Elio Martinez of GrayRobinson.

The U.S. Supreme Court has spoken: challenging U.S. Patent and Trademark Office (USPTO) rulings no longer carries an automatic price tag. The USPTO's contention that, win or lose, challengers of its decisions must pay the USPTO's attorney fees, is no longer valid.

On Dec. 11, 2019 in the matter of Peter, Deputy Director, USPTO v. NantKwest, the Supreme Court unanimously upheld a 2018 decision of the U.S. Court of Appeals for the Federal that the USPTO's position violates the American Rule, which provides that each party to litigation will bear its own attorney fees absent a contractual prevailing party provision or a statute which specifically and explicitly shifts fees. This tenet of U.S. law is known as the American Rule because it differs from British law, which routinely imposes the victor's fees upon the losing litigant.

For more than 170 years, the USPTO adhered to the American Rule. While the USPTO routinely sought recovery of other litigation-related expenses from trademark and patent applicants pursuant to provisions of the Patent Act and Lanham Act (which governs U.S. trademarks), which provide that "all of the expenses of the proceedings in federal district court litigation challenging decisions of the USPTO shall be paid by the applicant," attorneys fees, which were not specifically mentioned in those laws, remained off limits.

Earlier this past decade, however, the USPTO took a more aggressive posture, claiming that the term "all expenses" includes its attorney fees, which must be reimbursed by anyone challenging its rulings in federal district courts regardless of the litigation's outcome. The USPTO effectively said that, when it comes to challenging its decisions, one must "pay to play"—the challenging party must pay its own fees, as well as those of the USPTO.

The USPTO's shifting position was upheld by the U.S. Court of Appeals for the Fourth Circuit's 2015 decision, Shamas v. Focarino, where a trademark applicant lost his appeal of the USPTO's denial of registration. The USPTO sought recovery of its expenses, including more than $36,000 in attorney fees. The applicant opposed the USPTO's motion, citing the American Rule. The trial court found in favor of the USPTO and awarded its attorneys' fees, at which point the applicant appealed to the Fourth Circuit.

At the appellate level, the applicant lost yet again. The Fourth Circuit held in favor of the USPTO, finding that the American Rule did not apply to the challenged provision of the Lanham Act because the statute did not tie the award of "expenses" to a prevailing party, and instead imposed "expenses" on all challengers of USPTO decisions. Further, the appellate court held that, because Congress had added the word "all" before "expenses" in crafting the statute, it necessarily intended to include attorney fees.

The Federal Circuit's 2018 decision in NantKwest v. Iancu, however, cast doubt on the USPTO's aggressive position. The Federal Circuit reversed course in the case and found that the American Rule does apply to the relevant portions of patent and trademark laws. The court cited the 1982 U.S. Supreme Court decision, Summit Valley Industries v. Local 112, United Brotherhood Of Carpenters, finding that when a statutory provision "does not expressly provide for the recovery of attorney fees … Congress has [not] made 'specific and explicit provisions for the allowance of' such fees." The court held that the term "expenses" does not include attorneys' fees, regardless of whether the word "all" is placed before it. Had Congress wished to impose attorney fees upon all challengers of USPTO decisions, it would have said so specifically and explicitly. The Federal Circuit also disagreed with the Fourth Circuit, finding that the American Rule applies even to statutes that do not contain prevailing party language. In other words, if Congress intended to impose "pay to play" restrictions on challenges of USPTO rulings, it could and should have said so.

The inconsistency between decisions of the Fourth and Federal circuits landed the issue before the Supreme Court, whose unanimous decision brings an end to what many perceived as governmental overreach. The USPTO had again argued that Section 145 of the Patent Act, which provides for the government's recovery of "expenses" in all judicial challenges of the Office's decisions, is not subject to the American Rule. The Supreme Court rejected this position, stating: "That view is incorrect. This court has never suggested that any statute is exempt from the presumption against fee shifting."

The Supreme Court's unanimous decision removes the uncertainty for challengers of USPTO rulings created by the inconsistent holdings of the Fourth and Federal circuits. Prior to the Supreme Court's decision, a business that appealed such rulings to a federal trial court risked being charged with the USPTO's attorney fees. That risk is now gone. Trademark and patent applicants dissatisfied with USPTO decisions can challenge such rulings without fear of reprisal. The mere act of questioning such rulings no longer leaves applicants exposed to being charged with the government's attorney fees. They must no longer "pay to play," a troubling and dangerous proposition that caught the attention of our highest court and brought unity to what is at times seen as a politically divided branch of government.

Elio Martinez is a shareholder in GrayRobinson's Miami office, focusing his practice on intellectual property litigation. Contact him at [email protected].