The Supreme Court on December 11, 2020 unanimously ruled in Peter v. NantKwest, Inc., No. 18-801, that the United States Patent and Trademark Office (USPTO) cannot shift the fees of its attorneys and paralegals to litigants in district court proceedings brought under 35 U.S.C. §145.
The Patent Act provides two pathways for patent applicants to appeal USPTO rejections in federal courts. 35 U.S.C. §141 allows applicants to appeal directly to the Federal Circuit, but does not allow the applicant to present new evidence. 35 U.S.C. §145 allows applicants to appeal first in the District Court for the Eastern District of Virginia and allows the applicant to present new evidence there. However, §145 additionally requires the applicant to pay "[a]ll the expenses of the proceedings."
In the §145 litigation underlying Peter v. NantKwest, Inc., the USPTO moved the district court for reimbursement of expenses that included—for the first time in the 170-year history of §145—the pro rata salaries of attorneys and a paralegal who worked on the case. The district court denied the motion. On appeal, a divided Federal Circuit panel reversed, but the en banc Federal Circuit then reversed the panel, holding that the USPTO could not recover attorney's fees under §145.
In a decision by Justice Sotomayor, the Supreme Court affirmed the en banc Federal Circuit. Justice Sotomayor explained that, under the centuries-old presumption commonly known as the "American Rule," each litigant pays its own attorney's fees, "win or lose, unless a statute or contract provides otherwise." Justice Sotomayor rejected the USPTO's argument that the American Rule did not apply to §145 because that statute does not award attorney's fees to the prevailing party. According to Justice Sotomayor, "[t]his Court has never suggested that any statute is exempt from the presumption against fee shifting," including those that do not explicitly award attorney's fees to prevailing parties.
Justice Sotomayor then explained that, "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." In that regard, she noted that the term "expenses of the proceedings" in §145 "is similar to the Latin expensæ litis, or 'expenses of the litigation.' This term has long referred to a class of expenses commonly recovered in litigation to which attorney's fees did not traditionally belong." She also noted that the fact "that 'expenses' and 'attorney's fees' appear in tandem across various statutes shifting litigation costs indicates that Congress understands the two terms to be distinct and not inclusive of each other."
Last, Justice Sotomayor asserted that "the Patent Act's history reinforces that Congress did not intend to shift fees in §145 actions," observing that the USPTO until now had never sought its attorney's fees under §145, and that, "[i]n later years, when Congress intended to provide for attorney's fees in the Patent Act, it stated so explicitly." For example, 35 U.S.C. §285 states that "[t]he court in exceptional cases may award reasonable attorney fees to the prevailing party."