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

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."

It was an 1839 amendment to the Patent Act of 1836, Patent Act of 1839 §10, 5. Stat., that first adopted the language "all expenses of the proceeding." Yet, for 175 years the PTO never sought compensation for its attorneys' fees under this provision. Rather, it had always applied this language so as to refer at most only to travel expenses, printing expenses, court reporter fees, and expert witness fees. However, in 2013 the PTO announced a formal rule change (albeit in a trademark case) and indeed then sought — and won — such compensation for attorneys' fees. The first case, Shammas v. Focarino, thus noted that the issue was one of first impression, 990 F.Supp. 2d 587, 590 (E.D.Va. 2014), aff'd, 784 F.3d 219 (4th Cir. 2015), cert denied, 136 S.Ct 1376 (2016). To be clear, the Lanham Act contains a virtually identical mechanism allowing de novo review of PTO decisions, 15 U.S.C. §1071(b)(3), and also contains a virtually identical provision requiring the plaintiff to pay all expenses of the proceeding — which is exactly what the plaintiff there was ordered to do.