NantKwest, Inc. v. Matal, USPTO & Section 145 Attorneys’ Fees
At the end of last month, the Court of Appeals for the Federal Circuit made the bold decision to rehear en banc the question of whether the PTO is entitled to attorneys’ fees for 35 USC §145 actions and it did so sua sponte – or on its own initiative! NantKwest, Inc. v. Matal, USPTO, Case No. 2016-1794 (Fed. Cir. Aug. 31, 2017). Now, how’s that for drama? As reminder, Section 145 enables unsuccessful applicants for patents to appeal claim rejections by the Board through a civil action in the Eastern District of Virginia. (2011)(“An applicant dissatisfied with the decision of the Patent Trial and Appeal Board in an appeal under section 134(a) may, unless appeal has been taken to the United States Court of Appeals for the Federal Circuit, have remedy by civil action against the Director… All expenses of the proceeding shall be paid by the applicant.”)(emphasis given). The last clause has been the point of contention in NantKwest.
NantKwest involves a case where the applicant, Dr. Hans Klingemann, and assignee, NantKwest, filed a patent application directed to a method of treating cancer. Case No.: 2016-1794 (Fed. Cir. June 23, 2017). Dr. Klingemann’s claims were ultimately rejected for §103 and that decision was affirmed by the Board. NantKwest then brought a §145 action but was unsuccessful at the ED of Virginia, the court partially granted the Office’s motion for witness fees but denied the Director’s petition for attorneys’ fees. Fees totaled over $100k. The original Court of Appeals panel – consisting of Chief J. Prost, J. Dyk and J. Stoll – reversed the ED of Virginia’s denial of attorneys’ fees. The Court of Appeals panel cited its own precedent Hyatt v. Kappos (on other grounds) and the policy considerations behind §145: “[t]o deter applicants from exactly the type of procedural gaming that concerns the Director, Congress imposed on the applicant the heavy economic burden of paying ‘[a]ll the expenses of the proceedings’ regardless of the outcome.” The panel did not find persuasive arguments that the generic American Rule as to fees should apply since §145 does not specifically and explicitly refer to the same. The panel relied upon the plain and ordinary meaning of “expenses,” reasoning that attorneys’ fees are expenses, i.e., expenditures to a litigation. The panel also referred to other precedent (citing Baker Botts) where attorneys’ fees were not made explicit in the Code but the US Supreme Court found the term “litigation costs” to be sufficient to overcome the American Rule. Additionally, the panel did not buy NantKwest’s argument that since the Office had to pay the salaries of its attorneys anyway no fees should apply because the resources were nonetheless diverted.
J. Stoll stood in dissent finding that the strong presumption against fee shifting had not been overcome by the language of §145.
"In order to shift the PTO’s attorneys’ fees to NantKwest in this case, we must find in the text of §145 a 'specific and explicit' authorization from Congress. See Alyeska Pipeline, 421 US at 260. Without express authority, the ordinary meaning of 'expenses'
or § 145’s legislative history has to provide it. A searching review exposes no such authorization."
In essence, J. Stoll argued that if Congress had wanted to make attorneys’ fees available it would have made that indication clear, e.g., as it did in §285. J. Stoll also pointed to prior court interpretations of “expenses” to mean “costs” not attorneys’ fees. J. Stoll then pointed to eighteen other Congressional statutes differentiating attorneys’ fees from expenses. The policy behind the American Rule – not penalizing parties for merely defending or prosecuting a lawsuit as cited by J. Stoll – considers the disproportionate effect divergence from the same could have, discouraging less wealthy individuals from instituting actions. J. Stoll also reminded us that fees could even be due if the applicant ultimately prevails in getting the patent since expenses are due regardless of outcome.
The official question on en banc review is: “Did the panel in NantKwest, Inc v. Matal[] correctly determine that 35 USC §145’s ‘[a]ll the expenses of the proceedings’ provision authorizes an award of the United States Patent and Trademark Office’s attorneys’ fees?” This is a hot button issue for patent stakeholders, especially applicants with smaller budgets. After all, the Patent Office has prided itself on being equally accessible to all members of the public, from global corporations to solos. This is evidenced in the Office’s sliding scale fee structure, new pro bono initiatives and online inventor resources. Would the risk of being taxed via attorneys’ fees for litigating an application for US patent discourage the pursuit of an appeal and lessen the meaning of §145? Or was the original panel right; did Congress always intend for applicants to cover US PTO attorneys’ fees?
As a patent stakeholder, it will be interesting to see what the court decides so stay Just, stay Intellectual and stay tuned.
