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The Price to Pay for De Novo Review of PTO Decisions
The 1952 Patent Act, 35 U.S.C. §§1 et seq. permits parties dissatisfied with decisions of the United States Patent and Trademark Office (PTO) to seek de novo review in the United States District Courts. 35 U.S.C. §145. Section 145 provides in relevant part that in such cases for de novo review, “[a]ll the expenses of the proceedings shall be paid by the applicant” (the Expenses Provision). Similar language first appeared in the Patent Act of 1836. The Trademark Act of 1946 (Lanham Act) contains a virtually identical provision. 15 U.S.C. §1071(b)(3) (“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.”)
In NantKwest, Inc. v. Iancu, Slip Op. No. 16-1794 (Fed. Cir. July 27, 2018), the Federal Circuit sitting en banc reversed its own prior ruling in NantKwest, Inc. v. Matal, 860 F.3d 1352 (Fed. Cir. 2017), and held that “all expenses of the proceeding” does not include attorneys' fees. Two weeks later, the Federal Circuit vacated a contrary holding in Realvirt LLC v. Iancu, No. 2017-1159 (Fed. Cir. Aug. 14, 2018), and remanded for resolution in light of NantKwest. Awaiting oral argument in the Fourth Circuit is Booking.com, B.V. v Iancu, No. 17-2458; 17-2459, in which the author is representing the appellee in a cross-appeal concerning the essentially identical phrase under the Lanham Act following an initially successful de novo review of a TTAB proceeding.
Attorneys' Fees As Expenses
In 2018 (and 2017) the issue whether “expenses” includes “attorneys' fees” has generated considerable interest, with the publisher Law360 (for instance) identifying NantKwest and Booking.com as among the most consequential cases of the time. See, “The Next 4 Big Copyright And Trademark Rulings Are …,” Law360 (June 26, 2018); “The Top 10 Trademark Rulings of 2017,” Law360 (Dec. 12, 2017). However, for 175 years, when the PTO sought recovery from intellectual property owners of any of “the expenses of the proceedings,” it never sought to include among such claimed expenses attorneys' fees, but instead (at most) sought on occasion limited expenses, such as travel costs or expert witness fees. Four years ago, however, the PTO began to seek recovery of attorneys' fees as expenses in such de novo proceedings. The first such decision, Shammas v. Focarino, 990 F. Supp. 2d 587 (E.D. Va. 2014), aff'd, 784 F.3d 219 (4th Cir. 2015), cert. denied, 136 S. Ct. 1376 (2016), applying the Lanham Act provision, 15 U.S.C. §1071(b)(3), adopted the PTO's new interpretation that “expenses” does include attorneys' fees. A key part of the Fourth Circuit decision (relied on by the PTO in NantKwest but rejected by the Federal Circuit) is that the American Rule only concerns shifting of fees to prevailing parties, whereas the relevant language in the patent and trademark statutes applies regardless which party wins.
However, two months after Shammas, the Supreme Court, in Baker Botts L.L.P. v. ASARCO LLC, 135 S. Ct. 2158 (2015), analyzed the breadth of the so-called “American Rule,” prohibiting fee-shifting in the absence of “specific and explicit” authority from Congress. Id. at 2161. Moreover, the Supreme Court summarized the American Rule more categorically than in Shammas: “Each litigant pays his own attorney's fees, win or lose, unless a statute or contract provides otherwise.” 135 S. Ct. at 2164. Soon thereafter, the district court in NantKwest held that Shammas was irreconcilably at odds with Baker Botts and declined to follow Shammas (even nominally in its own circuit — although the appeal in a patent case such as NantKwest was destined for the Federal Circuit). NantKwest, Inc., 162 F. Supp. 3d at 545-46. The case itself arose after the PTO rejected NantKwest's application as obvious, leading the company to seek de novo review in the Eastern District of Virginia — a case that was itself unsuccessful on the merits. The Federal Circuit affirmed the decision on the merits in NantKwest, Inc. v. Lee, 686 F. App'x 864, 865 (Fed. Cir. 2017), leading to the PTO's fee application. The Federal Circuit initially reversed the Virginia district court's denial of the PTO's request for attorneys' fees before vacating its own decision sua sponte, and granting rehearing en banc one year ago, 2017 WL 3747354 (Fed. Cir. Aug. 31, 2017), leading to the July 27 decision.
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