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Patent Office Can’t Recover Lawyers Fees, Supreme Court Says (2)

Dec. 11, 2019, 3:21 PMUpdated: Dec. 11, 2019, 7:57 PM

The Patent and Trademark Office can’t recoup the salaries of its legal personnel who fight lawsuits from disgruntled patent applicants, the U.S. Supreme Court ruled in a closely watched case.

A unanimous court affirmed a U.S. Court of Appeals for the Federal Circuit ruling that NantKwest Inc. doesn’t owe the patent office attorneys’ fees after the biotechnology company sued the agency for rejecting its application for a cancer treatment patent.

Intellectual property attorneys were following the case, because a ruling for the agency may have discouraged patent applicants from launching potentially expensive lawsuits challenging its decisions.

“This is one of the statutory ways that parties can challenge the patent office,” Bernard Chao, a professor at the University of Denver Sturm College of Law, said. “If the Supreme Court hadn’t come out this way, I think this particular procedure probably wouldn’t be used very much, if at all.”

Congressionally Clear

The PTO argued that it’s allowed to recover all expenses in district court proceedings, including lawyers’ and paralegals’ fees, regardless of whether the agency wins or loses, under patent law.

Congress has allowed recovery of attorneys’ fees in other contexts of patent law, Justice Sonia Sotomayor wrote for the court. But when lawmakers intended to do so, they said so explicitly, she wrote.

“Because Congress failed to make its intention similarly clear” in the context of the case, “the Court will not read the statute to ‘contravene fundamental precepts of the common law,’” Sotomayor said in the court’s Dec. 11 opinion.

A patent office spokesman declined to comment. An attorney for NantKwest did not immediately respond to a request for comment.

Patent applicants challenging PTO rejections can appeal to the Federal Circuit or file a lawsuit against the agency in district court. The district court route can be appealing because, unlike a direct appeal, applicants have the opportunity to introduce new evidence.

The decision “gives brand owners and patent owners a lot more flexibility in deciding which option they want to pursue,” Bruce Ewing, co-chair of the IP litigation practice group at Dorsey & Whitney LLP, said.

19th Century Provision

A nearly 200-year-old provision of the Patent Act requires applicants who elect the district court route to pay “all the expenses” associated with the proceeding. The PTO has long used this provision to recover various costs, such as those related to printing briefs and expert witnesses.

But in recent years, the agency began trying to recoup attorneys’ fees under the provision. The office has done so in both patent and trademark cases. Trademark law includes an analogous provision, the parties said in court documents.

NantKwest argued this practice violated the American Rule, a presumption that each litigant pays their own attorneys’ fees unless a legal provision explicitly says otherwise. The patent office countered that the American Rule didn’t apply.

“That view is incorrect,” Sotomayor wrote about the patent office’s stance. “This Court has never suggested that any statute is exempt from the presumption against fee shifting.”

Legal definitions of “expenses” and related phrases suggest the word wouldn’t have been understood to include attorneys’ fees, the court said. It noted that “expenses” and “attorneys fees” appear alongside one another in other laws related to the shifting of fees.

“Simply put, in common statutory usage, the term ‘expenses’ alone has never been considered to authorize an award of attorney’s fees with sufficient clarity to overcome the American Rule presumption,” Sotomayor wrote.

The case is: Peter vs. NantKwest, Inc., U.S., No. 18-801, opinion 12/11/19

(Updated with additional reporting)

To contact the reporters on this story: Matthew Bultman at mbultman@correspondent.bloomberglaw.com; Ian Lopez at ilopez@bloomberglaw.com

To contact the editors responsible for this story: Rebecca Baker at rbaker@bloomberglaw.com; Keith Perine at kperine@bloomberglaw.com