Authored by: Kristie Butler, Summer Associate

On June 23, 2017, the Federal Circuit confirmed in Nantkwest, Inc. v. Matal (No. 2016-1794) that patent applicants facing rejection from the Patent Trial and Appeal Board (PTAB) may seek relief in the Eastern District of Virginia under 35 U.S.C. §145, but ruled that these litigants must pay the USPTO’s attorneys’ fees, regardless of their cases’ outcomes. Section 145 provides that “[a]n applicant dissatisfied with the decision of the [PTAB]…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 in the United States District Court for the Eastern District of Virginia.… All the expenses of the proceedings shall be paid by the applicant.”

In Nantkwest, the applicant argued that the presumption against an award of attorneys’ fees under the “American Rule” (i.e., each party pays its own costs) could only be overcome if an express provision in either a statute or contract were present, and the “all expenses” provision in § 145 did not include attorneys’ fees. The appellant further argued that Congress would have specified attorneys’ fees in the statute if they were meant to be included. The Federal Circuit was not persuaded that the American Rule applied and disagreed with the applicant’s interpretation after analyzing prior cases, definitions from legal dictionaries and treatises, and Supreme Court precedent, and interpreted the “all expenses” provision of the statute broadly to include attorneys’ fees. And because “all expenses” had already been interpreted by the Federal Circuit to apply to all cases, regardless of their outcomes, the USPTO’s attorneys’ fees must be borne by the applicant, regardless of whether the applicant prevails in the civil action.

A nearly identical ruling about § 145’s Lanham Act analogue, 15 U.S.C. § 1071, was decided by the Fourth Circuit in 2014 in Shammas v. Focarino (No. 14-1191), which held that the “all expenses” provision in the statute included attorneys’ fees. The Fourth Circuit decided that the American Rule did not apply to § 1071 because the payment of the Trademark Trial and Appeal Board’s (TTAB’s) expenses was not a fee-shifting mechanism but that the fees imposed by the statute were compensatory charges. However, the court decided that USPTO attorneys’ fees were expenses that must be paid by the party bringing suit, regardless of the American Rule.

The Nantkwest and Shammas decisions have the practical effect of deterring applicants from bringing a civil action in the Eastern District of Virginia absent unique circumstances. The cost issue aside, applicants might be motivated to bring suit in the District Court because the court offers procedural opportunities that appeals taken from the PTAB or TTAB to the Federal Circuit lack. In the District Court, the record is not limited to documents exchanged with the USPTO during prosecution; both parties may conduct discovery and present new evidence. This allows applicants to seek relief in a full trial.

However, these procedural opportunities come at a cost. Most agencies required to defend their actions in federal district courts can limit the evidence to their administrative records and have the benefit of a more deferential standard in court. Actions brought under 35 U.S.C. §145 and 15 U.S.C. § 1071 in the District Court are not limited in this manner.

Most other statutory provisions that discuss attorneys’ fees hinge on the identity of the prevailing party and allow for the court’s discretion. However, these statutes are viewed in the light of the American Rule, and the Nantkwest and Shammas decisions indicate that 35 U.S.C. §145 and 15 U.S.C. § 1071 do not fall under this rule. Because the Nantkwest and Shammas decisions effectively foreclose the civil action route to applicants who will be dissuaded by the prospect of paying USPTO attorneys’ fees to defend the suit, regardless of the outcome, patent and trademark applicants should be reminded of the importance of fully developing the record during prosecution of a trademark or patent application.