Peter v. NantKwest, Inc.

THE MEANING AND PURPOSE OF “ALL THE EXPENSES” LANGUAGE

Petitioner Laura Peter, Deputy Director of the PTO, argues that the ordinary and plain meaning of the word “expenses” in § 145 is broad enough to encompass personnel expenses, such as attorneys’ fees, and that Congress understood “expenses” in that manner when it enacted the Patent Act of 1836 (the “Patent Act”). To support this assertion, the PTO cites to the Black’s Law Dictionary definition of “expense” as an “expenditure of money, time, labor, or resources to accomplish a result,” as well as an 1828 dictionary definition of “expenses” as “the disbursing of money, or the employment and consumption, as of time or labor.” The PTO additionally points to a civil procedure treatise that defines “expense” as “all the expenditures actually made by a litigant in connection with [an] action” and Federal Rule of Civil Procedure 37, which includes attorneys’ fees as part of a party’s “reasonable expenses.” The PTO also draws attention to Supreme Court precedents that include attorneys’ fees within the broad category of “litigation expenses” as compared to “costs,” which the Court has defined more narrowly as “relatively minor, incidental expenses.” The PTO further notes that the use of the qualifier “all” when referring to “expenses” in § 145 means that challengers must pay all, not part, of the expense of a § 145 proceeding, including attorneys’ fees.

The PTO also argues that the Patent Act’s “structure and purpose” reinforces the understanding that “expenses” includes attorneys’ fees for § 145 proceedings. . As the PTO explains, the Patent Act provides applicants with two means for seeking judicial review of a PTO decision: (1) a direct appeal to the Federal Circuit under § 141, or (2) an appeal in a civil action in district court under § 145. The PTO states that Congress included the requirement that applicants pay for “[a]ll the expenses of the proceedings” because § 145 appeals are more comprehensive and allow the rejected applicant to present new evidence, while § 141 appeals to the Federal Circuit are limited to the administrative record. According to the PTO, this makes § 145 appeals more expensive to defend than § 141 appeals, as § 145 appeals may entail extensive discovery, use of expert witnesses, and significant motion practice.

Respondent NantKwest counters that the terms “expenses” and “fees” have distinct meanings, and that “expenses” is not generally understood to include attorneys’ fees. According to NantKwest, “attorneys’ fees” refers to compensation paid for legal services, while “expenses” refers to litigation costs such as filing court documents, copying, and court reporter expenses. NantKwest continues that courts have historically granted awards for “attorneys’ fees” and “expenses” separately and that this practice existed when Congress first enacted § 145. NantKwest also cites an 1839 law dictionary that defines “expenses of the suit” as “the costs which are allowed to the successful party” while pointing out that this same dictionary excludes attorneys’ fees from its separate definition of “costs.” NantKwest goes on to cite various other statutes that expressly authorize recovery of both “attorneys’ fees” and “expenses” to demonstrate that Congress uses explicit language when it intends to provide for their reimbursement. NantKwest furthermore claims that the PTO has identified only two statutes—§ 145 itself and its trademark counterpart—where the term “expenses,” without additional language referring specifically to “fees,” has been interpreted to encompass both regular litigation expenses and attorneys’ fees. NantKwest also asserts that including attorneys’ fees in expenses would be contrary to long-standing state and federal judicial precedent.

NantKwest further argues that because Congress uses the term “attorneys’ fees” elsewhere in the Patent Act, Congress intentionally omitted “attorneys’ fees” from § 145. NantKwest accordingly maintains that this shows that Congress did not intend for “expenses” to include attorneys’ fees. This was also Congress’s intent, NantKwest asserts, when it first passed the Patent Act of 1836. While the 1836 Congress defined “expenses of the Patent Office” to include “salaries of the officers and clerks,” explains NantKwest, the Patent Office did not employ any attorneys or paralegals at that time. NantKwest furthermore argues that even if Congress originally intended for “expenses” to include attorney salaries in 1836, this intent changed in 1839 when Congress altered the relevant language in the Patent Act to the “expenses of the proceeding” language that remains in place today. Because salaries are fixed, continues NantKwest, they are payed regardless of whether there any “proceedings” and thus cannot be “expenses of the proceeding.”

APPLICABILITY OF THE AMERICAN RULE

The PTO argues that § 145 does not trigger the American Rule, the default presumption under which each party in litigation pays its own attorneys’ fees. According to the PTO, the American Rule’s presumption applies only to fee-shifting statutes that require one party to prevail over the other. The PTO thus concludes that because § 145’s fee-shifting is not conditioned on the success of either the challenging party or the PTO, the American Rule does not apply to § 145 cases. The PTO also points out that, unlike typical fee-shifting statues which calculate attorneys’ fees based on a prevailing market rate, the PTO calculates its reimbursable expenses under § 145 actions based on the actual amount of expenses that it incurs. According to the PTO, this further distinguishes § 145’s fee-shifting from the fee-shifting statutes to which the American Rule has traditionally applied.

Even if the American Rule applies, argues the PTO, the language in § 145 is clear enough to overcome the presumption that each party must pay its own attorneys’ fees. According to the PTO, a court may overcome the American Rule and award attorneys’ fees only if there is clear statutory authority that demonstrates an intent to provide attorneys’ fees, and that an explicit reference to such fees is not actually required to show this intent. The PTO contends that the language in § 145 requiring applicants to pay “all the expenses of the proceeding” indicates an “express statutory authority” to transfer litigation expenses, such as attorneys’ fees, to the patent applicants who initiate the § 145 proceedings. The PTO points out that because the term “expenses” has always been sufficient to shift expert witness fees to the patent applicant, it should also be sufficient statutory authority to shift attorneys’ fees.

In response, NantKwest argues that the American Rule should apply to § 145 proceedings. According to NantKwest, departures from the American Rule must be explicit in order to ensure that litigants are on notice that they may have to pay attorneys’ fees. NantKwest further asserts that, because the American Rule dates back to the late 18th century, its presumption against shifting attorneys’ fees had long been in force when Congress passed the first Patent Act decades later. When Congress alters this presumption, explains NantKwest, it does so explicitly by including in statutes specific language such as the word “fees.” . While NantKwest concedes that there are no “magic words” that Congress must include to overcome the American Rule, NantKwest claims that the weight of precedent makes clear that a statute must include unambiguous language indicating that attorneys’ fees could be shifted. Merely using the word “expense,” continues NantKwest, is too ambiguous to escape application of the American Rule’s presumption.

NantKwest also argues that the American Rule applies whenever a litigant may have to pay an opposing party’s attorneys’ fees, regardless if the statue shifts those fees to a non-prevailing party. To support this assertion, NantKwest points to Hardt v. Reliance Standard Life Ins. Co. and Ruckelshaus v. Sierra Club, where the American Rule’s presumption applied even though the relevant statutes in both cases did not condition the awarding of attorneys’ fees on a particular party prevailing. NantKwest also points to the lack of precedent authorizing the PTO to collect expert witness fees under § 145. Even if the PTO is entitled to expert witness fees, argues NantKwest, it does not necessarily follow that attorneys’ fees are also reimbursable, given the precedent distinguishing attorneys’ fees from expert witness fees.