The High Price of Challenging a Trademark Trial and Appeal Board Decision in District Court

by Morgan Lewis
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Applicants who challenge a Trademark Trial and Appeal Board refusal to register a trademark must reimburse the government for PTO attorney fees even if they win.

In its January 2 opinion in Shammas v. Focarino,[1] the U.S. District Court for the Eastern District of Virginia held, for the first time, that any applicant who appeals a decision by the U.S. Patent and Trademark Office’s (PTO’s) Trademark Trial and Appeal Board (TTAB) refusing to register a trademark must pay all of the PTO’s “expenses” for the proceeding, including fees for the work performed by PTO attorneys and paralegals on the appeal. This decision will have important implications for any party considering a challenge to a TTAB refusal to register a trademark.

Background

Pursuant to 15 U.S.C. § 1071, a party who is dissatisfied with a decision by the TTAB may either take an appeal to the U.S. Court of Appeals for the Federal Circuit or commence a civil action in a federal district court. If the applicant appeals to the Federal Circuit, the appeal is decided based on the record before the TTAB. However, if the applicant commences a civil action, the administrative record may be supplemented with new evidence.

15 U.S.C. § 1071(b)(3)—which governs a civil action challenging a TTAB decision in which there is no adverse party (such as a refusal to register a mark)—provides that “unless the court finds the expenses to be unreasonable, all the expenses of the proceeding shall be paid by the party bringing the case, whether the final decision is in favor of such party or not.”

The Shammas Decision

In Shammas, Judge T.S. Ellis, III addressed the issue of whether “all the expenses of the proceeding” includes the salaries of the PTO attorneys and paralegals who worked on the case. In this case, the applicant sought to register “PROBIOTIC” as a mark for use in connection with fertilizers. The TTAB refused the application, concluding that the term was generic with respect to fertilizers and, alternatively, that the term was descriptive but lacked secondary meaning. Shammas elected to challenge the TTAB’s decision by commencing an action in the district court.

After the parties engaged in discovery, Judge Ellis granted summary judgment in favor of the PTO, and the PTO subsequently filed a motion for fees and expenses, including the expenses associated with its attorneys and paralegals. Shammas argued that the PTO was not entitled to attorney fees under § 1071(b)(3) on the ground that attorney fees are not included in “all expenses of the proceeding.”

Judge Ellis began his analysis by noting that this issue appeared to be one of first impression. However, he opined that “the question is not difficult to resolve; it is a straightforward case of statutory interpretation with the analysis beginning and ending with the plain language of the statute.”[2] Citing Black’s Law Dictionary and Merriam-Webster, Judge Ellis concluded that “the plain meaning of the term ‘expenses,’ by itself, would clearly seem to include attorney’s fees.”[3] Moreover, he noted that, to the extent any doubt remained about that inclusion, “it is removed by Congress’s addition of the word ‘all’ to clarify the breadth of the term ‘expenses.’”[4] Judge Ellis also held that his conclusion found firm support in numerous other statutes passed by Congress, “all of which explicitly include ‘attorney’s fees’ as a subset of ‘expenses.’”[5] Finally, Judge Ellis relied on cases decided by other courts in a variety of contexts that also found attorney fees to be a subset of the term “expenses.”[6]

As the judge noted, “[t]his could lead to an anomalous result where the applicant must pay the PTO’s expenses of the district court proceeding, even where the PTO loses in the district court on the administrative record alone and no new evidence is admitted or considered. In this circumstance, there is little reason to saddle the unsuccessful applicant with the PTO’s expenses.”[7] Nevertheless, Judge Ellis concluded that the statutory language dictated this “anomalous result.”

Next, the judge addressed the reasonableness of the PTO’s requested expenses. The PTO requested $32,836.27 in attorney salaries, $3,090.32 in paralegal salaries, and $393.90 in photocopying expenses. In determining these amounts, the PTO used the actual salaries of the lawyers and paralegals to calculate a lodestar figure and multiplied the actual hourly rate of the attorneys and paralegals by the number of hours they devoted to the case. Judge Ellis held that this was an appropriate methodology to calculate the PTO’s expenses from the proceeding.

Practical Implications of Shammas

Going forward, applicants will have to consider the impact of the Shammas decision when deciding the best route for challenging a TTAB decision involving the refusal to register a mark—especially if they are considering seeking a review in a district court in the Fourth Circuit. Before Shammas, dissatisfied applicants challenging an adverse TTAB ruling typically evaluated the options of filing an appeal in the Federal Circuit or commencing a civil action in a district court based upon (i) whether the applicant wanted to supplement the record that was before the TTAB, (ii) whether there was any choice-of-law benefit to proceeding in the Federal Circuit or in a district court in another circuit, and (iii) the likely increased expense associated with commencing a civil action that contemplates supplemental evidence and discovery and the possibility of an appeal from the district court decision.

In light of Shammas, applicants must now also consider the likelihood that they will have to pay the PTO’s legal expenses if they elect to commence a civil action regardless of whether they win or lose the civil action. In the Shammas case, the PTO’s legal expenses were approximately $35,000. In most cases, however, the PTO’s expenses are likely to be higher for several reasons. First, the Shammas case was decided on summary judgment, so there were no legal expenses associated with trial preparation and trial. Second, the Shammas case was pending in the “rocket docket” of the Eastern District of Virginia, and the expedited pace of pretrial proceedings in that court frequently limits the cost of pretrial proceedings. Finally, there appeared to be relatively limited efforts to supplement the TTAB record in Shammas. For all these reasons, the PTO is likely to incur significantly higher legal expenses in most civil actions challenging a TTAB decision, and, if the Shammas decision is not reversed on appeal and is followed by other courts, those expenses will have to be paid by the applicant, regardless of the outcome of the civil action.

[1]. Shammas v. Focarino, No. 1:12-cv-1462 (E.D. Va. Jan. 2, 2014), available here.

[2]. Id., slip op. at 5.

[3]. Id.

[4]. Id.

[5]. Id. at 6.

[6]. Id. at 6–7.

[7]. Id. at 4–5 n.2.

 

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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