Disputing U.S. Patent and Trademark Office (USPTO) rulings may no longer carry an automatic price tag. A recent decision by the U.S. Court of Appeals for the Federal Circuit raises doubts about the USPTO’s contention that, win or lose, challengers of its decisions must pay the USPTO’s attorney fees.
The Federal Circuit held in late July that the USPTO’s position violates the American Rule, which provides that each party to litigation will bear its own attorney fees absent a contractual prevailing party provision or a statute which specifically and explicitly shifts fees. This tenet of U.S. law is known as the American Rule because it differs from British law, which routinely imposes the victor’s fees upon the losing litigant.
For more than 170 years, the USPTO adhered to the American Rule. While the USPTO routinely sought recovery of other litigation-related expenses from trademark and patent applicants pursuant to provisions of the Patent Act and Lanham Act (governs U.S. trademarks), which provide that “all of the expenses of the proceedings [in federal district court litigation challenging decisions of the USPTO] shall be paid by the applicant,” attorney fees, not specifically mentioned in those laws, remained off limits.
Earlier this decade, however, the USPTO took a more aggressive posture, claiming that the term “all expenses” includes its attorneys’ fees, which must be reimbursed by anyone challenging its rulings in federal district courts, regardless of the litigation’s outcome. The USPTO effectively said that, when it comes to challenging its decisions, one must “pay to play”the challenging party must pay its own fees, as well as those of the USPTO.
The USPTO’s shifting position was upheld by the Fourth Circuit Court’s 2015 decision, Shamas v. Focarino, where a trademark applicant lost his appeal of the USPTO’s denial of registration. The USPTO sought recovery of its expenses, including more than $36,000 in attorney fees. The applicant opposed the USPTO’s motion, citing the American Rule. The trial court found in favor of the USPTO and awarded its attorneys’ fees, at which point the applicant appealed to the Fourth Circuit.
At the appellate level, the applicant lost yet again. The Fourth Circuit held in favor of the USPTO, finding that the American Rule did not apply to the challenged provision of the Lanham Act because the statute did not tie the award of “expenses” to a prevailing party, and instead imposed “expenses” on all challengers of USPTO decisions. Further, the appellate court held that, because Congress had added the word “all” before “expenses” in crafting the statute, it necessarily intended to include attorney fees.
The recent decision by the Federal Circuit in NantKwest v. Iancu, however, has cast doubt on the USPTO’s aggressive position. The Federal Circuit reversed course in this case and found that the American Rule does apply to the relevant portions of patent and trademark laws. The court cited the 1982 U.S. Supreme Court decision, Summit Valley Industries v. Local 112, United Bhd. Of Carpenters, finding that when a statutory provision “does not expressly provide for the recovery of attorney fees … Congress has [not] made ‘specific and explicit provisions for the allowance of’ such fees.” The court held that the term “expenses” does not include attorneys’ fees, regardless of whether the word “all” is placed before it. Had Congress wished to impose attorney fees upon all challengers of USPTO decisions, it would have said so specifically and explicitly. The Federal Circuit also disagreed with the Fourth Circuit, finding that the American Rule applies even to statutes that do not contain prevailing party language. In other words, if Congress intended to impose “pay to play” restrictions on challenges of USPTO rulings, it could and should have said so.
The Federal Circuit’s recent decision creates a level of uncertainty for challengers of USPTO rulings. A business that appeals such rulings to a federal trial court may be stuck with the USPTO’s attorney fees—or it may not. The final word may fall to the U.S. Supreme Court, which has jurisdiction over matters involving splits in circuit court decisions. However, the USPTO may elect not to appeal the Federal Circuit’s recent ruling to the Supreme Court, fearing an adverse final decision. The matter may also be decided by Congress, which could clarify the applicable provisions of patent and trademark law to ensure that attorney fees are expressly included. This is unlikely to happen in the foreseeable future, however, as elections loom and the prospect of a possible shift in congressional control will almost assuredly prevent action taken on what could become a controversial issue of perceived governmental overreach.
Trademark and patent applicants dissatisfied with USPTO decisions must therefore proceed with caution in appeals until the present quagmire is resolved. Winning at the federal court level may come at a substantial cost to the winner, bringing the very definition of “winning” into question.
Elio F. Martinez Jr. is a partner with the intellectual property law firm of Espinosa Martinez in Miami. He focuses his practice on intellectual property litigation. Contact him at email@example.com.