreneurs seeking to file innovative patents.”

The NYIPLA is the latest outside group to criticize the USPTO’s policy.  The American Bar Association and other IP-focused bar associations have also urged courts to overturn the rule.

The controversy is rooted in language in both the Patent Act and the Lanham Act that says unsuccessful applicants who file a so-called de novo appeal to a district court — as opposed to a more streamlined record appeal directly to the Federal Circuit — must pay "all expenses of the proceeding."  But for decades, the USPTO interpreted that language to mean relatively minor expenses, like travel costs and expert fees.  That changed in 2013, when the agency started seeking the substantially larger attorney fees.

The USPTO says the change was justified to pay for a more expensive type of case, but critics say the policy violates the American Rule, a doctrine that says litigants must pay their own expenses unless Congress expressly says otherwise.  Critics say the "all expenses” language is not that kind of explicit authorization.

The NYIPLA echoed that argument — pointing to the USPTO’s own longstanding approach.  “The [USPTO] itself has for over one hundred and seventy years taken the position that “expenses” do not include attorneys’ fees,” the group wrote.  “PTO did not even attempt to obtain reimbursement for attorneys’ fees under this definition until 2013.”

The case before the justices is being litigated by a drugmaker called NantKwest, which filed a de novo appeal to a district court after the USPTO denied the company a patent for a cancer drug.  The company was later forced to reimburse the USPTO’s attorney fees.  NantKwest won a ruling at the Federal Circuit striking down the policy, prompting the USPTO to take the case to the Supreme Court.  The justices agreed to hear the case in March, and the agency filed its opening brief in May.

USPTO to SCOTUS: We’re Entitled to Attorney Fees Win or Lose

May 22, 2019

A recent Law 360 story by Ryan Davis, “USPTO Tells Justices Law is Clear-Cut on Win-Or-Lose Fees,” reports that the U.S. Patent and Trademark Office told the U.S. Supreme Court that it is entitled to recover attorney fees whenever it is sued over rejected applications, even if it loses, saying that outcome is "unambiguously" required by the statute.  The office made the argument in its opening brief for a case the justices agreed to hear in March to resolve a circuit split over whether disappointed applicants who file suit must pay the office's legal bills.

The statute governing such suits states that the applicant must pay "all the expenses" of the proceeding.  The Federal Circuit ruled last year that the phrase is not specific enough to include the USPTO's attorney fees, but in its brief, the office said "that reasoning is unsound."  "Both in its ordinary usage and in the specific context of civil litigation, the term 'expenses' unambiguously encompasses the increments of employee salary that the USPTO seeks to recoup," the office said.

Citing dictionary definitions of the word "expenses" as the expenditure of money, time or resources to accomplish a result, the office said it is clear that the money the office spends defending lawsuits count as expenses, and "that observation resolves this case."  While the Federal Circuit said the office's reasoning runs afoul of the "American Rule" that each side pays its own attorney fees, the office said the expenses requirement is not a fee-shifting provision that triggers the rule.

Fee-shifting typically applies based on which party prevails in a case, but since the expenses requirement is imposed on all applicants who sue the agency, even if they prevail, the American Rule is not implicated, the USPTO said.  Even if it were, the meaning of the word "expenses" is clear enough to show that Congress intended to override the rule and require applicants to pay the office's attorney fees, it said.

When the USPTO rejects an application for a patent or trademark, the applicant has two options.  The first is a Federal Circuit appeal, which does not require the applicant to pay the office's expenses but is decided only on evidence that the office considered, and the second is to file suit in district court, which carries the expense requirement but permits new evidence that wasn't before the office.  For years, the office only sought relatively minor expenses like travel costs and expert fees in district court cases, but it reversed course in 2013 and began seeking attorney fees from applicants, which can be much more substantial.

The Fourth Circuit blessed that practice in a trademark case in 2015, saying the provision is not a fee-shifting statute that implicates the American Rule.  The high court took the case after the Federal Circuit, sitting en banc, reached the opposite conclusion last year in a case where NantKwest Inc. unsuccessfully appealed the office's rejection of a cancer drug patent and was ordered to pay the USPTO's attorney fees of over $78,000.

The USPTO's brief said the office began seeking attorney fees in 2013 because such cases had become increasingly complex and expensive to defend, and because Congress had recently granted the office the authority to set its own fees, which officials wanted to ensure just recouped the cost of its services.  By seeking attorney fees when it is sued, "the agency has attempted to recoup those expenses from the particular applicants who cause the agency to incur them, rather than from other fee-paying users of the USPTO's services," it said.

In its January brief urging the Supreme Court not to hear the case, NantKwest argued that the American Rule applies whenever a litigant seeks attorney fees from opponents, not just when the award is based on who prevailed, as the USPTO contends.  The word "expenses" is too ambiguous to overcome the rule, it said.  "That 'expenses' could plausibly be understood to encompass attorneys' fees is not enough," it said.

Also last week, the USPTO urged the justices not to consolidate the NantKwest case with an appeal by Booking.com raising the same issue in a trademark case.  Instead, the court should just apply the outcome in NantKwest to that case, the office said.  Earlier this month, the title of the NantKwest case was changed when USPTO Director Andrei Iancu was recused from the case and substituted as the petitioner by USPTO Deputy Director Laura Peter.

The case is Peter v. NantKwest Inc., case number 18-801, in the Supreme Court of the United States.

Eleventh Circuit: No Added Attorney Fees for Defending Fees

April 12, 2019

A recent Law 360 story by Nathan Hale, “No Added Atty Fees in Nationstar Case, 11th Circ. Says,” reports that a Florida woman who won a judgment against Nationstar Mortgage LLC for charging improper fees is not entitled under state law to collect appellate attorney fees for her counsel's work defending an initial attorney fees award in the case, the Eleventh Circuit ruled.  The federal appeals court backed a lower court's decision to deny Sara Alhassid's request for attorney fees covering Nationstar's appeal based on a finding that the benefit would be purely for her attorneys and that she has no obligation to pay them for this work.

The appeals panel said it agreed with the district court that the controlling case on the issue is the Second District of Florida's ruling in B & L Motors Inc. v. Bignotti.  In that case, the state appeals court found that if a plaintiff has no interest in a fee award because it would not affect her payment obligation to her attorneys, then the plaintiff may not receive a fee award under the Florida Deceptive and Unfair Trade Practices Act, according to the opinion.

“B & L Motors is exceedingly clear that a prevailing plaintiff may receive fees under FDUTPA only if a 'fee award is found to be in the interests of the client and if the fee arrangement is found to have contemplated payment for that work,'” the Eleventh Circuit said.  “Because we do not lightly disregard binding, on-point decisions of intermediate state appellate courts, we hold that B & L Motors compels the denial of appellate attorneys’ fees in this case.”

Alhassid's counsel, Reuven T. Herssein of Herssein Law Group PA, said that his side intends to seek an en banc rehearing of the decision, which he said promotes meritless appeals by mortgage companies and other large institutions and has a chilling effect on plaintiffs who bring and litigate these cases.  "In light of this decision, plaintiffs attorneys will shy away from taking on these kind of cases since we won on the merits of the appeal and the appellate court’s decision means we are not paid for the successful result we obtained for our client in the appellate court," he said.

According to the opinion, Alhassid's attorneys had said that they “took this case on a contingency basis,” and the district court found that meant that any fees resulting from the appeal of the fee award would “inure solely to the benefit of plaintiff's attorneys and not to plaintiff herself.”

The dispute stems from Bank of America's decision to place Alhassid’s reverse mortgage in default for failure to pay flood insurance on her property.  After acquiring Alhassid’s mortgage and note in April 2013, Nationstar called her loan due and payable and started a foreclosure action on the property in January 2014, according to case records.  Alhassid filed the suit as a proposed class action against Bank of America NA and Nationstar in February 2014 and was joined by Sarah Drennen in August 2014.  The two women filed their third amended complaint in December 2014, bringing three breach-of-contract claims, a claim for breach of the covenant of good faith and fair dealing, the FDUTPA claim and a claim of violation of the Fair Debt Collection Practices Act.

They alleged the two companies charged improper fees, placed loans in default when borrowers did not pay those fees and then charged more unlawful fees after the defaults, according to the opinion.  The district court in Miami denied class certification in August 2015, finding that the nine class definitions didn’t show commonality and only individualized evidence could prove wrongdoing.  The claims against Bank of America were ultimately dismissed voluntarily, but Alhassid won summary judgment against Nationstar on all but the good-faith and fair-dealing claim, which the court found to be duplicative, the opinion said.

Alhassid was awarded $5,000 in actual damages and $1,000 in statutory damages under the FDCPA, according the opinion.  The district court also found that she was entitled to attorney fees as the prevailing party under the FDUTPA and awarded her $435,704 in fees.  The Eleventh Circuit affirmed the award on appeal.  The case is Alhassid v. Nationstar Mortgage LLC, case number 18-11985, in the U.S. Court of Appeals for the Eleventh Circuit.

US Supreme Court to Decide USPTO Attorney Fee Rule

March 5, 2019

A recent The Recorder story by Scott Graham, “Supreme Court Will Decide if USPTO Can Collect Legal Fees,” reports that the U.S. Supreme Court agreed to hear a dispute over attorneys fees between the U.S. Patent and Trademark Office and a company led by billionaire Patrick Soon-Shiong.  Iancu v. NantKwest is an appeal from the PTO after the U.S. Court of Appeals for the Federal Circuit refused en banc to award the office its fees in litigation with immunotherapy company NantKwest.  After being denied a patent, NantKwest initiated what’s known as a Section 145 proceeding in district court to try to force the PTO to issue it.  Section 145 of the Patent Act provides that “all the expenses of the proceedings shall be paid by the applicant,” regardless of outcome.

NantKwest lost the suit, and the PTO moved for $78,592 in attorneys fees and $33,103 in expert fees.  The PTO did not seek attorneys fees for more than 100 years but says it changed its policy after the Supreme Court in 2012 broadened the kinds of evidence and discovery that can be introduced in 145 proceedings.  The agency argues that the expansive “all the expenses” language is broad enough to cover attorneys fees.  The Federal Circuit disagreed in a 7-4 en banc ruling.  Judge Kara Stoll wrote that the Supreme Court has generally applied the American Rule and allowed fee-shifting only when Congress explicitly provides for it.  “All the expenses” doesn’t meet that standard, she concluded.

The PTO and the Justice Department argued in their petition for cert that the Fourth Circuit has awarded fees in a Section 145 appeal.  The filing included U.S. Solicitor General Noel Francisco and Assistant Attorney General Jody Hunt, who heads the Civil Division.  NantKwest is represented by an Irell & Manella team led by partner Morgan Chu.  “’Fees’ are never mentioned” in the statute, Chu wrote in opposition, “let alone ‘attorneys’ fees’ or any other equivalent that would suggest that such fees are recoupable.”

Section 145 proceedings are fairly rare, but two academics who follow Federal Circuit law said they weren’t entirely surprised the Supreme Court took the case.  Emory University law professor Timothy Holbrook said that, whenever the solicitor general’s office signs on to a PTO cert petition, the odds of the court granting cert go up.  Villanova University law professor Michael Risch said the close vote at the Federal Circuit could have gotten the court’s attention, and the justices might be on the lookout for some noncontroversial decisions to counter the potential blockbusters in the offing with the arrival of Brett Kavanaugh.

Risch also suggested the court might use the case to examine whether “expenses” should be narrowed to exclude not only attorneys’ fees but expert witness fees as well.  “Similarly, the law is unsettled about whether in-house counsel can even collect in fee-shifting cases,” he said via email.  “As far as I can tell, the Federal Circuit doesn’t even address that question (though the dissent does).”