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9 October 2019Rory O'Neill

SCOTUS unconvinced by USPTO attorneys’ fees exception: lawyers

The US Supreme Court this week heard oral arguments in a case centred on whether the US Patent and Trademark Office (USPTO) can claim an exception to the so-called ‘American Rule’, which normally requires each party to pay their own attorneys’ fees in patent litigation.

Lawyers following the case have told WIPR that, following oral arguments in Iancu v NantKwest, it appears some justices remain to be convinced that the case provides an appropriate exception to the rule.

The case stems from a civil action filed by immunotherapy company NantKwest in the US District Court for the Eastern District of Virginia under section 145 of the Patent Act, which allows parties to challenge decisions of the USPTO in court.

The USPTO claims that section 145 of the Patent Act outlines an exception to the standard convention whereby each party bears its own attorneys’ fees. Under this law, applicants in section 145 proceedings are required to pay “all the expenses of the proceedings”.

‘Special’ situation?

Brian Michalek, partner at Saul Ewing Arnstein & Lehr, said that a recurring theme throughout oral arguments was the justices’ efforts to “reconcile whether or not the particular situation tied to section 145 was a ‘special’ situation which justified departure from the American Rule”.

“The majority of the questioning was targeted to uncovering why the government had waited so long to start claiming its attorneys’ fees as part of the statutory ‘expenses’ and what the metes and bounds of ‘expenses’ actually were,” Michalek said.

The USPTO had a century-old policy of not claiming attorneys’ fees until 2012.

In particular, justices Gorsuch and Breyer expressed scepticism at several USPTO arguments, Michalek observed.

“With the government’s expanse of the term ‘expenses’ to include attorneys’ fees, justice Gorsuch questioned what would prevent the government from counting other types of overhead—such as the electric bill or sewage bill—from being lumped into the ‘expenses’ definition.”

“Justice Breyer indicated that he was struggling with the historical practice of the USPTO, and its 100-year failure to seek attorneys’ fees under the ‘expense’ umbrella,” Michalek said.

William Peterson, partner at Morgan Lewis, noted that NantKwest had argued that the “government’s interpretation had to overcome the presumption of the American Rule”.

“Several questions asked by the justices seemed to accept the respondent’s framing that the government’s interpretation should be treated as requiring payment of attorney’s fees in litigation, an unusual result and one which requires particular clarity,” he said.

Whichever way the Supreme Court rules, the decision is likely to be significant, Michalek predicted. If the court were to rule in favour of NantKwest, he said, “it would make the filing of a [section 145] action in the Eastern District of Virginia an attractive option where the applicant would not be on the hook for the government’s attorneys’ fees”.

Michalek added that in being “much more than a simple appeal” one advantage is the applicant could conduct discovery and introduce new evidence “without worrying” about having to pay the fees.

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