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Supreme Court Holds “Expenses” Exclude PTO Employee Salaries in Civil Action Challenges Under the Patent Act

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By Daniel M. Staren and David G. Barker

The Supreme Court unanimously held that the United States Patent and Trademark Office (PTO) may not recover the salaries of its legal personnel as “expenses” in a civil action challenging an adverse decision by the PTO under the Patent Act. The Court’s decision in Peter v. NantKwest affirmed a Federal Circuit en banc decision that premised its holding on the American Rule, which provides that each litigant is responsible for its own attorneys’ fees unless a statute or contract provides otherwise.

NantKwest owned a patent application directed to a method for treating cancer. The PTO rejected the application as obvious in 2010, and the Patent Trial and Appeal Board affirmed the rejection in 2013. Dissatisfied with the Board’s decision, NantKwest challenged the rejection in the U.S. District Court for the Eastern District of Virginia pursuant to 35 U.S.C. §145. After NantKwest lost on summary judgment, the PTO filed a motion for reimbursement of “expenses,” seeking its attorneys’ fees under the statute, including pro rata salaries of two PTO attorneys and one paralegal. The district court denied the PTO’s motion to recover those salaries, a divided Federal Circuit panel reversed, but the Federal Circuit affirmed en banc the district court’s judgment.

In holding that §145 does not include salaries of attorney and paralegal employees of the PTO, the Court first noted that its basic reference point “when considering the award of attorney’s fees is the bedrock principle known as the American Rule: Each litigant pays his own attorney’s fees, win or lose, unless a statute or contract provides otherwise.” The PTO was therefore required to show why this “bedrock principle” did not apply to §145.

The PTO argued that the American Rule is inapplicable because it applies only to “prevailing-party statutes,” and the “expenses” in §145 apply irrespective of a winner. The Court disagreed, stating that it has never exempted a statute from the American Rule or limited its application in such a way. Instead, the Court reiterated that its precedent applies the presumption against fee shifting to all statutes. The Court held that “[t]he [mere] reference to expenses in §145 does not invoke attorney’s fees with the kind of clarity we have required to deviate from the American Rule.” The Court also considered the history of the Patent Act and the “record of statutory usage,” both of which support the decision.

This decision may have implications outside the patent context because the federal trademark laws also include a provision related to allocation of “expenses.” 15 U.S.C. §1071(b)(3).