Supreme Court: Patent Office Cannot Be Reimbursed for Attorney and Paralegal Salaries

Intellectual Property Law

In Peters v. NantKwest, Inc.,1 the Supreme Court, in a unanimous decision written by Justice Sonia Sotomayor, held that the “all expenses of the proceedings” provision of a 35 U.S.C. § 145 civil appeal does not include the reimbursement of Patent Office attorney and paralegal salaries associated with working on the § 145 district court proceeding.

The Court initially explained:

The Patent Act creates two mutually exclusive pathways to challenge an adverse decision by the PTO [Patent and Trademark Office]. The first permits judicial review by direct appeal to the United States Court of Appeals for the Federal Circuit. § 141. There is no opportunity for the applicant to offer new evidence in a § 141 proceeding, and the Federal Circuit must review the PTO’s decision on the same administrative record that was before the agency. . . .

The second pathway allows applicants to file a new civil action against the Director of the PTO in federal district court. § 145. Unlike § 141, § 145 permits the applicant to present new evidence . . . not presented to the PTO. . . . The district court acts as a factfinder when new evidence is introduced in a § 145 proceeding and must make de novo determinations that take into account both the new evidence and the administrative record before the PTO. . . . The parties may appeal the district court’s final decision to the Federal Circuit. 28 U.S.C. § 1295(a)(4)(C).

Because § 145 does not limit an applicant’s ability to introduce new evidence to challenge the denial of a patent . . . it can result in protracted litigation. As a condition for permitting such extensive review, the Patent Act requires applicants who avail themselves of § 145 to pay all the expenses of the proceedings.

The Court described the basic American Rule of shifting litigation expenses:

This Court’s basic point of reference when considering the award of attorney’s fees is the bedrock principle known as the “American Rule”: Each litigant pays his own attorney’s fees, win or lose, unless a statute or contract provides otherwise. . . . The American Rule has roots in our common law reaching back to at least the 18th century.

The Court therefore reasoned that the American Rule “provides the starting point for assessing whether § 145 authorizes payment of the PTO’s legal fees.”The Court explained:

Section 145’s plain text thus does not overcome the American Rule’s presumption against fee shifting to permit the PTO to recoup its legal personnel salaries as “expenses of the proceedings.”

According to the Court:

Simply put, in common statutory usage, the term “expenses” alone has never been considered to authorize an award of attorney’s fees with sufficient clarity to overcome the American Rule presumption.

Therefore, the Court concluded that the Patent Office could not be reimbursed salaries of its legal personnel under § 145, and affirmed the judgment of the federal circuit.

Implications:

To date, ex parte patent appeals by appealing to the district court under § 145 are generally very rare. Perhaps with the threat of having to pay the PTO’s attorney/paralegal fees now gone, such proceedings might be utilized more frequently by patent practitioners. In addition, the Court’s decision expressly considered only patent appeals, but it might also apply to similar reviews of trademark decisions.

1 Peters v. NantKwest, Inc., 140 S.Ct. 365, 2019 USPQ2d 474054, 2019 WL 6719083 (2019).


Irah Donner is a partner in Manatt’s intellectual property practice and is the author of Patent Prosecution: Law, Practice, and Procedure, Eleventh Edition, and Constructing and Deconstructing Patents, Second Edition, both published by Bloomberg Law.

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