By Thomas Long, J.D.
The plain language of 35 U.S.C. §145 was not enough to overcome the presumption under the "American Rule" that each litigant pays its own attorney fees, win or lose.
The USPTO cannot recover the salaries of its legal personnel that it incurs when its employees, including attorneys, defend the agency in district court litigation, the U.S. Supreme Court has held in a unanimous decision delivered by Justice Sonia Sotomayor. The phrase "All the expenses of the proceedings" in 35 U.S.C. §145 did not authorize payment of the USPTO’s legal fees. The statutory language did not overcome the presumption against fee-shifting under the "American Rule," a bedrock principle standing for the proposition that litigants pay their own fees, win or lose, unless a statute or contract provides otherwise. In the Court’s view, "expenses of the proceedings" would not have been commonly understood to include attorney fees at the time Section 145 was enacted, and the term "all" did not transform the term "expenses" to reach fees when it would not otherwise have covered them. The Court also noted that when Congress intended to provide for awards of attorney fees in the Patent Act, it had stated so explicitly. The Court affirmed a decision of the U.S. Court of Appeals for the Federal Circuit, which held in an en bancopinion that patentee NantKwest was not required to pay the USPTO’s requested personnel expenses after prevailing in an appeal from an adverse decision by Patent Trial and Appeal Board (Peter v. NantKwest, Inc., December 11, 2019, Sotomayor, S.).
Section 145. Under the Patent Act, an applicant who is dissatisfied with the Board’s decision may seek judicial review through one of two avenues: (1) a direct appeal to the Federal Circuit pursuant to 35 U.S.C. §141, which provides for review on the existing administrative record, or (2) a civil action in district court pursuant to 35 U.S.C. §145, which allows for the introduction of new evidence and de novo review. Section 145 states, in part, that "[a]ll the expenses of the proceedings shall be paid by the applicant." There is no requirement that the USPTO must prevail in order to recover its expenses.
Application of American Rule. The Supreme Court explained that its basic point of reference when considering the award of attorney fees was the American Rule, which had "roots in our common law reaching back to at least the 18th century." The government did not dispute this principle, but it argued that it did not apply here because the presumption applied only to prevailing-party statutes. And because Section 145 requires one party to pay all expenses regardless of outcome, the government contended, it was not a statute subject to the presumption. According to the Court, that position was wrong. "This Court has never suggested that any statute is exempt from the presumption against fee shifting," Justice Sotomayor wrote. "Nor has it limited its American Rule inquiries to prevailing-party statutes." A line of Supreme Court precedents in fact made it clear that the presumption against fee shifting applied to all statutes—even those like Section 145 that do not explicitly award attorney fees to "prevailing parties."
The Court also explained that, rather than being merely an intermediate step in obtaining a patent, a Section 145 proceeding had all the marks of the kind of adversarial litigation in which fee shifting, and the presumption against it, was common, pointing out that the statute authorizes filing a separate civil action where new evidence can be introduced for de novo review by a district judge. Therefore, the presumption was particularly important because Section 145 permitted an unsuccessful government agency to recover its expenses from a prevailing party, the Court said. Interpreting Section 145 to allow for a fee award would be "a radical departure from longstanding fee-shifting principles."
Congressional intention to depart from presumption against fee shifting. To determine whether Congress intended to depart from the American Rule presumption, the Court first looked to the language of Section 145. Although the absence of a specific reference to attorney fees was not dispositive, Congress must provide a sufficiently specific and explicit indication of its intent to overcome the American Rule’s presumption against fee shifting. The reference to "expenses" in Section 145 did not invoke attorney fees with the kind of "clarity we have required to deviate from the American Rule," said the Court, adding that definitions of "expenses" provided scant guidance. The complete phrase "expenses of the proceeding" was similar to the Latin expenses litis, or "expenses of the litigation," the Court noted. The term had long referred to a class of expenses commonly recovered in litigation to which attorney fees did not traditionally belong. Moreover, reading the term "expenses" alongside neighboring words in the statute supported a conclusion excluding legal fees from the scope of Section 145, the Court said, reasoning that the use of "expenses" in Section 145 would not have been commonly understood to include attorney fees at the time of its enactment. Additionally, the modifier "all" did not expand Section 145’s reach to include attorney fees. Therefore, the Court concluded that Section 145’s plain text did not overcome the American Rule’s presumption against fee shifting to permit the USPTO to recoup its legal personnel salaries as "expenses of the proceedings."
Record of statutory usage. The Court also asserted that the fact that "expenses" and "attorney’s fees" appear in tandem across various statutes shifting litigation costs indicated that Congress understood the two terms to be distinct and not inclusive of each other. For example, 11 U.S.C. §363(n) allowed a bankruptcy trustee to recover "any costs, attorneys’ fees, or expenses incurred." Although some other statutes referred to attorney fees as a subset of expenses, they showed only that "expenses" can include attorney fees when so defined. "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," the Court stated.
Legislative history. The Patent Act’s history reinforced the proposition that Congress did not intend to shift fees in Section 145 actions, the Court said. There was no evidence that the Patent Office, the USPTO’s predecessor, originally paid its personnel from sums collected from adverse parties in litigation, or that it initially even employed attorneys. In addition, the USPTO had not, until this litigation, sought its attorney fees under Section 145. "That the agency has managed to pay its attorneys consistently suggests that financial necessity does not require reading §145 to shift fees, either," the Court reasoned. Moreover, when Congress intended to provide for attorney fees in the Patent Act, it stated so explicitly. For example, Section 285 provides, "The court in exceptional cases may award reasonable attorney fees to the prevailing party."
Conclusion. The Court concluded that the USPTO cannot recover the pro rata salaries of its legal personnel under Section 145, and it therefore affirmed the judgment of the Federal Circuit.
This case is No. 18-801.
Attorneys: Noel J. Francisco, U.S. Department of Justice, for Laura Peter. Morgan Chu (Irell & Manella LLP) for NantKwest, Inc.
Companies: NantKwest, Inc.
MainStory: TopStory Patent
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