Supreme Court will hear Section 145 Attorney Fees Case

by Dennis Crouch

The Supreme Court has granted writ of certiori in Iancu v. NantKwest Inc. on the question:

Whether the phrase “[a]ll the expenses of the proceedings” in 35 U.S.C. § 145 encompasses the personnel expenses the United States Patent and Trademark Office incurs when its employees, including attorneys, defend the agency in Section 145 litigation.

When an examiner refuses to allow an applied-for patent, the applicant can appeal to the USPTO’s internal administrative board (PTAB). If still unsuccessful, the applicant then has a choice of either (1) filing a civil action in federal court or (2) appealing directly to the Court of Appeals for the Federal Circuit. 35 U.S.C. § 145.

The provision authorizing the civil action ends with the statement:

All the expenses of the proceedings shall be paid by the applicant.

In prior cases, the Federal Circuit has held that “all the expenses” means that applicant must pay the expenses win-or-lose, including the USPTO’s taxable costs.  Hyatt v. Kappos, 625 F.3d 1320 (Fed. Cir. 2010) (en banc). In NantKwest, the USPTO asked also for its attorney fees as part of “all the expenses.” (Note, the USPTO doesn’t hire outside attorneys to handle these, but it calculated its in-house attorney time and requested $100,000+).

The original NantKwest panel sided with the USPTO — holding that  “expenses” include USPTO attorney fees.  However, a 7-4 split of the en banc court changed direction and held that “expenses” does not include attorney fees.  In its decision, the Federal Circuit focused on the traditional presumptive “American rule” on attorney fees (each party pays for its own attorney fees) and found that the “all the expenses” language was not sufficiently “specific and explicit” to overcome the presumptive rule.

Petition Stage Briefing:

In a separate fees case, the Court today issued an opinion in Rimini Street Inc. v. Oracle USA Inc., holding that that the copyright act’s allowance of “full costs” only extends to traditional “taxable costs” and does not include, for instance, expert witness, e-discovery, or jury consultant fees.

29 thoughts on “Supreme Court will hear Section 145 Attorney Fees Case

  1. 8

    Let’s be precise here. The case is not about “attorney’s fees.” If it were, the “fees” would be determined by the prevailing private practice market rate for comparable work in the relevant community (even where a government agency is involved). This case is about “expenses.” That is why the Patent Office is seeking reimbursement on a pro-rata expense basis. The American Rule covers shifting the winner’s “attorney’s fees” to the loser. This, however, is an “expense” provision. And it applies irrespective of who wins. (Also, the provision at issue in Rimini Street was neither an “attorney’s fees” provision nor an “expense” provision. It concerned a third thing, “costs,” which is a term of art different from either expenses or attorney’s fees.)

    1. 8.1

      Anonymous @8 is correct.
      Unlike most commenters below, I think this case is very important to all patent applicants – not only to those who may file Section 145 civil actions in district court.

      The PTO tried for years to get rid of Section 145, eliminating patent applicants’ right to de novo judicial review of PTO’s adverse actions. The Office attempts to be treated as an Article III court, which it is not, answerable only to the Federal Circuit, where the PTO enjoyes deferrential review that may at worst result in a remand. Failing to get Congress to repeal Section 145 in 2013, the PTO now attempts killing it in a different way.

      Under the PTO’s construction of “expenses,” applicants’ prohibitive costs of PTO attorney’s fees will essentially have the effect of foreclosing on the Section 145 option for most applicants. This may remove an important “check” on the PTO because knowing that it is unlikely to be challenged in a de novo review that may lead to a judgement against the PTO, examiers and the Board may be emboldened in unfavaorable actions against all applicants. This would weaken all applicant’s judicial protections of their rights – not only those who use .

      1. 8.1.1

        – not only those who use Section 145.

      2. 8.1.2

        Ron, no doubt the PTO wants to reduce even the present small number of these suits. But as for applicants, as near as I have been able to determine from the briefs, the only increase in existing cost assessments for Section 145 civil action costs for applicants would be in this case “$78,592.50 in personnel costs for the time two USPTO attorneys and a paralegal had spent on the proceeding.” That of course is peanuts compared to what it costs anyone conducting an effective such civil suit.
        Not even to mention the very low odds of winning such suits – this one never made it past an adverse summary judgment. I would love to see actual statistics on that. I also wonder how many such suits could have been far better avoided by putting needed declaration evidence into the PTO record before losing at the Board, or in a continuation after. Rather than having to use a civil suit to do do, in which their witnesses will be both cross-examined and rebutted by contrary expert testimony.

        1. 8.1.2.1

          Paul,
          This is not about “putting needed declaration evidence into the PTO record before losing at the Board.” It is mostly about an independent judicial determination of what the evidence already in the record actually means. I have seen a few 145 cases in the biomedical field to know that PTO attorney’s fees would be much larger than the $78K incurred in this atypical case. Moreover, sometimes evidence such as public use, on sale, or corroberating testimony to prior invention or derivation is not discovered until PTO procedings are closed.

          This is not about a few thousand dollars. The issue has far-reaching consequences, and the PTO knows that.

          See Chuck Miller’s article “Attenuated Judicial Review of Patent and
          Trademark Office Decisions: ‘Technical Amendment,’ or Stacking The Deck Against Inventors?,” Medical Innovation & Business Journal, 88 (Summer 2010) at link to ipadvocatefoundation.org .

          1. 8.1.2.1.1

            Ron, from your responses you seem to be erroneously suggesting that this case is somehow about ELIMINATING 35 USC 145 civil actions? Neither party is even suggesting that. It was never in issue, and could not be since it is statutory. This case is ONLY about not adding PTO attorney time to all the other costs already collectable by the PTO by statute in these cases.
            P.S. Why would evidence on issues such as public use or on sale rarely raised in PTO rejections, be raised for the first time in 35 USC 145 civil actions by the applicant [rather than the Solicitor]?

            1. 8.1.2.1.1.1

              Paul, please do not rewrite my comments or emphatically deflect from their real content with your capital letters. I did not “erroneously suggest” anything. I said that the sec. 145 fee shifting as the PTO would have it “will essentially have the effect of foreclosing on the Section 145 option for most applicants” — not “ELIMINATING 35 USC 145.” I said it will effectively “kill” the option by a way other than eliminating section 145. Please stop the hyperbole.

              As to issues of public use, on sale, or corroborating testimony to prior invention or derivation, those may not be discovered until PTO proceedings are closed. As a seasoned interference expert and practitioner, are you saying that you are not familiar with interference cases where the critical and dispositive evidence was only discovered later and was raised for the first time in civil action? Check you case law repositories.

              1. 8.1.2.1.1.1.1

                OK Ron, “only” “foreclosing on the Section 145 option for most applicants” to “effectively kill them.”
                But the same difference re my rebuttal argument. Which is simply that such civil actions are already so expensive for applicants [from their own attorney and witness fees and existing chargeable PTO costs] that it would not logically make such a draconian difference by adding PTO attorney charges. [Which I am not in favor of either, but that is beside the point of this chain, which is how significant, or not, is this cert grant?] Why would even a reversal here discourage the few [well-heeled] applicants committed to using this civil case option in spite of the very lows odds of it being more successful than a continuation providing better evidence of record?

                1. BTW, you mentioned derivation issues, but optional civil actions from derivation proceedings are under 35 USC 146, not 145.

                2. As shown by the attempted PTO attorney time charge of only $78,592.50 in this case, the PTO is only charging the expended salary time periods of its in-house attorneys, not anything like $1000/hr[/attorney outside law firm fees.
                  BUT, if the PTO ever outsourced its defenses of Section 145 civil actions to law firms with unrestricted defense billings to be charged against the applicants, THEN there would be a real issue here, including due process arguments?

                3. Ron,

                  You are facing the “passive/aggressive” face of Paul Morgan.

                  As to his “rephrasing,” I would not take as much issue as I would with his refusing to acknowledge that the level of charges — of the present example of a “mere” $78,592.50 — is NOT the issue.

                  Note that he (again) TRIES to make that BE the issue.

                  The last time this came up, I put to Paul (and he did not engage) the real fact here being that IF — win or lose — the Office is permitted to fully stick ALL such costs to an applicant, THEN the Office can fully turn on the spigots with any applicant that it so chooses and put ten, fifteen, one hundred attorneys full time on a matter — with no limitation — and drive the billing as high as they want to.

                  As you note to Paul, “This is not about a few thousand dollars. The issue has far-reaching consequences, and the PTO knows that.

                  As if you needed reminding, you are dealing with one of the most vocal IPR cheerleaders who LONG AGO left the side of protecting innovators who may have patents.

          2. 8.1.2.1.2

            With only a touch of snark, does 145 even mean anything now that the Supreme Court has re-defined the essence of a patent grant as being a Public Franchise type of property (with ostensibly the USPTO being the Franchisor)?

          3. 8.1.2.1.3

            Ron,

            I am saddened by your link to the Summer 2010 Journal.

            I am not saddened by the rich content and almost ninety pages of thoughtful advice (prior to the AIA’s passage) – I am saddened that that wisdom was ignored, and the dire predictions have largely come to pass in the evolution of the degradation of the US patent right.

            The fact that the thoughts captured in the journal show much thought and deliberation place their genesis to be almost a full decade ago.

            And yet, the foundation and the principles of those positions STILL fight anti-patent rhetoric and seem unable to be recognized as starting points in any serious discussion.

    1. 7.2

      The article seems to be saying that a company should not have received funding because the technology could not be built and yet a patent was issued for the technology. The article seems to blame the USPTO for having a role in duping investors for not rejecting the claims as not enabled.

    2. 7.3

      Theranos has long been a whipping post for Greg Aharonain.

      This is not really a new story.

  2. 6

    The patent bar is in universal agreement that section 101 case law is mangled beyond use, and this is what the Supreme Court decides to hear? They 9nly break things and never fix things??

  3. 5

    Further re Rimini Street Inc. v. Oracle USA Inc., holding that that the copyright act’s allowance of “full costs” only extends to traditional “taxable costs,” the Court interestingly noted that “[i]f, for particular kinds of cases, Congress wants to authorize awards of expenses beyond the six categories specified in the general costs statute, Congress may do so.” [It found no such express authorization here.]

  4. 4

    As I noted below at 1.1 (and the write-up at: link to ipwatchdog.com would appear to confirm),

    The Court granting cert here will likely be a very light use of their resources.

    Greg may be (somewhat) happy as it looks like Nant will hold onto its CAFC “gains” (and the Court gets to “agree” with the CAFC).

    1. 4.1

      Yes this one seems to be not so interesting after Rimini Street Inc. v. Oracle USA Inc.

  5. 3

    The other—perhaps more interesting—copyright decision today came in Fourth Estate v. WallStreet.COM. The Court held that one cannot bring a suit for copyright infringement until you actually have your registration certificate in hand. Previously, some circuits—such as CA9—had allowed a copyright suit to be commenced as soon as the registration paperwork was filed, even before the registration certificate was issued.

    Although the copyright holder cannot bring suit before the registration is granted, once the registration is granted it is still permissible to sue for damages that accrued before the certificate was granted. Justice Ginsburg authored the opinion for a unanimous court.

    1. 3.1

      Not a surprise on the author of the opinion. Ginsburg the younger teaches copyright law at Columbia. link to law.columbia.edu

      1. 3.1.1

        The younger Ginsburg is as opinionated and ignorant as her mother. Neither one should ever–ever–say a single word about intellectual property.

  6. 2

    Greg, I also found it surprising that with all the major issues raised in cert petitions, and the very small total number of granted certs, that they would grant this one just on whether or not the PTO Solicitors Office can collect attorney fees for itself in the relatively rare optional 35 U.S.C. 145 civil actions requested in between Board decisions and their Fed. Cir. appeals.

    Is it possible they want to use this sleeper to discuss the level of sacrosanctness of “the American Rule” in general [especially re “tort reform” legislative proposals] since that was a major influence on the en banc Fed. Cir. statutory interpretation decision below? That thought might scare up amicus briefs from outside of the patent bar?

    1. 2.1

      Well, that is an interesting idea, Paul. You are right that—if the American rule really is up for reassessment—the interested community for amicus input should be much broader than patent attorneys.

  7. 1

    Full disclosure: I work for NantWorks, a sister company of NantKwest. Nevertheless, everything I say here reflects my own views, and not those of Nant.

    This seems like too small issue to merit the Court’s time and attention. Appeals from the PTO to the ED Va are so rare, that the issue of costs comes up hardly at all. Nor is there any statutory construction issue at stake with application more generally to other statutory construction disputes.

    This seems to me like a waste of the Court’s time.

    1. 1.1

      In light of Rimini Street Inc, perhaps this is one of those occasions that will NOT take too much time at all for the Court to render a parallel holding (spreading the “copyright is not special” message through to the patent world).

      On the other hand, perhaps because the Patent sphere has been written upon directly (and separately) by Congress, the Court will take the opportunity (quickly) to elucidate just why patent merits different results.

      (my money is on the unifying “patents are not special – just like copyrights are not special” result).

    2. 1.2

      Fair, but the government’s cert petition at 22-25 makes a pretty solid argument that this is the sort of case the court should care about. The Federal Circuit sua sponte decided to take the case en banc, they created a split with another circuit, and the government needs to know if it can recoup expenses in this manner. It’s questionable whether this is worth the court’s time, but the issue is simple enough that I doubt it will actually consume a lot of the court’s time.

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