|On September 13, 2016, INTA filed an amicus curiae brief with the United States Court of Appeals for the Federal Circuit in the case of NantKwest, Inc. v. Lee, (NantKwest Inc. v. Lee, No. 2016-1794 (Fed. Cir., appellant brief filed 6/6/16); Nantkwest, Inc. v. Lee, No. 1:13-cv-1566-GBL-TCB (E.D. Va. Feb. 5, 2016).
The case involves an appeal from the United States District Court for the Eastern District of Virginia, which held that a patent applicant seeking federal district court review of a Patent Trial and Appeal Board (PTAB) determination in ex parte proceedings is not required to pay the legal fees of the United States Patent and Trademark Office (USPTO) regardless of who ultimately prevails. Although not directly involving trademarks, the significance of the case becomes apparent when viewed in the context of the Eastern District of Virginia’s earlier holding in Shammas v. Focarino, 784 F.3d 219, 221 (4th Cir. 2015).
In Shammas, the district court held that a trademark applicant who sought federal district court review of a Trademark Trial and Appeal Board determination in an ex parte proceeding was required to pay the legal fees of the USPTO, regardless of the outcome of the case. The fees provision at issue in both NantKwest and Shammas, although arising under the Patent Act and Lanham Act respectively, was identical; thus, the court’s decision in NantKwest was a direct repudiation of the holding in Shammas. Moreover, as the Shammas decision was affirmed by the Fourth Circuit, the NantKwest decision represents a break from the reasoning of that court as well (the district court was not required to follow Shammas as patent cases are appealed to the Federal Circuit, rather than the Fourth Circuit; INTA submitted an amicus curiae brief to the Fourth Circuit, arguing that the district court’s holding should be reversed, as well as an amicus curiae brief to the United States Supreme Court in support of Shammas’s writ of certiorari. The Supreme Court denied Shammas’s certiorari petition).
In fact, the district court’s decision in NantKwest specifically addressed and criticized the reasoning employed by the Fourth Circuit in affirming Shammas. Therefore, the NantKwest appeal presents the Federal Circuit with the crucial choice to either create what amounts to a circuit split regarding attorney fees under the Patent and Trademark Acts, or reverse the district court’s decision and embrace reasoning that has been heavily criticized (by both INTA and others).
The NantKwest Case
The patent applicant, NantKwest, Inc., applied for a patent for a method of treating cancer by administering natural “killer cells.” When its patent application was denied, NantKwest, Inc., appealed to the PTAB, which upheld the denial of the application. Exercising its rights under Section 145 of the Patent Act (35 U.S.C. § 145), NantKwest, Inc., filed an action in the United States District Court for the Eastern District of Virginia seeking review of the PTAB’s decision and asking for discovery to supplement the original PTAB record. NantKwest, Inc., chose not to appeal directly to the United States Court of Appeals for the Federal Circuit, an alternative avenue of review that would have been limited to just the record before the PTAB without the ability to take discovery and supplement the record. Under such an appeal, NantKwest would not have been required to pay the USPTO’s “expenses.”
Unlike review by the Federal Circuit, review before a district court requires that the applicant seeking such review must pay “[a]ll the expenses of the proceeding” regardless of which party prevails. The source of the matter at issue in NantKwest is that the Patent Act does not expressly define “expenses of the proceeding.” The district court held that the term “expenses” does not include attorney fees, as sought by the USPTO, as such an interpretation of the Patent Act would contradict the longstanding principle in American jurisprudence, often called the “American Rule,” that each party must bear the burden of its own legal expenses absent a clear mandate from Congress to the contrary. Further, the district court explicitly criticized and rejected the Fourth Circuit’s decision in Shammas which held that the American Rule applies only in circumstances where the losing party is directed to pay the prevailing party's fees. As INTA pointed out in its brief to the Federal Circuit, contrary to the two Shammas decisions, multiple courts, including the Supreme Court of the United States, have routinely held that “unless Congress provides otherwise, parties are to bear their own attorney fees.” Fogerty v. Fantasy, Inc., 510 U.S. 517, 533 (1994). Importantly, INTA has not identified a single court holding, apart from the Shammas decisions, limiting the American Rule to prevailing-party fee-shifting situations only.
INTA also argued that any deviation from the American Rule would create a chilling effect on applicants’ rights to seek review of ex parte PTAB decisions in the district courts. By creating a review process that allows applicants to commence a plenary action in district court, Congress recognized that certain circumstances would require an applicant to turn to a district court’s broad jurisdiction and more expansive discovery process in order to introduce facts outside the scope of the USPTO and PTAB review process. The burden of being obligated to pay the USPTO’s attorney’s fees is such a prohibitive expense that it would effectively remove district court review under Section 145 as a viable procedure for all but the wealthiest applicants. Such a result runs counter to the dual system of PTAB review as drafted by Congress, and any interpretation of Section 145 that allows that result cannot stand.
The brief was written by Anthony J. Dreyer, Jordan A. Feirman, and David M. Lamb of Skadden, Arps, Slate, Meagher & Flom LLP and Mark N. Mutterperl and Meghan Sullivan of Zeisler PLLC, with input from members of the International Amicus Committee’s U.S. Amicus Subcommittee.
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© 2016 International Trademark Association