On December 11, 2019 in Peter v. NantKwest, Inc. (No. 18-801), the Supreme Court ruled unanimously that the United States Patent and Trademark Office (PTO) cannot recover attorney’s fees based on an applicant’s challenge to an adverse decision by the PTO under 35 U.S.C. § 145. In particular, the Court confirmed that the “American Rule”—the bedrock principle that “[e]ach litigant pays his own attorney’s fees, win or lose, unless a statute or contract provides otherwise,” Hardt v. Reliance Standard Life Ins. Co., 560 U.S. 242, 253—applies to civil actions brought against the PTO under § 145, and the statutory language of § 145 does not overcome the American Rule.
The Patent Act provides two mutually exclusive methods for challenging an adverse decision by the PTO. One method is to appeal directly to the Federal Circuit under 35 U.S.C. § 141, and another method, relevant to the present holding, is to file a new civil action against the PTO Director in the United States District Court for the Eastern District of Virginia under 35 U.S.C. § 145. Under a § 145 proceeding, the applicant must pay “all the expenses of the proceedings.” Ibid.
This case involved a patent application filed by NantKwest, Inc. directed to a method for treating cancer. After the PTO denied NantKwest’s application, NantKwest filed a complaint against the PTO Director in the Eastern District of Virginia under § 145. The District Court granted summary judgment to the PTO, and the Federal Circuit affirmed. The PTO then moved for reimbursement of expenses that included, for the first time in the 170-year history of § 145, the pro rata salaries of PTO attorneys and a paralegal who worked on the case. The District Court denied the PTO’s motion concluding that the statutory language referencing expenses was not clear enough to rebut the “American Rule.” Then, after a divided Federal Circuit panel reversed the District Court’s denial of attorney’s fees, an en banc Federal Circuit reversed the panel and held that the American Rule presumption applied to actions brought under § 145. The Supreme Court thereafter granted certiorari to resolve the question of whether the American Rule applies to civil cases brought under 35 U.S.C. § 145 and whether the statutory language of § 145 overcomes the American Rule presumption.
The Court concluded that the American Rule provides the starting point for assessing whether § 145 authorizes payment of the PTO’s legal fees and that § 145’s plain text does not overcome the American Rule’s presumption against fee shifting. The Court held that, contrary to the PTO’s view, it has never suggested that any statute is exempt from the presumption against fee shifting. The complete phrase “expenses of the proceeding” would not have been commonly understood to include attorney’s fees at the time § 145 was enacted and the modifier “all” does not transform “expenses” to reach an outlay it would not otherwise include. Additionally, the Court held that the appearance of “expenses” and “attorney’s fees” together across various statutes indicates that Congress understands the terms to be distinct and not inclusive of each other.In view of its reasoning, the unanimous Court affirmed the decision that the PTO cannot recover the salaries of its legal personnel under 35 U.S.C. § 145.
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