On the same day that the Supreme Court decided what the term "full costs" means under the Copyright Act,^[1] it granted certiorari to consider what "all the expenses of [a district court review] proceeding" means under the Patent Act in Iancu v. NantKwest, Inc.  Specifically, according to the question presented by the U.S. Patent and Trademark Office, the Supreme Court agreed to resolve "[w]hether the phrase '[a]ll the expenses of the proceedings' in 35 U.S.C. 145 encompasses the personnel expenses the USPTO incurs when its employees, including attorneys, defend the agency in Section 145 litigation."

Section 145 provides one of two routes for review of an adverse PTAB decision in a prosecution appeal.  In contrast to § 141, which is a direct appeal to the Federal Circuit with traditional deference to the Office's decision, § 145 permits an aggrieved applicant to present new evidence for de novo review in a District Court.  The statute provides that cost for that "[a]ll the expenses of the proceedings shall be paid by the applicant."  As we have reported in prior posts, the decisions in the NantKwest case bounced back and forth between finding that "expenses" includes attorney's fees and that it does not.  First, the District Court found that "expenses" did not include Patent Office attorney's fees.  On appeal, a panel of the Federal Circuit found that the term did include these expenses, over a dissent from Judge Stoll.^[2]  But, sua sponte, the Federal Circuit granted review en banc^[3] and reversed the panel holding with a 7-4 decision written by Judge Stoll.^[4]

In petitioning for certiorari, the USPTO argued that the en banc Federal Circuit decision was incorrectly decided; in addition, the Office raised three points as to why the Court should review specifically this decision.

In arguing that the case below had been wrongly decided, the Office leaned heavily on two key sources: the 1836 Patent Act immediately prior to the enactment of § 145's predecessor and Shammas v. Focarino, 784 F.3d 219 (4th Cir. 2015), which involved applying an expense provision of the Lanham Act substantively identical to that of § 145.

The 1836 Act referred to a "patent fund" used "for the payment of salaries of the officers and clerks herein provided for, and all other expenses of the Patent Office."^[5]  Certain contemporaneous dictionaries (as well as current ones) also reflected that expenses can include the cost of labor.  But the Patent Office's course of conduct over the next 170 years did not reflect such an understanding of the meaning for "expenses."  The Office characterized its actions as exercising its discretion not to pursue attorney's fees -- even for two years after the enactment of the AIA -- but the truth is that it never asserted that it was entitled to such fees until the NantKwest case.

The Shammas decision provided a contemporary insight into the meaning of § 145's "expenses" provision. The Lanham Act has a de novo review provision that was intentionally modeled on § 145; indeed, it originally referenced § 145's expenses provision rather than having its own.  The Fourth Circuit found that the Lanham Act provision included attorney's fees as part of the USPTO's expenses under that provision.

In addition to these substantive arguments for review, the USPTO raised three other points as to why the Court should review this case.  First, the decision below was decided by the Federal Circuit en banc.  As a result, it would be binding on any subsequent trial court or Federal Circuit panel without further close consideration of the issue.  Thus, this case presented a unique final opportunity to consider a carefully reasoned decision on the particular point at issue.  Second, the NantKwest decision created a circuit split over two nearly identical statutory provisions in light of the Fourth Circuit's Shammas decision.  Third, the decision would have "significant practical consequences" for the USPTO in § 145 proceedings.  The greatest expense for the Office in such proceedings is often the salaries of the personnel (especially attorneys) working on the matter.  While the cost of those salaries may not be overwhelming in the face of the entire budget of the USPTO, they are significant -- in this case, over $78,000 -- and it would arguably be more consistent with the statutory intent to have the § 145 appellant bear them than pass them on to other patent applicants.

NantKwest responded to the petition and argued that the case below, rather than the Shammas case, was correctly decided.^[6]  The strong presumption in U.S. courts, unlike for example British courts, is that every party will bear its own attorney's fees regardless of the outcome of the case -- a presumption known as the American Rule.  The Supreme Court has repeatedly held that a statute must specifically and explicitly provide for the allowance of attorneys' fees if it is intended to deviate from the American Rule.  NantKwest argued that the Federal Circuit was correct in finding that § 145 did not reflect a specific and explicit exception to the Rule, and therefore did not intend to hold an applicant liable for the USPTO's attorneys' fees.

NantKwest relied on a case decided between Shammas and the decision below, Baker Botts L.L.P. v. ASARCO LLC, 135 S. Ct. 2158 (2015).  According to NantKwest, not only did Baker Botts reflect the Supreme Court's rejection of the Shammas case's decision to ignore the American Rule in considering the Lanham Act analogue to § 145's expenses provision, it alleviated any risk of a circuit split -- because Shammas was pre-Baker Botts and allegedly wrongly decided under the Supreme Court case, it should simply be ignored as having been incorrectly decided.  NantKwest also argued that cases involving statutes that allow non-prevailing parties to recover attorneys' fees start with the presumption of the American Rule and work from there; only by ignoring rather than expressly overcoming the American Rule, however, had Shammas and the panel below reached the decision that "expenses" should include attorneys' fees.

Ultimately, the Supreme Court found the Office's arguments sufficiently meritorious -- and the case compelling enough -- to decide the question.  Unfortunately, certiorari was granted too late on the Court's calendar to have the case heard this term.  Thus, we will have to wait until at least October to get an answer as to what constitutes "expenses" under § 145.

^[1] See Rimini Street, Inc. v. Oracle USA, Inc., No. 17-1625, __ U.S. __ (Mar. 4, 2019).
^[2] https://www.patentdocs.org/2017/06/nantkwest-inc-v-matal-fed-cir-2017.html
^[3] https://www.patentdocs.org/2017/08/federal-circuit-orders-rehearing-en-banc-in-nantkwest-v-matal.html
^[4] https://www.patentdocs.org/2018/07/nantkwest-inc-v-iancu-fed-cir-2018-en-banc.html
^[5] See Act of July 4, 1836, ch. 357. §9, 5 Stat. 121 (emphasis added).
^[6] An interesting quirk in the case is that NantKwest is represented by Director Iancu's old law firm, Irell & Manella.