By: John Nading, Ashley Joyce and Devika Persaud

In a 7-4 en banc decision last Friday, July 27, the U.S. Federal Circuit Court of Appeals ruled that language in the Patent Act does not allow the USPTO to recover its attorneys’ fees regardless of which party prevails in a district court litigation.  NantKwest, Inc. v. Iancu, No. 16-1794 (Fed. Cir. 2018).

The Federal Circuit’s decision arose in the context of a patent applicant’s appeal of the U.S. Patent Trial and Appeal Board’s (“PTAB”) rejection of its patent application.  The Patent Act, 35 U.S.C. § 145, permits the disappointed patent applicant to challenge the Board’s decision in district court, but the language of the statute says that applicants who invoke it are required to pay “[a]ll the expenses of the proceedings” incurred by the United States Patent and Trademark Office (“USPTO”) in defending the PTAB’s decision, regardless of the outcome.  The USPTO had recently started taking the position that Section 145 includes attorneys’ fees.

The Court held that Section 145 does not compel applicants to pay its attorneys’ fees, “for the American Rule prohibits courts from shifting attorneys’ fees from one party to another absent a ‘specific and explicit’ directive from Congress[, and] [t]he phrase ‘[a]ll the expenses of the proceedings’ falls short of this stringent standard.”  The decision was joined by seven judges, with a dissenting opinion from four judges pointing out the “unfortunate and unnecessary conflict between the circuits.”

This decision is diametrically opposed to the Fourth Circuit Court of Appeals’ ruling in 2015 in which the majority found that attorneys’ fees are recoverable.  Shammas v. Focarino, 784 F.3d 219 (4th Cir. 2015).  There, a divided panel of the Fourth Circuit awarded attorneys’ fees to the USPTO under the Lanham Act, 15 U.S.C. § 1071(b)(3), “the trademark analogue to [Patent Act Section] 145,” which also refers to “all the expenses of the proceeding.”   For this reason, it is likely that the U.S. Supreme Court will need to step in to resolve this clear circuit split.

In a trademark context, this situation would arise out of an ex parte proceeding at the U.S. Trademark Trial and Appeal Board (a proceeding where the USPTO is on the other side), in which the aggrieved party then seeks relief in district court.

Obviously an issue we will be continuing to watch over the coming months and years.  And in the meantime, consider carefully before bringing an appeal of a USPTO decision in district court – you might win more than you bargained for!