October 9, 2019
A recent Law 360 story by Jimmy Hoover and Bill Donahue, “Justices Question USPTO’s Bold Pursuit of Atty Fees,” reports that the U.S. Supreme Court appeared skeptical of the U.S. Patent and Trademark Office’s recent practice of seeking attorney fees from parties that take the agency to court, given that the USPTO paid for its own lawyers for more than a century. At oral arguments in the case Peter v. NantKwest, the justices, minus an ailing Justice Clarence Thomas, peppered an attorney from the U.S. Solicitor General’s Office with questions about the USPTO’s new and aggressive pursuit of attorney fees, which extends even to cases that the agency loses.
The Federal Circuit ruled last year that the policy violates the so-called American Rule, a deep-rooted doctrine that litigants must pay their own attorneys unless Congress expressly says otherwise. Several members of the Supreme Court seemed sympathetic to that view. “What 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?” Justice Brett Kavanaugh asked. “Why would Congress have thought to do it that way?”
The case revolves around de novo appeals, which allow dissatisfied patent or trademark applicants to effectively relitigate their application in district court rather than merely appeal to the Federal Circuit. Both the Patent Act and the Lanham Act say that for applicants who choose the de novo route, “[a]ll the expenses of the proceedings shall be paid by the applicant.”
USPTO long interpreted that to cover things like travel expenses and copying, but started arguing in 2013 that the “expenses” provision covers attorney fees too. In the case at hand from NantKwest Inc., that included over $78,000 for the cost of the agency attorneys who defended the company’s lawsuit over a rejected cancer treatment patent.
At arguments, Justices Neil Gorsuch and Stephen Breyer homed in on the fact that the USPTO had long declined to pursue attorney fees from applicants under the current statute or its predecessors. “How did the government just figure this out?” Justice Gorsuch asked. While Deputy Solicitor General Malcolm Stewart admitted — to laughter in the courtroom — that the abrupt change was “an atmospherically unhelpful point for us,” he denied that this historical record doomed his case. “For that 170-year period we were foregoing a source of income that we were entitled to get,” he said.
Defending the policy, Stewart said that collecting attorney fees is “consistent with the overall statutory scheme” whereby the USPTO is supposed to cover aggregate costs, including personnel costs. He also pointed out that NantKwest’s lawsuit “caused us to incur 30 times the expenses that would ordinarily be the fees for the patent application and examination.”
“It seems fair and appropriate to make the applicant pay,” he said. Morgan Chu of Irell & Manella LLP, representing the company, disagreed. “The government is arguing for a radical departure from the American Rule,” Chu said. “It is arguing that when a private party sues the government for its improper action, then that private party must pay for the government's attorneys, even if the government and its attorneys are flatly wrong.”