Patent Filers Must Pay PTO Staff in District Court Appeals

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By Peter Leung

Patent applicants who appeal Patent and Trademark Office decisions to district court must pay the salaries of PTO attorneys on the other side of the case, a federal appeals court said June 23 ( NantKwest, Inc. v. Matal , Fed. Cir., No. 16-1794, 6/23/17 ).

A section in the patent law requires a party appealing to district court to pay the “expenses of the proceedings,” and that includes a portion of the salaries the PTO pays its staff lawyers who are working on the appeal, the U.S. Court of Appeals for the Federal Circuit said.

The provision doesn’t apply to Federal Circuit appeals, which may be less attractive to applicants because, in district court appeals, they can introduce new evidence. However, the Federal Circuit’s interpretation of 35 U.S.C. §145, which applies whether the appealing party wins or loses, will likely discourage district court appeals.

American Rule

NantKwest Inc. appealed to district court after the PTO rejected its patent application for a cancer treatment. After winning, the PTO moved for its expenses, including attorneys’ salaries.

The U.S. District Court for the Eastern District of Virginia awarded some of the PTO expenses, such as expert fees, but not attorneys’ fees, which the PTO said accounted for about 70 percent of its expenses. The “American” rule that each party covers its own attorneys’ fees applies unless Congress expresses a clear intent to make an exception, and the statute isn’t clear whether attorneys’ fees are included in “expenses,” the court said.

But the appeals court reversed. Chief Judge Sharon Prost, in a decision Judge Timothy B. Dyk joined, said that there are parts of the patent law that clearly include attorneys’ fees in the term “expenses.” For example, one section from the 1836 Patent Act says that “expenses” include payment for patent office clerks and officers. The court also said that the U.S. Supreme Court’s decision in Taniguchi v. Kan Pacific Saipan, Ltd.distinguished between “expenses,” which include attorneys’ fees, and “costs,” which do not.

Salaries and Attorneys’ Fees

NantKwest’s argument essentially requires a statute to use the phrase “attorneys’ fees” before there can be an exception to the American rule, which is incorrect, the appeals court said. It noted that the PTO uses its own salaried staff lawyers to handle appeals, so there aren’t “attorneys’ fees” being paid. The statute’s reference to “expenses” more accurately describes the situation, the court said.

The court also rejected NantKwest’s argument that lawyers’ salaries aren’t “expenses” because the PTO would pay its workers even if no appeal was filed. The lawyers have been diverted from other work that they could be doing, so it’s appropriate to apportion part of their salaries as an expense incurred in the proceeding, the court explained.

What’s more, NantKwest’s argument would likely allow the PTO to recover fees it paid to outside lawyers, leading to an illogical result, the court said.

Judge Kara F. Stoll dissented, arguing that Congress didn’t express its clear intention to make an exception to the American rule. Section 285 of the Patent Act, which provides for fee-shifting in some instances, uses the phrase “attorneys’ fees,” so the fact that Section 145 doesn’t means that “expenses” should have a different meaning, she said.

Consistency with Trademarks

The Federal Circuit decision is largely consistent with the U.S. Court of Appeals for the Fourth Circuit’s interpretation in Shammas v. Focarino. The Fourth Circuit said that a trademark filer who appeals a PTO decision to district court must pay the PTO’s attorneys’ fees, based on a Lanham Act provision with language nearly identical to Section 145.

Interestingly, the Fourth Circuit said that the American rule doesn’t even apply, since that rule concerns whether the losing party should pay the other’s attorneys’ fees. The provision in Shammas doesn’t refer to the prevailing party at all, so it’s a different issue altogether, the Fourth Circuit said.

The Federal Circuit in NantKwest said that, like the Fourth Circuit, it doubts that the American rule applies but, even if it did, the provision clearly carved out an exception.

Irell & Manella LLP represented NantKwest. The U.S. Department of Justice represented the PTO. The parties didn’t immediately respond to requests for comment.

To contact the reporter on this story: Peter Leung in Washington at pleung@bna.com

To contact the editor responsible for this story: Mike Wilczek at mwilczek@bna.com

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