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

May 22, 2019 | Posted in : Expenses / Costs, Fee Doctrine / Theory, Fee Entitlement, Fee Issues on Appeal, Fee Jurisprudence, Fee Shifting, Fee Statute, Prevailing Party Issues

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.