Nantkwest Amici Urge SCOTUS Not to Shift Attorney’s Fees in Section 145 Appeals

By Steve Brachmann
July 29, 2019

“The government has had the statutory authority to collect ‘expenses of the proceeding’ in patent cases since 1839 but for the 174 years prior to the case against Nantkwest, the USPTO has declined to seek attorney’s fees.”

Amici in Nantkwest Urge SCOTUS to Bar Attempt to Shift Attorney’s Fees in Section 145 AppealsThis March, the U.S. Supreme Court granted a petition for writ of certiorarito take up Peter v. Nantkwest Inc., on appeal from the Court of Appeals for the Federal Circuit. The case will ask the nation’s highest court to determine whether the phrase “[a]ll expenses of the proceeding” found in 35 U.S.C. § 145, which governs appeals to district court of U.S. Patent and Trademark Office decisions to deny the issue of a patent grant, encompasses personnel expenses incurred by the USPTO, including attorneys’ fees, when its employees defend the agency against Section 145 litigation. The Section 145 litigation in this particular case stems from a 2013 decision by the USPTO to deny a patent for a method of treating cancer cells. In the district court, Nantkwest relied on a new expert witness and the USPTO retained its own expert witness to respond. The district court affirmed the obviousness finding denying the patent, and the USPTO filed a motion for reimbursement of the proceeding’s expenses under Section 145, including nearly $80,000 in attorney’s fees. The district court denied the attorney’s fees award and while the original Federal Circuit panel reversed the district court on this finding, an en banc rehearing led to a July 2018 decision where a Federal Circuit majority found that the attorney’s fees award was prohibited by the American Rule, which prevents fee shifting without a specific and explicit directive from Congress.

Typically, the USPTO’s Director would be listed as the party on behalf of the agency and, indeed, at the Federal Circuit this case was Nantkwest v. Iancu. However, a letter from Solicitor General Noel Francisco addressed to the Supreme Court this May indicated that Director Andrei Iancu had recused himself in the case and the USPTO would instead be the petitioner in the case. Although the letter doesn’t indicate a reason for the recusal, Dennis Crouch of Patently-O suggests that the recusal may have to do with Nantkwest being represented by Morgan Chu of Irell & Manella, where Iancu served as managing partner prior to his appointment as USPTO Director.

On July 22, a series of intellectual property and law associations filed amicus briefs in the case by and large supporting the position of Nantkwest. This includes the American Bar Association, which argued that the USPTO’s interpretation of the statute would “hamper the equal access to justice and chill the assertion of meritorious claims.” The following is a summary of those briefs and the arguments raised by amiciin the case.

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Intellectual Property Owners Association on Behalf of Respondent Nantkwest

Like other amici, the IPO brief notes that the American Rule is a bedrock principle of American law. While the USPTO argues that both Section 145 and 15 U.S.C. § 1071(b), which governs appeals of USPTO trademark registration decisions to district court, allows the agency to recover all expenses including attorney’s fees, IPO argues that statutory fee shifting regardless of outcome implicates the American Rule even more strongly. If the USPTO is capable of earning attorney’s fees even when it loses, which would be possible under its interpretation of the statutes, it could discourage poor parties from vindicating their rights, penalize parties for litigating, impose difficulties on assessing reasonable attorney’s fees, discourage settlement of cases which the agency is likely to lose and increase distrust of attorneys, all of which are policy considerations in favor of respecting the American Rule. Other reasons provided by the government for abandoning the American Rule also fail, including arguments that attorney’s fees would be borne by other fee-paying members of the USPTO and that payment of district court attorney’s fees is a counterpart to the fees paid by an applicant for patent examination.

As the Supreme Court reiterated in 2015’s Baker Botts L.L.P. v. ASARCO LLC, only “specific and explicit provisions” allowing attorney’s fees awards can overcome the American Rule. IPO argues that “expenses of the proceeding,” a phrase translated from the Latin expensæ litis, has been understood to include legal taxed costs and not counsel fees going back to the 18th century. Even if it wasn’t a longstanding term of art, its reference to attorney’s fees is ambiguous at best. In various statutes, Congress allows both “expenses” and “attorney’s fees” separately and expressly. The Supreme Court’s decision earlier this year in Rimini Street, Inc. v. Oracle USA, Inc., further demonstrates that Congressional statute needs to specifically call out attorney’s fees to overcome the American Rule. Further, attorney’s fees aren’t expenses “of the proceeding” because attorney’s fees are paid by the government whether or not they’re working on a civil action.

The government has had the statutory authority to collect “expenses of the proceeding” in patent cases since 1839 but for the 174 years prior to the case against Nantkwest, the USPTO has declined to seek attorney’s fees. Further, the USPTO argues that the ability to present live testimony in district court when such testimony isn’t available during the patent examination process is a right, not a privilege. Paying tens of thousands of dollars for the right to present live testimony goes against Constitutionally-protected due process. “The suggestion that only those who can afford the other party’s attorney’s fees are entitled to come to district court is not the American way,” the IPO’s brief reads.

American Intellectual Property Law Association on Behalf of Respondent Nantkwest

 As opposed to the English Rule, which typically enables a winning party to recoup attorney’s fees from the loser, the American Rule reflects the nation’s early democratic-libertarian traditions and individualized litigation strategies which allowed parties to spend as much on litigation as they saw fit without burdening the losing party in the case. In cases like Baker Bottsand Fleischmann Distilling Corp. v. Maier Brewing Co.(1967), SCOTUS has upheld the American Rule as preserving fair access to the American legal system.

When exceptions are made to the American Rule, the AIPLA brief argues that those exceptions encourage rights-vindicating litigation instead of burdening it. One example of such an exception is the diffusion of legal costs amongst the beneficiaries of a case involving a common fund, as seen in 1881’s Trustees v. Greenough. Attorney’s fees burdens were also shifted by Congress in the late 19th century because of Congressional desire to encourage socially desirable litigation under laws like the Interstate Commerce Act and the Sherman Act. This policy of social reform through litigation was further advanced by Congress in 1976 through passage of the Civil Rights Attorney’s Fee Awards Act. Where Congress has shifted attorney’s fees to discourage litigation, such as under Federal Rule of Civil Procedure 11(c)(2)or 35 U.S.C. § 285, those are cases involving bad faith litigation or litigation misconduct.

The USPTO argues that the expenses provision in Section 145 isn’t fee shifting but, rather, “an unconditional compensatory charge imposed on all applicants who invoke Section 145.” AIPLA contends that this interpretation serves to damage the American Rule more than a success-based provision would as this interpretation burdens all applicants. Further, the government’s interpretation invades common law and thus requires a clear textual authorization for the award of attorney’s fees. This clear authority is absent from Section 145. Such authority does exist in Section 285, however, and as the Court has previously held in 1983’s Russello v. United States, when Congress includes language in one section of a law which is omitted in a different section, it’s assumed that the omission is intentional.

IEEE-USA on Behalf of Respondent Nantkwest

The U.S.-based unit of the world’s largest technical professional organization opens its brief by discussing the difference between civil actions taken under Section 145 and appeals of USPTO decisions happening under 35 U.S.C. § 141and going directly to the Federal Circuit. Unlike the Federal Circuit, which exercises appellate jurisdiction and is limited to the evidence on record at the USPTO, district courts exercise original jurisdiction over Section 145 appeals, giving applicants an opportunity to present new evidence. The IEEE-USA brief notes the detrimental effects of the Fourth Circuit’s 2015 decision in Shammas v. Focarino, in which the appellate court decided that shifting the USPTO’s attorney’s fees in a civil court case involving a trademark appeal didn’t violate the American Rule. The increased liability to trademark applicants created by that decision led to an increase in both voluntary dismissals and joint stipulated remands to the USPTO.

IEEE-USA also argues that the USPTO’s argument in this case is the agency’s most recent attempt to do away with Section 145 and its predecessors, efforts that have been underway for more than a century. In 1912, a bill proposed in the House of Representatives and allegedly written by then-Commissioner of Patents Edward Moore would have repealed Section 145’s predecessor statute that allowed for appeals of Patent Office decisions to district court. The bill didn’t pass the House. Several other attempts to repeal Section 145 took place over the years include the passage of the America Invents Act (AIA) which shifted appeals of both final decisions in reexaminations and AIA trials to the Federal Circuit.

Assuming that the USPTO’s novel interpretive theories for shifting attorney’s fees under Section 145 make sense, the timing for making such arguments still doesn’t make sense because none of the conditions are new. While the USPTO argues that it’s charged with funding activities like Section 145 appeals through user fees, the agency has been fully funded by user fees since passage of the Omnibus Budget Reconciliation Act of 1990. In the nearly three decades since the agency had the authority to set user fees to recoup expenses, this legal theory hadn’t been advanced once. Finally, IEEE-USA contends that the data on Section 145 proceedings, which shows that such actions account for 0.009 percent of the USPTO’s annual expenditures on patent operations, contradicts the notion that the agency needs to recoup attorney’s fees to cover costs.

“Because the USPTO sets user fees based on its aggregate expenses, the 0.009% incremental fee cost to all patent users would be so small as to be within the rounding error of pennies,” the IEEE-USA argues.

International Trademark Association on Behalf of Respondent Nantkwest 

While the Supreme Court granted certiorari i n this case to resolve the inconsistencies between Shammas and the Federal Circuit’s en banc decision in Nantkwest, the INTA brief argues that the Federal Circuit was correct in rejecting Shammas. In part, this is because in Shammas the Fourth Circuit erred in interpreting the Supreme Court’s 1983 decision in Ruckelshaus v. Sierra Club. Although attorney’s fees were awarded in that case, which involved a review of Environmental Protection Agency authority under the Clean Air Act, the statute at issue in Ruckelshaus explicitly mentioned attorney’s fees and the court looked for “a clear showing” of Congress’ intent in shifting fees.

Like AIPLA, INTA argues that the omission of attorney’s fees in Section 145 when such fees are clearly stated in Section 285 indicates an intentional omission of such fees being considered expenses of the proceeding. INTA also echoes IPO’s arguments that Section 145’s mention of “expenses of the proceeding” is too ambiguous to reach the threshold of finding that Congress clearly intended attorney’s fees to be shifted contrary to the American Rule.

The largest portion of INTA’s brief explores the legislative history of both the Patent Act and the closely related Lanham Act, which doesn’t show that Congress clearly intended “expenses” in either Act to include attorney’s fees. In the history leading up to the 1839 Patent Act, which first gave the Patent Office authority to collect “expenses of the proceeding,” the only expense contemplated was compensation to the Chief Judge for his time spent on court appeals. Similarly, the legislative history on Section 21(b)(3) of the Lanham Act, codified as 15 U.S.C. Section 1071(b), contains no such references to attorney’s fees as expenses that can be collected for trademark appeals. Subsequent amendments to the Lanham Act didn’t add attorney’s fees to Section 21(b)(3), although such additions were made to other sections of the Lanham Act over time.

The Author

Steve Brachmann

Steve Brachmann is a freelance journalist located in Buffalo, New York. He has worked professionally as a freelancer for more than a decade. He writes about technology and innovation. His work has been published by The Buffalo News, The Hamburg Sun, USAToday.com, Chron.com, Motley Fool and OpenLettersMonthly.com. Steve also provides website copy and documents for various business clients and is available for research projects and freelance work.

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