by Dennis Crouch
In NantKwest v. Matal, the Federal Circuit will sit en banc to decide whether the cost-shifting provision found in 35 U.S.C. § 145 permits the USPTO to recover its attorney fees. I explained the setup in a prior post:
After being finally rejected by both the examiner and the PTAB, a patent applicant can then take its case to court. The Statute provides two options – either (1) a direct appeal to the Federal Circuit or (2) filing a civil action in district court to pursue a trial on the merits under 35 U.S.C. § 145.
An oddity of Section 145 civil action is the last line which states: “All the expenses of the proceedings shall be paid by the applicant.” In 2010, the en banc Federal Circuit ruled that the statute means what it says – expenses are to be paid by the applicant “regardless of the outcome.” Hyatt v. Kappos, 625 F.3d 1320 (Fed. Cir. 2010) (en banc). In NantKwest, the split panel ruled that the “expenses” include attorney fees.
In a sua sponte order, the Federal Circuit then ordered en banc review of the fee shifting rule – particularly whether the statutory “expenses” include attorney fees (especially in-house salaried attorney fees). Briefs have now been filed in the case and oral arguments are set for March 8, 2018 in the Federal Circuit’s Washington D.C. Courthouse at 717 Madison Place.
[Briefs Filed (Big PDF): 16-1794_Documents]
The US Government (USPTO) brief makes the basic argument that Congress intended for patent applicants to bear the expense of the optional district court proceedings, and attorney fees are a major component of that expense. The Gov’t further explains that the Federal Circuit majority approach has also been approved by the 4th Circuit with regard to the parallel Lanham Act provision. Shammas v. Focarino, 784 F.3d 219 (4th Cir. 2015). Although not express, the Gov’t approach suggests that “all expenses” need not even be limited to reasonable expenses.
In response, Nantkwest relies heavily on history – noting that prior to this case, “neither the PTO, nor Congress, nor the courts have ever interpreted § 145 to authorize any attorneys’ fees.” That history along with the presumption against fee shifting and the limited language of the statute should collectively prevent a fee award here.
- Amicus from Federal Circuit Bar Association: The FCBA argues in support of NantKwest that expenses as used in the statute should not include attorney fees. Their prime example is that §145 does not say “attorney fees” while a parallel provision for infringement litigation, §285 does expressly say “attorney fees.” The longstanding practice of the USPTO has been to not ask for attorney fees – that approach should add considerable weight to whether the PTO’s interpretation is correct.
- Amicus from AIPLA: “No reading of ‘all expenses of the proceedings’ can mean reimbursement of staff salaries.”
- Amicus from IPO: “Attorneys’ fees are not expenses ‘of the proceeding'” as required by the statute.
- Amicus from INTA: The American rule creates a strong presumption against attorney fee awards.
One of the basic debates here is how the general presumption against awarding attorney fees in US Courts should be applied. The Government Lawyers makes the odd technical argument that the “American Rule” is a presumption is against awarding attorney fees to the prevailing party. Here, they argue, the presumption is not implicated since the statute awards fees win-or-lose. That particular argument is wrong on many levels, but it does have the majority on its side as well as the 4th Circuit panel.
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Patenting is a Pay for Service Process: In thinking through the case, one starting point is a recognition that the patent is a pay-for-service process. Applicants pay for filing, for PTO searches, for PTO Examination, for Appeals, for Issuance, etc. Although it makes sense to spend some taxpayer money on encouraging scientific research and innovation, the pay-for-service model is much easier politically. In that setup, it also seems reasonable that there would be a fee for filing and pursuing a civil action. With most fees today, the PTO is setting fees to reflect some average cost of providing service (with some additional policy preferences embedded into pricing). However, the difficulty for the PTO here is that the mechanism for collecting fees under Section 145 looks just like fee shifting – which the courts historically disfavor.