December 13, 2019

Are Attorneys' Fees Expenses?

Earlier this week, in Peter v. Nantkwest, Inc., Case No. 18-801 the Supreme Court of the United States unanimously held that the United States Patent and Trademark Office (the “PTO”) cannot recover the salaries of its legal personnel as expenses under Section 145 of the Patent Act.

What, you might ask, is a post about a patent case doing on a blog about trademarks?

Well, a similar issue has arisen in trademark cases, as we blogged about here. That post summarized Shammas v Focarino, decided by the U.S. Court of Appeals for the Fourth Circuit just a few years ago. In Shammas, Mr. Shammas appealed the denial of registration of his mark to the Trademark Trial and Appeal Board (the “TTAB”), and when the TTAB affirmed the refusal, he chose to initiate a de novo proceeding in district court rather than appeal to the U.S. Court of Appeals for the Federal Circuit. The district court granted the PTO’s motion for summary judgment and the PTO moved for reimbursement of its expenses. Under the Lanham Act, if an applicant files a de novo action in district court instead of appealing to the Federal Circuit in a case where there is no adverse party, the applicant must pay “all the expenses” of the proceeding1. The PTO’s reimbursement request included prorated salaries for two attorneys and a paralegal in addition to more traditional expenses (like copies). Though Mr. Shammas objected to inclusion of the salaries as part of his reimbursement obligation, but the district court found in favor of the PTO, as did the U.S. Court of Appeals for the Fourth Circuit when he appealed.

Nantkwest had a similar procedural history when it reached the U.S. Supreme Court, except that it involved patent rights. The PTO denied Nantkwest’s patent application, so Nantkwest appealed to the Patent Trial and Appeal Board (the “PTAB”). When the PTAB affirmed, Nantkwest chose to commence a de novo action in district court to challenge the decision. The district court granted summary judgment to the PTO. The Patent Act has a provision similar to the provision in the Lanham Act. It says that in such cases “all the expenses of the proceedings shall be paid by the applicant.” The PTO sought reimbursement of expenses, including the prorated salaries of staff attorneys and a paralegal. This time, however, the district court denied the PTO’s motion for recovering of pro rata salaries. The PTO appealed to the U.S. Court of Appeals for the Federal Circuit, which reversed the district court. But then the court decided on its own accord to rehear the case en banc and it reversed the panel. The Supreme Court agreed to take the case to decide whether the provision in the Patent Act overrides the American Rule that requires each party to litigation to bear its own attorneys’ fees.

In general, in the United States, each party to litigation bears its own attorneys’ fees unless there is a statute that provides otherwise. This is known as the “American Rule.” The PTO argued that the presumption should not apply in this case because the statute provided for the applicant to bear all expenses even when it prevailed, but the Supreme Court noted that the presumption is not limited to prevailing party cases. To decide whether Congress intended for a statute to depart from the American Rule presumption first requires examination of the statute. Congress must be sufficiently specific and explicit in its intent in order to overcome the presumption.

In the Patent Act (as in the Lanham Act), the applicant is required to pay “expenses.” This term does not specifically or explicitly encompass attorney’s fees. Furthermore, traditional construction of the phrase “expenses of litigation” interprets it to mean expenses that did not include attorneys’ fees. And the mere fact that the statutory language included the modifier “all” is not enough to broaden the meaning of the term “expenses.”

The Court next reviewed statutory usage of the word “expenses” and determined that the term typically does not include attorneys’ fees. Indeed, these terms often appear together in statutes that have fee shifting provisions (suggesting that they are not synonyms but instead refer to different things). The Court acknowledged that the word “expenses” included attorneys’ fees in some statutes, but only when the term was expressly defined that way.

Finally, the Court observed that until the case before it, the PTO had never sought to recover its attorneys’ fees under that section of the Patent Act. Furthermore, other sections of the Patent Act expressly refer to attorneys’ fees when they are recoverable in other contexts.

In sum, there was insufficient evidence that Congress intended Section 145 of the Patent Act to override the presumption in favor of the American Rule. Thus, the Supreme Court affirmed the decision of the Federal Circuit.

Though Nantkwest involved a patent matter, it is relevant to trademark cases because the language of Section 145 of the Patent Act is very similar to the corresponding provision in the Lanham Act. If construed the same way, that would be good news for trademark owners who would prefer to initiate a de novo action in district court rather than appeal an unfavorable TTAB decision to the U.S. Court of Appeals for the Federal Circuit.

1Specifically, the Lanham Act provides that in any such de novo case brought in district court where there is no adverse party “…unless the court finds the expenses to be unreasonable, all the expenses of the proceeding shall be paid by the party bringing the case, whether the final decision is in favor of such party or not.”