US PTO v. NantKwest, “Expenses” Do NOT include Patent Office Salaries
In a paradoxically commonsensical appellate US Supreme Court case, the Court affirmed the en banc holding of the US Court of Appeals for the Federal Circuit. US PTO v. NantKwest, Case No.: 18-801 (SCOTUS Dec. 11, 2019). According to NantKwest, 35 USC §145’s requirement that applicants pay “[a]ll the expenses of the proceedings” does not include attorney’s fees (or reimbursement of the pro rata salaries of Agency legal staff). Of course, litigants against the Patent Office should not be required to pay attorney’s fees or in-house legal staff salaries, right...?
Well, to the Patent Office—not well known for its efficiency these days—the answer (like many others) did not seem so straight forward. The Office arguably squandered a significant amount of attorney time appealing this incredibly improbable issue several times over... probably more than it will cost to defend the next three years’ worth of these proceedings. See Nankwest v. US PTO, en banc, p33 (“Although neither party could provide an exact tally of the § 145 proceedings, at the panel stage the PTO estimated that there were four to five of these proceedings in the last three years.”)
As background, Section 145 enables unsuccessful applicants for patents to appeal claim rejections by the Patent Trial and Appeal Board through a civil action in district court. Upon doing so, “[a]ll expenses of the proceeding shall be paid by the applicant.” Id. Under §145, an applicant will have to pay Patent Office “expenses” regardless of whether the applicant succeeds or fails on appeal. In this case, the applicant, Dr. Hans Klingemann, and assignee, NantKwest, filed a patent application directed to a method of treating cancer. Dr. Klingemann’s claims were ultimately rejected for §103 and that decision was affirmed by the Patent Trial and Appeal Board. NantKwest then brought a §145 action. The EDVA rejected the Patent Office’s motion for expenses with the inclusion of attorney’s fees and while a three-judge panel from the Court of Appeals reversed this decision, the subsequent en banc panel agreed with the district court, finding attorney’s fees outside of the scope of the “expenses” recoverable under §145. The US Supreme Court affirmed the Court of Appeals.
Justice Sotomayor, writing for the unanimous Court, started the Opinion by confirming that the presumption that each party to a litigation bear his/her own costs applies equally to prevailing-party and non-prevailing-party statues on attorney’s fees. Under the bedrock principle, known as the American Rule, “[e]ach litigant pays his own attorney’s fees, win or lose, unless a statute or contract provides otherwise.” quoting Hardt v. Reliance Standard Life Ins. Co. The Patent Office argued that because §145 requires an applicant to bear the burden of “expenses,” regardless of case outcome, the presumption of each party bearing its own costs did not apply. However, the Court rejected this argument, citing a long line of precedent. “This Court has never suggested that any statute is exempt from the presumption against fee shifting. Nor has it limited its American Rule inquiries to prevailing party statutes.” p4. Sebelius v. Cloer was an exemplary case where the fee-shifting statute, like §145, was outcome-neutral but the American-Rule presumption still applied. Indeed, “[t]he Government itself argued in Cloer that the presumption against fee shifting applied by default...” p5.
Courts only diverge from the American Rule for limited equitable reasons and where Congress has set forth a “specific and explicit” directive to make fees available. Nothing in the plain language of §145 demonstrates clear congressional intent to expand the plain and ordinary definition of “expenses of the proceeding” to include attorney’s fees. The Court discussed how historically, “expenses of the proceeding” have excluded attorney’s fees, citing legal dictionaries. p7. Moreover, §145’s use of the modifier “all” before “expenses” conveys breadth under the umbrella of expenses but does not transform the meaning of expenses to reach an outlay it would not otherwise encompass. Other congressional statutes separately referring to expenses and attorney’s fees were also used to evidence independent definitions. Even though some statutes expressly defined “expenses” to include attorney’s fees, doing so only demonstrated that expenses may be defined to include fees in the statute but expenses do not incorporate attorney’s fees as a matter of default.
Therefore, for the trillions of §145 litigants so interested, (not), know that attorney’s fees are excluded from the Patent Office’s “expenses” burden borne by applicants.
