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Category: Fee Statute

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.

Attorney Fees Take a Hit Under New Florida Law

June 11, 2019

A recent Daily Business Review story by Rachel Lean, “Attorney Fees Take Hit Under New Florida Law,” reports that a new Florida law to curb alleged fraud by contractors could create collateral damage for lawyers by slashing attorney fees in insurance litigation — and all just in time for hurricane season.  Before May 23, contractors could enjoy a one-way attorney fee privilege.  It meant win or lose, they wouldn’t be liable for attorney fees if they sued an insurer to collect insurance benefits that homeowners had assigned to them in exchange for doing repairs.

Insurers, meanwhile, weren’t entitled to fees — until Florida Gov. Ron DeSantis signed House Bill 7065 into law.  The former David-and-Goliath-esque statute was designed to look out for the policyholder, considered to be at a disadvantage compared with high-powered insurance professionals with corporate counsel and significant funds in their arsenal.

But critics—led by pro-insurance groups—cried foul. They claimed the statute had exacerbated abuse through inflated repair costs and excessive lawsuits over assignment of benefits, or AOB, which were created to speed up repairs, shield consumers from exploitation and save them from having to chase claims.  Now, under the new law, homeowners can still use the one-way statute to file lawsuits against insurers, but they can’t transfer that right to contractors through AOB agreements—a provision that critics says disincentivizes contractor attorneys.  And there’s another change: The law includes a new formula for third-party cases to decide which side, if any, is entitled to attorney fees after a judgment.

‘No guard rails’

Tallahassee attorney Anna Cam Fentriss represents licensed contractors through the Florida Roofing and Sheet Metal Contractors Association and Florida’s Association of Roofing Professionals and was glad of the change.  Fentriss feels that while a homeowner, or “the little guy,” typically needs less risk in litigation against giant companies, there’s no reason contractors couldn’t duke it out.  “You’re transferring that benefit from an unsophisticated party to a sophisticated party, and that creates a type of imbalance that you absolutely should not have and shouldn’t encourage,” Fentriss said.

AOB is one avenue for third parties to collect payment from insurers, allowing them to legally stand in a policyholder’s shoes.  But Fentriss claims many of her members have never heard of AOB as it wasn’t widely used until a cottage industry emerged among water-damage restoration and roofing contractors.  “Some of these contractors out there, and sometimes with the help of attorneys, they really push it,” Fentriss said.  “And there’s nothing, no guard rails to stop them, as long as they have that one-way attorney fee, because they can put forth anything.”

Now, contractors might have to charge lower rates to homeowners or accept less money from insurers to avoid going to court and risking attorney fees.  Critics say by curbing attorney fee awards, the new law forces contractors to choose between doing quality work and chasing payments to stay afloat.  Tampa restoration contractor David Sweet, who regularly testifies as an expert witness in insurance suits, said many of the lawsuits end in judgments and settlements—a sign of their merit, Sweet suggests.

“When an insurance company tells you that they’re losing lots and lots of money in litigation expenses, what did they really just say?” he said.  “They’re actually losing almost all of their cases.”  But Liz Reynolds, regional vice president of state affairs for the National Association of Mutual Insurance Companies in the Southeast, says AOB litigation is so prevalent that some insurers first learn of claims only after they’re hit with contractor lawsuits.  That’s why Reynolds hopes the new legislation will reduce lawsuits in Florida, a nationwide outlier in attorney fee privileges, thanks to the former win-or-lose award provision for contractors.

“No other state has a one-way attorney fee statute, and assignment of benefits are being used in other states,” Reynolds said.  “Now you would have to have a more egregious situation to have the insurer pay the attorney fees for the assignee.”  But California attorney Edward Cross disagrees.  Cross has represented disaster-recovery and restoration contractors since 1997, and says he’s noticed an “unfriendly” environment for contractors “as the insurance industry and its partners grow increasingly aggressive in driving down prices.”

But even so, Cross, who doesn’t handle AOB cases in Florida, believes California has done well without a one-way attorney fee statute.  “I have always subscribed to the school of thought promoted by President George H.W. Bush— that the loser in litigation should pay the other side’s attorney fees,” he said.

Even more litigation?

But some observers aren’t sure the new law will have the desired effect.  In fact, some expect the opposite.  Policyholders attorney David Graham of David Graham Insurance Lawyers in Jacksonville, for instance, suspects the new attorney-fee provision could lead to even more litigation.  “I think, ultimately, any smart attorney is going to work around that by representing the policyholder directly,” Graham said.

But William Stander, who heads multiple insurance trade groups, including the Florida Property and Casualty Association, applauded the change.  Stander advocated for the rollback of one-way fees for vendors, particularly those doing water-damage mitigation, which created a cottage industry and what he said spawned “no-risk litigation” for contractors.  “They should have some skin in the game, and not be able to sue in the sense of throwing darts at a wall and hope something hits,” Stander said.

Whatever happens, contractor Ken Larsen said he’s tired of what he considers an unnecessarily adversarial industry when compared to the rest of the U.S. and the world.  “It is astounding to most others contractors in our industry in Australia, Europe and elsewhere,” Larsen said.  “Why on earth do we do battle like this on every insurance claim, to the point where it’s hard feelings and companies going broke?”

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.

Federal Circuit Rejects Use of Laffey Matrix in Calculating Fee Award

May 21, 2019

A recent Law 360 story by Kevin Penton, “DC Circ. Vacates $7M Atty Fee Award in Civil Right Row,” reports that a split D.C. Circuit panel tossed a nearly $7 million fee award in a long-running civil rights class action in Washington, D.C., finding a lower court used a matrix for calculating fees that improperly included attorneys based outside of the district and specialized in irrelevant legal areas.  A majority of the three-judge appellate panel held that the federal court in the District of Columbia erred by relying on a new fee calculation matrix proposed by the district that included attorneys practicing in rural Virginia and West Virginia as well as those who worked in areas of law such as real estate and wills, rather than focusing on attorneys practicing complex federal litigation within the district.

The new matrix runs counter to statutory requirements that those who file and prevail in civil rights cases should be able to collect attorney fees based on "rates prevailing in the community" for the "kind and quality of services furnished," according to the majority opinion.  The plaintiffs in the case had sought $9.76 million in fees under a different matrix, according to court documents.  "It is obvious that the rates charged for, say, simple wills are lower than those for complex federal litigation," the panel majority wrote, which vacated the award and remanded it to the lower court for a recalculation.  "Worse still, nothing in the record reveals what percentage of respondents in the ... custom cross-section of ... data were litigators."

The plaintiffs — parents of children in Washington who fit within the class — sought the fees after prevailing in a class action they initiated in July 2005, claiming that the district violated the Individuals with Disabilities Education Act by failing to identify disabled children and to deliver adequate and timely education to a broader set of minors, according to the opinion.  The lower court in August 2017 awarded the plaintiffs $6.96 million in attorneys' fees, finding that the matrix proposed by Washington had a "statistically significant sample size" and "'more narrowly defined' experience categories," according to the opinion.

U.S. Circuit Judge David B. Sentelle dissented, holding that the appellate court could only toss the fee calculation matrix used by the lower court had it abused its discretion or clearly misapplied legal principles or demonstrated a "disregard" for the evidence entered in the case.  "The district court found another matrix to be more factually appropriate," Judge Sentelle wrote.  "The making of that factual determination, under the law in general and under the governing statute in particular, is the district court's province."

The case is DL et al. v. District of Columbia et al., case number 18-7004, in the U.S. Court of Appeals for the District of Columbia.