USPTO Can Demand Attorney Fee Awards, Even When it Loses the Case

Shammas v. Focarion (Lee) (4th Cir. 2015) [SHAMMAS v FOCARINO]

The Patent and Lanham (TM) acts each include a mechanism for filing a civil action when the USPTO refuses to grant/register the applied-for rights.  See 35 U.S.C. 145 and 15 U.S.C. 1071(b) respectively.

Both provisions include cost-shifting that forces the applicant to pay the PTO’s expenses of the proceedings, win-or-lose.

Patent Cases: “All the expenses of the proceedings shall be paid by the applicant.”

Trademark Cases: “unless the court finds the expenses to be unreasonable, all the expenses of the proceeding shall be paid by the party bringing the case, whether the final decision is in favor of such party or not.”

The 4th Circuit case of Shammas v. Focarino involves a civil action to force the PTO to register the mark “PROBIOTIC.”  The district court sided with the PTO that the mark was not registrable (it is generic) and then awarded attorney fees to the USPTO under the statute quoted above.  On appeal, the 4th Circuit has affirmed – finding that the “all the expenses” provision of the statute includes attorney fees.

[I]n ordinary parlance, “expenses” is sufficiently broad to include attorneys fees and paralegals fees. Moreover, in this statute, Congress modified the term “expenses” with the term “all,” clearly indicating that the common meaning of the term “expenses” should not be limited.  (internal citations omitted)

The appellate panel rejected the notion that “expenses” should be read as parallel to “taxable costs” that do not include attorney fees — suggesting that Congress wold have used the costs term it it meant costs.  In reaching this decision, the court looked back to the statutory language origin found in the 1836 patent act and noted that – even there – the statute distinguished between expenses and costs.

The court also rejected the notion we would need a clearer statement from Congress in order to overcome the presumption against attorney fee shifting in American courts (the “American rule”).  Here, the panel came to the odd conclusion that the American-rule presumption here does not apply because that presumption is about whether the loser pay’s the winner’s fees.  This situation is different (according to the court) because one side always pays win-or-lose.

Thus, a statute that mandates the payment of attorneys fees without regard to a party’s success is not a fee-shifting statute that operates against the backdrop of the American Rule.

This appears to me an odd conclusion whose conclusion does not logically flow from the premise.

For litigators, the outcome is unsightly because of the rarity of such strict fee-shifting mechanisms within our court systems. For patent and trademark prosecutors, the statute appears more akin to a fee-for-service, which is entirely common within the system.  One major difference between other PTO fees is uncertainty since the litigation costs will not be known until the litigation complete.

Whatever its justification, the outcome here obviously adversely impacts patent and trademark applicants considering the filing of a civil action to pursue their claims.  (Within the PTO, direct appeal to the Federal Circuit under Section 144 does not directly result in a fee award).

My understanding is that Shammas will be filing a petition for writ of certiorari in the upcoming weeks now that his petition for rehearing was denied.  INTA filed a brief in support during the appeal.


12 thoughts on “USPTO Can Demand Attorney Fee Awards, Even When it Loses the Case

  1. 5

    July 4, 2015 at 2:09 am comment re-packaged.

    Once upon a (not-so-long-ago) time the 4CA comprised a pack of right wingnut admirers of Kafka’s most demonic novels. The combination of the USDC EDVa and 4CA was the litigation equivalent of firing a rocket full of supplies at the ISS and having it blow up on the pad – although I will admit that I won the only appeal I filed in the 4CA and remember that day fondly. Having left that circuit years ago I lost touch with what passed as 4CA “jurisprudence,” but the rumors were that they lurched to the left. I guess in the lurching they retained their penchant for Kafkaesque nightmares.

    First point: This is a case about 15 USC 1071(b)(3). It doesn’t mention Sec 145 of the Patent Act; the two statutes are not carbon copies.

    Second point: I think both statutes have to be read in conjunction with the Equal Access to Justice Act, 28 USC 2412, particularly paragraph (d), which allows a party prevailing against the USG to recover costs, expenses, and attorney fees in non-tort cases. In his inventory of fed statutes discussing “expenses” Niemeyer appears to ignore this important statute, which is very clear as to what “expenses” means.

    Seems to me that what both of these Title 15 statutes are saying is that the EAJA doesn’t apply if a person elects to challenge PTO decisions in USDC, and that makes sense given the right of appeal to the Fed Cir, which does permit access to the EAJA fees reimbursement. But my interpretation that 1071 and 145 are meant to bar recovery of costs in a USDC challenge to the PTO doesn’t mean that by losing one should have to pay the PTO’s lawyers. That is mind-boggelingly mindless. Judge Niemeyer, I’m looking at you.

    Third point: In the analysis of Sec. 1071(b)(3) it is clear to me where Niemeyer messed up – like, in the first 9 words. “In any case where there is no adverse party . . . all the expenses of the proceeding shall be paid by the party bringing the case. . .” In TM prosecution people can p1sss-on marks in the application stage, and it is entirely possible to have a litigant in USDC totally ex parte. That was not the case here.

    But when an applicant files against the PTO b/c he thinks the PTO muffed it, as here, then the PTO is the adverse party and Sec. 1071(b)(3) fee shifting doesn’t apply by its own very clear words. Niemeyer refers to the PTO as the adverse party or the opposing party in this case numerous times and you would think that would ring a bell viz those first 9 words of the paragraph being applied. Even his historical analysis shows that the 1839 amendments to the patent act from which the present statute evolved used the words “in all cases where there is no opposing party . . .[yada]. . .the whole of the expenses of the proceeding shall be paid by the applicant.”

    It’s clear to me: As long as there is no adverse party or opposing party in a TM USDC case under Sec.1071, the only party at the party pays to boogie. But when the PTO is listed as a party – defendant, presumably – then 1071(b)(3) clearly does not apply b/c there is an adverse party, and to each his own costs/expenses/fees, except for special circumstances. ( And IMO taking the PTO to USDC over an attempt to tm “Probiotic” would probably be such a special circumstance, but that’s a different issue.)

    That’s the way I read it. I always thought that you don’t get EAJA fees if you file in USDC under 145, which was one reason to go to the Fed Cir. But I never in my wildest Kafkaesque dreams ever considered the possibility that you’d have to pay the PTO suits/pants-suits – WIN OR LOSE!!! I feel like I’ve just been cockroached.

  2. 4

    Ned: I think the PTO is fundamentally out of control. Across the board they are doing everything in there power to cut off access to the courts by applicants or patent owners dissatisfied with their rulings.

    Well, that’s false from numerous angles.

    Not only should the Supreme Court take notice, but congress should as well.

    Little chance of that. Their too busy cleaning up the unbelievable and historic mess left by Dave Kappos and the Federal Circuit.

    Did you see the interview where Michel admitted working with Kappos to “monetize” that mess for themselves? Classic stuff.

    1. 4.1

      …because the situation before Kappos was soooooo “clean”…

      /off sardonic bemusement.

    2. 4.2

      MM, I did see the piece. Kappos and Michel expected people to voluntarily take out licenses from their NPE. What they found was that law firms were advising potential licensees not to take out licenses for one reason or another.

      I am not so certain that all the patents that Kappos and Michel dealt with were of the junk type. The problem is they probably had at least some asserted claims that were not valid over prior art of which they were not aware. But that is why patents have dependent claims, not so?

      But the point is that NPEs cannot, after eBay and after Seagate, get anybody to voluntarily take out a license if there is any asserted claim in the patent that is even potentially invalid. There will be no injunction because of the NPE status of the patent holder. There will be no willful infringement because of the reasonable defense. So the bottom line is that the loser of a patent case against an NPE, having at least one claim that is arguably not valid, will only have to pay a reasonable royalty, just like anybody else.

      Thus, NPE’s have to sue to collect any royalties at all. The monetary award has to be worth it in order to bring suit in the first place.

  3. 3

    So the PTO improperly refuses to register your patent or TM, and you have to pay not only for own lawyers’ fees but also pay the PTO for its lawyers’ fees generated by the PTO’s own intransigence? The words “perversion of justice” come to mind. As the prophet Elijah said, הרצחת וגם ירשת (“Have you murdered and also inherited?”).

    1. 3.1

      It’s a nice deal if you can get it.

      Here’s an idea: for any post-grant action the patent office picks up all costs incurred by the patent holder – that might be a way of salvaging the taking without redress (court) or remuneration (for sticks in the bundle of property rights) when the Office initiates a post grant review…

      (Recognizing of course that such a change would need to be duly enacted by Congress)

  4. 2

    Dennis: Was there recent policy change at USPTO to demand these expenses? When was USC 145 enacted? I thought the right to appeal to district court has been there for a long time and there must be prior case law on this?

    “All the expenses of the proceedings shall be paid by the applicant.” First time I read it – I thought about court expenses, not USPTO expenses. The proceedings are conducted by court, not USPTO. Just my reading. Any comments?

    1. 2.1

      As near as I can tell under a quick check of the changes instituted in that section of law (that are listed online – post 1999 or so), the section on costs predates the amendments – this is not a recent change.

    2. 2.2


      Bill in Equity — Section 16, Patent Act of 1836
      Bill in Equity — Section 52, Patent Act of 1870, RS 4915 (all expenses — whether the final decision is in his favor or not)

      I looked at a few dozen cases up until Hyatt v. Kappos and could find not a single one where attorneys fees were mentioned.

      The PTO does not like district court appeals. They only like the Federal Circuit.

      1. 2.2.1

        The 1952 Act formally changed the cause in action from one of equity to one of law. See link to at the notes tab: “Bill in equity is changed to civil action

        Might be another of those famous “just codify” thingies…. 😉

    3. 2.3

      I heard about this nearly 10 years ago, when the PTO warned a colleague that they’d be seeking these fees, so no, I don’t think it’s a new policy.

      I agree with you that it’s a challenging interpretation. It defies reason to think that Congress intended the applicant to pay the government’s lawyers, even when the applicant was right all along. That said, however, the language about “unreasonable” in the trademark statute suggests that “expenses” means more than “costs.” I wonder, given the trademark statute, whether the 4th Circuit would say that the patent statute requires the reimbursement of unreasonable fees as well…

  5. 1

    You know, I think the PTO is fundamentally out of control. Across the board they are doing everything in there power to cut off access to the courts by applicants or patent owners dissatisfied with their rulings. Not only should the Supreme Court take notice, but congress should as well.

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