A recent Law 360 story by Bill Donahue, “Supreme Court Strikes Down USPTO Atty Fee Rule,” reports that the U.S. Supreme Court struck down an unusual U.S. Patent and Trademark Office policy that saw the agency automatically demand repayment of its legal bills, ruling that it ran afoul of the centuries-old rule that U.S. litigants must usually pay their own lawyers. Ruling unanimously in favor of a drugmaker called NantKwest Inc., the justices rejected the agency's recent reinterpretation of a decades-old provision in the federal Patent Act that says companies must pay "all expenses" incurred by USPTO in certain types of appeals — regardless of who wins the case.
Affirming a lower court's ruling last year, the high court said that term should not be read to cover the salaries paid to USPTO attorneys who worked on a particular case. Writing for the court, Justice Sonia Sotomayor said that the agency's approach would violate the so-called American Rule, a doctrine that says litigants must pay for their own attorneys unless Congress expressly says otherwise.
"The [American Rule] presumption against fee shifting not only applies, but is particularly important because [the Patent Act] permits an unsuccessful government agency to recover its expenses from a prevailing party," Justice Sotomayor wrote. "Reading [the statute] to award attorney's fees in that circumstance would be a radical departure from longstanding fee-shifting principles adhered to in a wide range of contexts." The ruling had stakes for trademark lawyers, too. The Lanham Act contains an identical provision and the USPTO has also asked for such attorney fees in trademark cases.
First rolled out in 2013, USPTO's policy was rooted in a novel interpretation of decades-old statutory language. When the USPTO refuses to grant a patent, the Patent Act allows the applicant to file a streamlined appeal on the existing record directly to the Federal Circuit, or it can file a "de novo" appeal in a district court — a more robust process that allows the applicant to enter new evidence into the record.
The law says that applicants who choose the de novo route must pay "all expenses" of the proceeding, regardless of who wins the appeal. The provision makes no mention of winning or losing; the applicant pays no matter what. For decades, the USPTO had only interpreted "expenses" to mean relatively small things, like travel expenses, expert fees and copying. But that changed in 2013, when the agency started arguing that the expenses provision also covers attorney fees, which are typically far larger.
In the years since, courts have split over the policy. While the Fourth Circuit ruled that the policy was a fair rereading of the statute, the Federal Circuit ruled that it violated the American Rule. On appeal to the high court, USPTO had argued that the American Rule didn't apply at all to the unusual Patent Act provision in question. The rule only covers awards of fees to prevailing parties, the agency argued, and the “expenses” provision applies regardless of who wins a case.
The high court flatly rejected that argument. “That view is incorrect. This Court has never suggested that any statute is exempt from the presumption against fee shifting,” Justice Sotomayor wrote. “Nor has it limited its American Rule inquiries to prevailing-party statutes. Indeed, the Court has developed a line of precedents addressing statutory deviations from the American Rule that do not limit attorney’s fees awards to the prevailing party.”
Analyzing the provision under the American Rule — which requires clear authorization from Congress — the high court said Patent Act was not explicit enough to cover attorney fees. "The reference to 'expenses' in [the Patent Act] does not invoke attorney's fees with the kind of clarity we have required to deviate from the American Rule," Justice Sotomayor wrote. "Simply put, in common statutory usage, the term 'expenses' alone has never been considered to authorize an award of attorney's fees with sufficient clarity to overcome the American Rule presumption," the justice wrote.