The U.S. Supreme Court's recent 9-0 decision in Peter v. NantKwest, Inc., Case No. 18-801, informs strategic cost considerations in appeals challenging adverse decisions issued by the United States Patent and Trademark Office ("USPTO"). Specifically, an unsuccessful applicant that avails itself of a civil action against the USPTO will no longer be required to pay the pro rata salaries of USPTO legal personnel who work on the case—win or lose. The Court affirmed the ruling of the U.S. Court of Appeals for the Federal Circuit in favor of the patent applicant and resolved a circuit split, as the U.S. Court of Appeals for the Fourth Circuit had interpreted parallel language in the Lanham Act in favor of the USPTO and against a trademark applicant.

Under Section 145 of the Patent Act and Section 1071(b) of the Lanham Act, an applicant dissatisfied with a decision of a Patent Trial and Appeal Board or Trademark Trial and Appeal Board decision has two options: (1) appeal to the Federal Circuit on a closed written record; or (2) pursue a de novo civil action against the USPTO, in which the applicant can introduce new evidence. With the civil action route, an applicant must pay "[a]ll the expenses of the proceedings." In Peter v. Nantkwest, Inc., the Supreme Court unanimously struck down the USPTO's view that "all the expenses" includes the salaries of its legal personnel.

The Court's analysis began with an affirmation of the "bedrock principle" known as the "American Rule"—i.e., the presumption that each litigant pays his own attorney's fees, win or lose, unless a statute or contract provides otherwise. The Court flatly rejected the USPTO's argument that the statute avoided the American Rule, explaining that it was particularly important here because the statute allowed for even an unsuccessful USPTO to recover expenses from a prevailing applicant.

With the American Rule as the starting point, the Court considered the plain text of the statute and found the term "expenses" short of providing the "explicit statutory authority" required to overcome the presumption against fee shifting. The Court also considered the record of statutory usage with respect to the terms "expenses" and "attorney's fees," as well as the history of the Patent Act—both of which further supported its conclusion that fee-shifting was not justified.

While the decision was expected by most, it nevertheless informs strategic cost considerations in appeals challenging adverse decisions issued by the USPTO, as fee-shifting concerns will no longer play a factor in determining where to appeal an unfavorable decision.