March 14, 2019

High Court Will Decide USPTO’s Win-or-Lose Attorney Fee Rule

By Robert E. Cannuscio and Gordon K. Lin

The United States Supreme Court agreed, on Monday, March 4, 2019, to weigh in on the legality of the U.S. Patent and Trademark Office's controversial policy of seeking attorneys' fees regardless of the outcome of a case.

The justices granted certiorari in Iancu v. NantKwest, a patent case (No. 18-801) in which an en banc Court of Appeals for the Federal Circuit ruled last summer that the agency's unusual policy ran afoul of the so-called American Rule that litigants generally must pay their own legal fees. NantKwest, Inc. v. Iancu, 898 F.3d 1177 (Fed. Cir. 2018). As is customary, the justices did not explain why they had agreed to take on the case.

The trip to the high court is the latest and perhaps final chapter in years of litigation over the policy, which the USPTO first rolled out in 2013. The policy is rooted in language in the Patent Act and the Lanham Act that says unsuccessful patent and trademark applicants who file a so-called de novo appeal to a district court — as opposed to a more streamlined record appeal directly to the Federal Circuit — must pay "all expenses of the proceeding." But for decades, the USPTO interpreted that language to mean relatively minor expenses, such as travel costs and court fees. That changed in 2013 when the agency started seeking substantially larger attorneys' fees. USPTO says that the fees are necessary to pay for a more-expensive appellate option, but critics including the American Bar Association say that it makes district court appeals too expensive for all but the richest applicants.

In July 2018, the en banc Federal Circuit sided with those critics, overturning its previous ruling on the policy and finding that it violated the American Rule — which traditionally holds that each party bears its own attorneys’ fees. The Federal Circuit said that “adopting the USPTO's interpretation would create a particularly unusual divergence from the American Rule,” not to mention the fact that the USPTO would have nothing to lose in challenges brought in the district court by applicants challenging decisions perceived to be wrong.

The Federal Circuit also said that “had Congress intended to produce such an anomalous result, we believe it would have said so in far plainer language than that employed [in 35 U.S.C. §145].” That ruling expressly split from an earlier ruling by the Fourth Circuit, which green-lighted the USPTO's policy in a 2015 decision dealing with a trademark applicant named Milo Shammas. In a long, convoluted series of appeals by Shammas, the Fourth Circuit disagreed that the American Rule governed that application of attorneys’ fees, holding that “any dissatisfied challengers to Trademark Trial and Appeal Board decisions who pursue district court reviews must cover all fees incurred by the U.S. Patent and Trademark Office in the proceeding regardless of which side ultimately prevails.” Shammas v. Focarino, 784 F.3d 219 (4th Cir. 2015), cert denied, 136 S.Ct. 1376 (2016).

In its December 2018 petition for certiorari, the USPTO asked the Supreme Court to resolve that budding circuit split. The USPTO wrote that “the personnel expenses that the Federal Circuit forbade the USPTO from recovering often represent the bulk of the agency's expenses. If that decision is allowed to stand, other USPTO users will necessarily be required to underwrite some of the expenses of [district court] proceedings."

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