U.S. Supreme Court Reaffirms the American Rule In De Novo Challenges to the PTO

In 2013, the Patent and Trademark Office (PTO) adopted a new policy under which any party commencing a de novo proceeding challenging a PTO decision would be responsible to pay a pro rata share of the salaries of the government attorneys working on the matter, based on a new interpretation of language that has appeared in the Patent Act for 175 years — and more recently was included in the Lanham Act as well. That language requires the plaintiff seeking de novo review to pay "all expenses of the proceedings," win or lose. However, the term expenses had always in practice been construed (until recently) to mean only lesser costs — not attorneys' fees. On Dec. 11, 2019, the Supreme Court rejected the PTO's new interpretation of the Patent Act in Peter v. NantKwest, Case No. 18-801, slip op., which held that the American Rule, a centuries-old principle under which each party bears its own attorneys' fees, does apply to this statute. The Court further concluded that the actual language of the statute itself simply does not support shifting fees.

Background

An applicant for a patent wishing to challenge the ultimate decision of the PTO has two options. The applicant can either appeal directly to the Federal Circuit or, alternatively, under 35 U.S.C. §§141 and 145, can commence a civil action in the U.S. District Court for the Eastern District of Virginia, effectively suing the PTO for relief. A Federal Circuit appeal is confined to the existing administrative record, whereas a civil action in the district court allows de novo review, meaning that the applicant can introduce new evidence supplemented by new discovery. However, Section 145 provides that in exchange for choosing this option, the applicant must pay "[a]ll the expenses of the proceedings."