Fed Circuit Watch: American Rule Does Not Require Applicants to Pay USPTO Attorneys’ Fees

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“Each litigant pays his own attorney’s fees, win or lose.”[1]  As such, the Court of Appeals for the Federal Circuit upheld the American Rule by holding that 35 U.S.C. §145 does not require losing applicants to pay USPTO attorneys’ fees in NantKwest, Inc. v. Iancu,[2] in an en banc decision handed down on July 27, 2018.

The facts are as follows.

In 2001, Dr. Hans Klingemann filed a patent application directed to a method for treating cancer using natural killer cells.  This application was later assigned to NantKwest.  Prosecution continued until 2010, when the examiner finally rejected the application as obvious.  NantKwest appealed to the PTAB.  In 2013, the PTAB affirmed the rejection.  MPEP 1216 specifies that, through 35 U.S.C. §145, a patent applicant that is dissatisfied with a PTAB decision to appeal directly to the federal courts, specifically, the Eastern District of Virginia.  Any decision from that district court can then be appealed to the Fed Circuit.  The district court denied the USPTO’s request for NantKwest to pay its attorneys’ fees, citing the American Rule.  A split panel of the Fed Circuit reversed the district court, but the Fed Circuit voted sua sponte to hear the appeal en banc.

The expanded panel of the Fed Circuit was composed of Chief Judge Prost, and Judges Newman, Lourie, Dyk, Moore, O’Malley, Reyna, Wallach, Taranto, Hughes, and Stoll (only Judge Chen did not participate).  Judge Stoll wrote for the court.  Chief Judge Prost dissented, and Judges Dyk, Reyna, and Hughes joined her in dissent.  Chief Judge Prost also wrote the majority opinion of the split panel from which the en banc opinion overruled.[3]

Judge Stoll noted that the American Rule is a bedrock U.S. legal principle; regardless of who prevails in litigation, each party bears the responsibility to pay each own’s attorneys’ fees.  This is in contrast to the English Rule, where the losing party pays the attorneys’ fees.  The rationale is that:

Since litigation is at best uncertain one should not be penalized for merely defending or prosecuting a lawsuit, and . . . the poor might be unjustly discouraged from instituting actions to vindicate their rights if the penalty for losing included the fees of their opponents’ counsel.  Also, the time, expense, and difficulties of proof inherent in litigating the question of what constitutes reasonable attorney’s fees would pose substantial burdens for judicial administration.[4]

She stated from the outset of the opinion that the American Rule applies to §145.  Specifically, the final sentence of §145 states:

All the expenses of the proceedings shall be paid by the applicant.

Since the American Rule is the starting point for any analysis, any decision finding for fee shifting of attorneys’ fees must be specified in the statutes or contracted specifically between the parties.  Because the primary reason we have the American Rule is to allow access and protection of the court system, the USPTO’s argument that the American Rule did not apply to §145 falls flat, Judge Stoll reasoned.  Where a statute “does not expressly provide for the recovery of attorney’s fees . . . we are not presented with a situation where Congress has made ‘specific and explicit provisions for allowance of’ such fees.”[5]  §145 does not make such provision, she reasoned.  However, notwithstanding, Congress could have implicitly intended that “all expenses” could include attorneys’ fees, but that intention must have a very specific and explicit directive to depart from the American Rule.  Again, §145 does not specify this.  Nor, is there legislative history to indicate that Congressional intent that “expenses” would also include attorneys’ fees.  She further supported this contention with several other Patent Act provisions that do include awards of attorneys’ fees, reflecting Congress’ “specific and explicit” intent to fee-shift for those purposes, and specifically cited 35 U.S.C. §285 (“The court in exceptional cases may award reasonable attorney fees to the prevailing party”), 35 U.S.C. §271(e)(4)(D) (. . . “except that a court may award attorney fees under section 285”), and 35 U.S.C. §297(b)(1) (“. . . may recover in a civil action against the invention promoter, in addition to reasonable costs and attorneys’ fees . . . . “) as examples.

Chief Judge Prost dissented.  She pointed specifically at the wording of §145, which states “all expenses shall be paid by the applicant.”  In her opinion, “all expenses” means all expenses.  She noted “absent persuasive indications to the contrary, we presume Congress says what it means and means what it says.”[6]  It is interesting that both the majority and dissenting opinions both focus on the words “all expenses” in the statute, and are in agreement that congressional intent is to be “specific and explicit,” but have divergent interpretations of what exactly that means.

Chief Judge Prost then engaged in a historical context of “all expenses” to include reasonable attorneys’ fees, by reviewing the statutory texts of earlier Patent Acts, specifically of 1836 and 1839, to espouse the view that attorneys’ fees were assumed into the historical nature of USPTO actions.  Further, in her view, Congress intended for “expenses” to be broadly interpreted to include attorneys’ fees.  She also engaged in a comparison between the two patent statutes – §145 and §285 – and determined that Congress intended to give §145 patent appeals statute a broader scope than the patent infringement damages statute.

This issue is not expected to end here.  Expect the USPTO to file a petition for writ of certiorari to the U.S. Supreme Court on this matter.


[1] See Baker Botts L.L.P. v. ASARCO LLC, 135 S. Ct. 2158, 2164 (2015).

[2] ___F.3d___ (Fed. Cir. 2018) (en banc) (slip op.), aff’g NantKwest, Inc. v. Lee, 162 F. Supp. 3d 540, 542-43 (E.D. Va. 2016).

[3] See NantKwest, Inc. v. Matal, 860 F.3d 1352, 1355 (Fed. Cir. 2017), rev’d 869 F.3d 1327 (Fed. Cir. 2017).

[4] NantKwest v. Iancu, supra (slip op. at 6).

[5] See Summit Valley Indus., Inc. v. Local 112, United Bhd. of Carpenters, 456 U.S. 717, 722 (1982).

[6] See Simmons v. Himmelreich, 136 S. Ct. 1843, 1848 (2016).

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