Abstract
Synopsis
Section 145 of the Patent Act provides that a patent applicant dissatisfied with a decision of the U.S. Patent and Trademark Office (USPTO) may appeal directly to the United States District Court for the Eastern District of Virginia in lieu of immediate appeal to the Court of Appeals of the Federal Circuit. The assignee of a patent application directed to a method of treating cancer by administering natural killer cells decided to use the Section 145 process to appeal a decision by the Patent Trial and Appeal Board (PTAB) affirming the patent examiner's rejection of the claims. After prevailing on the merits, the PTO filed a motion to recover $111,696.39 of the USPTO's fees ($78,592.50 in attorneys' fees (including paralegal fees) and $33,103.89 in expert fees), citing a provision of the statute that specifies that the applicant must pay “all of the expenses of the proceeding, regardless of the outcome.” The district court granted the Director's requested witness' fees but denied the requested attorneys' fees, finding that under the “American Rule” the statute did not authorize an award of attorneys' fees. In a manner of first impression, the Federal Circuit reversed, and held that “all expenses of the proceedings” includes the pro rata share of the attorneys' fees the USPTO incurred to defend applicant's appeal. The court acknowledged the “heavy economic burden” that § 145 shifts onto applicants for electing this “favorable appellate path.” [One way in which the § 145 path is favorable, for example, is that under Kappos v. Hyatt, 132 S.Ct. 1690 (2012), the patent applicant is permitted to introduce new evidence in § 145 proceeding that would not be considered in an appeal taken directly to the Federal Circuit.]
Nantkwest, Inc. appeals from a decision of the United States District Court for the Eastern District of Virginia granting-in-part and denying-in-part the United States Patent and Trademark Office (“USPTO”) Director's motion for fees. In its order, the district court granted the Director's requested witness' fees but denied the requested attorneys' fees. The Director appeals the court's denial of attorneys' fees. We reverse.
In 2001, Dr. Hans Klingemann filed a patent application directed to a method of treating cancer by administering natural killer cells. After several years of examination, the USPTO rejected Dr. Klingemann's application on obviousness grounds. The Patent and Trial Appeal Board (“PTAB”) affirmed the examiner's rejection and Nantkwest, as assignee of the application, appealed to the district court under 35 U.S.C. § 145. We have provided a summary of the technology and the proceedings at the USPTO and district court in Nantkwest's companion appeal. NantKwest, Inc. v. Michelle K. Lee, 2017 WL 1735330 (Fed. Cir. May 3, 2017).
Section 145 provides that an applicant dissatisfied with the PTAB's decision may appeal directly to the United States District Court for the Eastern District of Virginia in lieu of immediate appeal to this court. 35 U.S.C. § 145. The statute further provides that the applicant must pay “[a]ll of the expenses of the proceeding,” id., “regardless of the outcome,” Hyatt v. Kappos, 625 F.3d 1320, 1337 (Fed. Cir. 2010) (en banc). After prevailing at the district court on the merits, the Director filed a motion to recover $111,696.39 of the USPTO's fees under the § 145 expense provision (seeking $78,592.50 in attorneys' fees (including paralegal fees) and $33,103.89 in expert fees).
Although the district court granted the USPTO's expert fees, it denied its requested attorneys' fees, citing the “American Rule.” Under this Rule, litigants pay their own attorneys' fees, win or lose, unless a statute or contract provides otherwise. Applying this Rule, the court found that in order to recover these fees, “[d]efendants must be able to articulate a statutory provision that clearly and explicitly allows them to recovery attorneys' fees from Plaintiff.” The district court concluded that the “[a]ll expenses” provision of the statute was neither sufficiently specific nor explicit enough for the authorization of attorneys' fees under this Rule.
The principal issue on appeal is whether § 145's “[a]ll expenses of the proceedings” provision authorizes an award of the USPTO's attorneys' fees under this section.
Under 35 U.S.C. § 145,
[a]n applicant dissatisfied with the decision of the [PTAB] … may, unless appeal has been taken to the United States Court of Appeals for the Federal Circuit, have remedy by civil action against the Director in the United States District Court for the Eastern District of Virginia. … All the expenses of the proceedings shall be paid by the applicant.
Before determining whether § 145 authorizes an award of the USPTO's attorneys' fees, we first address the government's argument that the American Rule does not apply to these proceedings. Like the Fourth Circuit, we have substantial doubts that this provision even implicates this Rule. Nevertheless, despite our doubts as to the applicability of the American Rule here, we analyze § 145's “[a]ll expenses of the proceeding” provision assuming the Rule applies, as we conclude that even under this Rule, the expenses at issue here include the USPTO's attorneys' fees.
Under the American Rule, “the prevailing litigant is ordinarily not entitled to collect a reasonable attorneys' fee from the loser. Courts uniformly recognize an exception to this general proposition, however: when the statute itself specifically and explicitly authorizes an award of fees, the prevailing party may be entitled to collect its fees. In agreement with two other circuits, we conclude that “expenses” here includes attorneys' fees.
The definitions and explanations that standard legal dictionaries and treatises provide for the term “expense” support this conclusion. Wright & Miller on
Our conclusion that this term authorizes the USPTO's fee award is particularly important here in the context of § 145's all expenses provision. This unique provision requires that applicants uniformly name the Director as defendant to their suits. In representing the USPTO's interests, the Director relies on personnel from the Office of the Solicitor. See 37 C.F.R. § 11.40(b). These attorneys—the Solicitor, his deputy, and associates—and supporting paralegals receive fixed salaries as compensation for their government work. As salaried employees, they do not bill individual hours for their work, nor do they collect fees from those whom they represent. In this context, we characterize the overhead associated with their work more precisely as an “expense” to the government than a “fee.”
Nantkwest makes an additional argument regarding whether the USPTO's attorneys' fees are “expenses of the proceedings.” 35 U.S.C. § 145. It contends that this provision does not provide a basis for attorneys' fees because the USPTO would have had to pay the portions of these full-time employees' salaries regardless of Nantkwest's suit.
We disagree. First, we have accorded similar relief in the past in the context of other salaried attorneys. In Raney v. Federal Bureau of Prisons, for example, we awarded salaried union attorneys an apportionment of their salaries because the litigation required the lawyers to divert their time away from other pending matters. 222 F.3d 927, 935 (Fed. Cir. 2000). Second, our sister circuits have recognized the costs associated with these diversions and awarded fees to salaried employees as well.
Section 145 proceedings similarly impact the USPTO's resources. These costs are particularly relevant here, where the USPTO attributes over seventy percent of its total expenses ($78,592.50 of the $111,696.39) to attorneys' fees. Nantkwest filed its appeal in district court and enjoyed the pro-applicant benefits of that forum. See Hyatt, 625 F.3d at 1336–37 (obtaining de novo review with the ability to introduce new evidence). Under Nantkwest's view, the government's recovery would be limited only to certain ad hoc expenses, while ignoring the vast majority of the expenses the USPTO incurred as the proximate cause of Nantkwest's appeal. We cannot subscribe to this view.
Accordingly, we hold that “[a]ll expenses of the proceedings” under § 145 includes the pro rata share of the attorneys' fees the USPTO incurred to defend applicant's appeal. To conclude otherwise would conflict with Hyatt, where we recognized the “heavy economic burden” that § 145 shifts onto applicants for electing this favorable appellate path.
Conclusion
For the foregoing reasons, we reverse the district court and remand the case for it to enter an additional award of $78,592.50 in favor of the Director.
REVERSED AND REMANDED
Stoll, Circuit Judge, dissenting [omitted].