Supreme Court Rejects PTO’s Attempt to Recover Attorneys’ Fees

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In Peter v. NantKwest, Inc., the Supreme Court held that the Patent and Trademark Office cannot recover attorneys’ fees against an applicant in a civil action under 35 U.S.C. § 145. An unsuccessful applicant for a patent has two avenues to challenge the PTO’s final decision rejecting an application: 1) pursuing an appeal to the Federal Circuit under 35 U.S.C. § 141 or 2) bringing a civil action against the PTO Director in federal district court under 35 U.S.C. § 145. The two avenues differ in key respects, including the scope of action. An appeal under § 141 is limited to the administrative record; a civil action under § 145 is broader. The applicant can present additional evidence with the district court acting as a factfinder and making determinations based on the new evidence and the administrative record. Section 145 includes a provision that “[a]ll expenses of the proceedings shall be paid by the applicant.” The award of expenses does not require that the PTO prevail in the litigation.

After the PTO rejected its application directed to a method of treating cancer, NantKwest chose the § 145 route and filed a civil action against the PTO Director. The district court granted summary judgment to the PTO on the question of patentability. Relying on § 145’s language that “[a]ll expenses of the proceedings shall be paid by the applicant,” the PTO sought a reimbursement of fees, including the applicable portion of the salaries of legal personnel that worked on the case. Notably, this was the first time in the 170-year existence of § 145 actions that the PTO had sought attorneys’ fees. Applying the “American Rule” presumption against fee shifting, the district court denied that request. On appeal, a panel of the Federal Circuit reversed, holding that the reference to “expenses” authorized an award of fees. The Federal Circuit then took the issue en banc and reversed the panel, holding that the American Rule presumption applied and that § 145’s language did not overcome that presumption.

The Supreme Court began its analysis with the American Rule presumption that each side pays its own attorneys’ fees unless a statute directs otherwise. The Court rejected the PTO’s argument that the American Rule did not apply to § 145 because it was not a “prevailing party” provision, explaining that the presumption against fee shifting applies to all statutes, not just prevailing party statutes. The Court then determined that § 145 did not express the required specific and explicit intent to depart from the presumption. Viewing the term contextually and historically, the Court determined that “expenses” would not have been commonly understood to include attorneys’ fees. The Court further noted that “expenses” and “attorneys’ fees” appear together in a number of statutes, indicating that Congress understood the two to be distinct terms. Finally, the Court noted that prior practice supported its reading because there was no evidence the PTO had ever paid personnel from moneys collected from adverse parties in litigation or attempted to use § 145 to collect attorneys’ fees. Having concluded the presumption was not overcome, the Supreme Court held that the PTO cannot recover fees for legal personnel under § 145.

As noted in the opinion, the PTO’s attempt to collect fees here was a new and novel departure from past practice. With that attempt rebuffed, applicants can now challenge a PTO decision under § 145 without fear that they will be left footing the bill for the PTO’s legal fees, regardless of the outcome of the case.