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Feds Urge High Court to Preserve USPTO Fee Awards

February 17, 2016 | Posted in : Expenses / Costs, Fee Award, Fee Doctrine / Fee Theory, Fee Entitlement / Recoverability, Fee Issues on Appeal, Fee Request, Fee Shifting, Fee Statute, Prevailing Party Issues

A recent Law 360 story, “Feds Urge High Court to Preserve USPTO Attys’ Fee Awards,” reports that the federal government is urging the U.S. Supreme Court to preserve a lower court ruling that any dissatisfied challengers to Trademark Trial and Appeal Board decisions who pursue district court reviews must cover all fees incurred by the U.S. Patent and Trademark Office (USPTO) in the proceeding.

In a brief, the U.S. Solicitor General said the Fourth Circuit correctly ruled that challengers must pay all parties’ fees regardless of which side ultimately prevails, instead of challengers and the USPTO covering their own respective attorneys’ fees.

The petition was filed by Milo Shammas, who unsuccessfully challenged the TTAB's denial of federal trademark registration for a proposed mark relating to fertilizers and was ordered by a district court to pay the USPTO nearly $36,000 in attorney and paralegal fees, as well as additional expenses.

The federal government on Wednesday said that 15 U.S.C. Section 1071 of the Lanham Act says that when an unsuccessful trademark applicant seeks to register a trademark in district court, “all the expenses of the proceeding shall be paid by the party bringing the case.”

“The PTO’s personnel expenses make up a large portion of the PTO’s expenditures in a Section 1071(b) proceeding,” the reply said.  “Disallowing those expenses would prevent the PTO from recouping the bulk of its expenses, thereby disserving the important purposes of [Section 1071].”

Section 1071 allows parties dissatisfied with an adverse TTAB trademark decision to challenge the ruling by either filing an appeal in the Federal Circuit or filing an action in district court, according to court documents.

The case stems from an unsuccessful 2009 trademark application filed by Shammas for the mark “probiotic” for use in connection with fertilizer products manufactured by his company, Dr. Earth Inc.  The TTAB ultimately concluded that the term "probiotic" was generic with respect to fertilizers or, alternatively, that the term was descriptive but lacked secondary meaning and therefore didn't warrant registration as a trademark, according to court documents.

Shammas filed a complaint in December 2012 in Virginia federal court seeking review of the TTAB's decision.  But in October 2013, Judge T.S. Ellis awarded the government summary judgment after determining that Shammas failed to cast doubt on the TTAB's finding that the term was generic.  The USPTO subsequently filed a motion for reimbursement of expenses that it had incurred in the proceeding.

On appeal in the lower court, Shammas challenged Judge Ellis’ ability to award fees under Section 1071(b)(3), arguing that he erred in “shifting” the USPTO’s attorneys' fees to him because the statute does not expressly provide for the shifting of fees.  The ruling, he argued, was contrary to the so-called “American Rule” under which each party bears his own attorneys' fees.

But Judge Ellis in ruled in January 2014 that attorneys' fees are included in the statutory requirement, thus plaintiffs who seek review of TTAB rulings in a district court pay the USPTO "all expenses of the proceeding," whether they win, lose or draw.

While Shammas had argued in his Fourth Circuit appeal that the American Rule applied in his case, the appeals court’s majority ruled in April that it only applies in cases where a prevailing party seeks fees, and Shammas did not prevail in his case.

The majority pointed out that under Section 1071(b)(3), Shammas would have had to pay all of the USPTO’s expenses even if he had prevailed in the district court because the statute imposes the expenses of the proceeding on the plaintiff whether the final decision is in his favor or not.

Shammas’ Supreme Court petition, filed in November, said the Fourth Circuit’s decision would effectively block most federal court appeals of TTAB decisions.  The petition also renewed Shammas’ American Rule argument, saying the Fourth Circuit violated the rule by deciding that dissatisfied challengers to TTAB decisions who pursue district court reviews must cover USPTO attorneys’ fees.

But the federal government on Wednesday said Shammas’ America Rule argument failed because “The [Supreme Court] … has not required Congress to use particular magic words in authorizing an award of attorneys’ fees.”

The reply added that Section 1071(b)(3)’s reimbursement requirement discourages abusive filings by making sure that the expense of litigating de novo proceedings is shouldered by the applicants.

The case is Milo Shammas v. Margaret A. Focarino et al., case number 15-563, in the Supreme Court of the United States.