by Dennis Crouch
Peters v. NantKwest, 589 U. S. ____ (Supreme Court 2019)
In a short, unanimous decision, the Supreme Court has upheld the “American Rule” of fee shifting — holding that the “all expenses of the proceedings” provision of § 145 does not authorize reimbursement of PTO attorney/paralegal costs associated with working on the case.
The question presented in this case is whether such “expenses” include the salaries of attorney and paralegal employees of the United States Patent and Trademark Office (PTO). We hold that they do not.
I have sympathy for the PTO in this case. It is expensive for the agency to defend itself in district court litigation and those costs must be recouped somehow. If the PTO spends $300,000 on defending a § 145 trial, that money will likely be taken-away from examination and lead to increased fees for next year. From the PTO’s perspective, almost every substantial request from the patent applicant comes with an associated fee that is related to the cost of providing the service and why should this be different? The answer, of course, is that a trial in Federal Court is a far cry from agency action and is particularly designed to cut-off and avoid agency overreach. The Supreme Court correctly decided the case today based upon the tradition and long history of the “American rule” that is also supported by are culture of providing access to the courts.
= = =
Background: When the PTO refuses to issue a patent, most applicants just turn their tail and go home. Others are stubborn and take the matter to court. The Patent Code provides two alternative approaches: (1) appeal immediately to the Federal Circuit; or (2) file a civil action under § 145 — demanding a federal trial on whether the PTO must issue the patent. Law students write appellate briefs in their 1L advocacy class — writing a pretty good appellate brief is relatively easy and also relatively cheap. One problem with appealing directly is that the Federal Circuit gives substantial deference to any factual findings by the PTO — As such, it is usually only fruitful to appeal on questions of law or where the factual error is exceedingly clear. Section 145 civil actions, however, allow the patent applicant to present new evidence, including oral expert testimony, that is considered afresh by the district court without deference to prior PTO factual findings. The primary downside, of course, is the expense of expert witnesses, depositions, and the trial.
The last line of § 145 states: “All the expenses of the proceedings shall be paid by the applicant.” The Lanham Act has a parallel provision for times with the PTO refuses to register a mark: “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.” 15 U.S.C. § 1071.
Do “all the expenses” include PTO attorney fees: The Sotomayor opinion begins with the long-held tradition that “[e]ach litigant pays his own attorney’s fees, win or lose, unless a statute or contract provides otherwise.” The court explained that the tradition applies generally in civil cases. “This Court has never suggested that any statute is exempt from the presumption against fee shifting.” Likewise, § 145 is not except.
The rule of no-fee-shifting is a presumption grounded in the common law — one that Congress can flip. However, because the rule is so fundamental to American legal practice, the courts have required a “specific and explicit” statement of Congressional intent. Here, the word “all the expenses” do not meet that threshold level of clarity.
The court’s interpretation of “all the expenses of the proceedings” is as follows:
The complete phrase “expenses of the proceeding” is similar to the Latin expensæ litis, or “expenses of the litigation.” This term has
long referred to a class of expenses commonly recovered in litigation to which attorney’s fees did not traditionally belong. See Black’s Law Dictionary 461 (1891) (defining “expensæ litis” to mean “generally allowed” costs) … These
definitions suggest that the use of “expenses” in §145 would not have been commonly understood to include attorney’s fees at its enactment. …
[T]he modifier “all” does not expand §145’s reach to include attorney’s fees. Although the word conveys breadth, it cannot transform “expenses” to reach an outlay it would not otherwise include. Cf. Rimini Street, Inc. v.
Oracle USA, Inc., 586 U. S. ___, ___–___ (2019) (slip op., at 6–7) (“The adjective ‘full’ in §505 therefore does not alter the meaning of the word ‘costs.’ Rather, ‘full costs’ are all the ‘costs’ otherwise available under law”).
The final section of the opinion delves briefly into PTO history and probably should have been left out because it appears to me to add more confusion than clarity. The court writes that:
There is no evidence that the (19th century) Patent Office, the PTO’s predecessor, originally paid its personnel from sums collected from adverse parties in litigation, or that the Office initially even employed attorneys.
This statement does not appear relevant – a more relevant question would be whether the PTO collected attorney fees in those early cases.
In the end, the Supreme Court found that all signs pointed to a conclusion that the cost-shifting provision does not include attorney fees.