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Nantkwest, Inc. v. Iancu

United States Court of Appeals, Federal Circuit

July 27, 2018

NANTKWEST, INC., Plaintiff-Appellee

          Appeal from the United States District Court for the Eastern District of Virginia in No. 1:13-cv-01566-GBL-TCB, Judge Gerald Bruce Lee.

          Morgan Chu, Irell & Manella LLP, Los Angeles, CA, argued for plaintiff-appellee. Also represented by Lauren Nicole Drake, Gary N. Frischling, Alan J. Heinrich; Sandra Haberny, Newport Beach, CA.

          Jaynie Randall Lilley, Appellate Staff, Civil Division, United States Department of Justice, Washington, DC, argued for defendant-appellant. Also represented by Benjamin C. Mizer, Dana J. Boente, Mark R. Freeman; Thomas W. Krause, Thomas L. Casagrande, Office of the Solicitor, United States Patent and Trademark Office, Alexandria, VA.

          Anthony J. Dreyer, Skadden, Arps, Slate, Meagher & Flom LLP, New York, NY, for amicus curiae International Trademark Association. Also represented by Mark N. Mutterperl, Zeisler PLLC, New York, NY.

          William P. Atkins, Pillsbury Winthrop Shaw Pittman LLP, McLean, VA, for amicus curiae Federal Circuit Bar Association. Also represented by William K. West, Jr., Washington, DC; Martin Scott High, Martin S. High, P.C., Clemson, SC.

          Kevin Tottis, TottisLaw, Chicago, IL, for amicus curiae American Intellectual Property Law Association. Also represented by Monica L. Thompson, Rachel M. Vorbek; Lisa K. Jorgenson, American Intellectual Property Law Association, Arlington, VA.

          Gregory A. Castanias, Jones Day, Washington, DC, for amicus curiae Intellectual Property Owners Association. Also represented by Daniel Kazhdan; Henry S. Hadad, Bristol-Myers Squibb Company, Princeton, NJ; Mark W. Lauroesch, Intellectual Property Owners Association, Washington, DC; Steven W. Miller, Global Legal Department, Procter & Gamble Company, Cincinnati, OH.

          Hilarie Bass, Greenberg Traurig, P.A., Miami, FL, for amicus curiae American Bar Association. Also represented by Salvatore Anastasi, Barley Snyder, Malvern, PA; Joshua Schwartz, Lancaster, PA; Donald W. Rupert, Marshall, Gerstein & Borun LLP, Chicago, IL; Charles W. Shifley, Banner & Witcoff, Ltd., Chicago, IL.

          Margaret Mary Duncan, McDermott Will & Emery LLP, Chicago, IL, for amicus curiae Intellectual Property Law Association of Chicago. Also represented by David Mlaver, Washington, DC; Robert H. Resis, Charles W. Shifley, Banner & Witcoff, Ltd., Chicago, IL.

          Charles Eric Miller, Eaton & Van Winkle LLP, New York, NY, for amicus curiae Association of Amicus Counsel. Also represented by Kelly L. Morron, Law Offices of Kelly L. Morron, Wilton, CT; Jonathan E. Moskin, Foley & Lardner LLP, New York, NY; Robert Joseph Rando, The Rando Law Firm P.C., Syosset, NY; Alan M. Sack, SACK IP Law PC, Syosset, NY.

          Patrick Richard Delaney, Ditthavong & Steiner, P.C., Alexandria, VA, for amicus curiae Realvirt, LLC.

          Charles Eric Miller, Eaton & Van Winkle LLP, New York, NY, for amici curiae Isshiki & Co., Hiraide & Takahashi.

          Before Prost, Chief Judge, Newman, Lourie, Dyk, Moore, O'Malley, Reyna, Wallach, Taranto, Hughes, and Stoll, Circuit Judges. [*]


          Stoll, Circuit Judge.

         When the United States Patent and Trademark Office's Patent Trial and Appeal Board ("Board") affirms an examiner's rejection of a patent application, § 145 of the Patent Act permits the disappointed applicant to challenge the Board's decision in district court. Applicants who invoke § 145 are required by statute to pay "[a]ll the expenses of the proceedings" incurred by the U.S. Patent and Trademark Office ("PTO") in defending the Board's decision, regardless of the outcome. Historically, the agency relied on this provision to recover sums it spent on travel and printing and, more recently, expert witnesses. Now, 170 years after Congress introduced § 145's predecessor, the agency argues that § 145 also compels applicants to pay its attorneys' fees. We hold that it does not, for the American Rule prohibits courts from shifting attorneys' fees from one party to another absent a "specific and explicit" directive from Congress. The phrase "[a]ll the expenses of the proceedings" falls short of this stringent standard. Accordingly, we affirm the district court's judgment.



         The Patent Act gives applicants two mutually exclusive options for judicial review of an adverse Board decision. First, the applicant may appeal directly to this court. 35 U.S.C. § 141. Second, the applicant may file a civil action against the Director of the PTO in the United States District Court for the Eastern District of Virginia. 35 U.S.C. § 145. We, in turn, have jurisdiction over subsequent appeals from the district court under 28 U.S.C. § 1295(a)(1).

         Section 141 provides standard judicial review of an agency decision under the Administrative Procedure Act. We review the Board's legal determinations de novo, Honeywell Int'l Inc. v. Mexichem Amanco Holding S.A. DE C.V., 865 F.3d 1348, 1353 (Fed. Cir. 2017), and we "set aside the PTO's factual findings only if they are 'unsupported by substantial evidence, '" Kappos v. Hyatt, 566 U.S. 431, 435 (2012) (quoting Dickinson v. Zurko, 527 U.S. 150, 152 (1999)). Importantly, appellate review in § 141 proceedings is confined to the record before the PTO. 35 U.S.C. § 144.

         Section 145, by contrast, authorizes a more expansive challenge to the Board's decision and is generally more time consuming. For example, patent applicants can conduct discovery and introduce new evidence. And once an applicant submits new evidence on a disputed factual question, "the district court must make a de novo finding." Hyatt, 566 U.S. at 434-35 ("This opportunity . . . is significant, not the least because the PTO generally does not accept oral testimony."). The parties may also engage in motion practice, and the proceeding can culminate in a full-blown trial. Congress set the price for engaging the PTO in this type of litigation: "All the expenses of the proceedings shall be paid by the applicant." 35 U.S.C. § 145. Thus, an applicant who proceeds under § 145 must shoulder not only his own significant expenses and fees, but also the PTO's "expenses of the proceedings."

         Congress introduced § 145's predecessor in 1839, [1] and over the years, the PTO has relied on these "expenses" provisions to recover PTO attorneys' travel expenses to attend depositions, see Robertson v. Cooper, 46 F.2d 766, 769 (4th Cir. 1931), printing expenses, cf. Cook v. Watson, 208 F.2d 529, 530 (D.C. Cir. 1953), court reporter fees, and reasonable fees for expert witnesses, see Sandvik Aktiebolag v. Samuels, CIV. A. No. 89-3127-LFO, 1991 WL 25774, at *1 (D.D.C. Feb. 7, 1991). For more than 170 years, however, the PTO never sought-and no court ever awarded-attorneys' fees under § 145 or its predecessor.


         As its name suggests, the American Rule is a "bedrock principle" of this country's jurisprudence. Hardt v. Reliance Standard Life Ins. Co., 560 U.S. 242, 253 (2010). It provides that, in the United States, "[e]ach litigant pays his own attorney's fees, win or lose." Baker Botts L.L.P. v. ASARCO LLC, 135 S.Ct. 2158, 2164 (2015) (quoting Hardt, 560 U.S. at 253). The American Rule may only be displaced by an express grant from Congress. Id. And it serves as the "basic point of reference" whenever a court "consider[s] the award of attorney's fees." Id. (quoting Hardt, 560 U.S. at 252-53).

         The rationale supporting the American Rule is rooted in fair access to the legal system, as well as the difficulty of litigating the fee question:

[S]ince litigation is at best uncertain one should not be penalized for merely defending or prosecuting a lawsuit, and . . . the poor might be unjustly discouraged from instituting actions to vindicate their rights if the penalty for losing included the fees of their opponents' counsel. Also, the time, expense, and difficulties of proof inherent in litigating the question of what constitutes reasonable attorney's fees would pose substantial burdens for judicial administration.

Fleischmann Distilling Corp. v. Maier Brewing Co., 386 U.S. 714, 718 (1967) (citations omitted). In the context of this case, the American Rule preserves access to district courts for small businesses and individual inventors seeking to avail themselves of § 145's benefits.

         The American Rule traces its origins back to at least the late 1700s. In Arcambel v. Wiseman, the circuit court included $1, 600 in counsel's fees as part of the damages. 3 U.S. (3 Dall.) 306, 306 (1796). The assessment of attorneys' fees, the Supreme Court concluded, could not be allowed because the "general practice of the United States is in opposition to it; and even if that practice were not strictly correct in principle, it is entitled to the respect of the court, till it is changed, or modified, by statute." Id. "[O]ur courts have generally resisted any movement" toward the English system-which permits the award of attorneys' fees to successful parties in litigation-ever since.[2] Fleischmann, 386 U.S. at 717; see Runyon v. McCrary, 427 U.S. 160, 185 (1976) ("[T]he law of the United States . . . has always been that absent explicit congressional authorization, attorneys' fees are not a recoverable cost of litigation.").

         Only Congress "has the power and judgment to pick and choose among its statutes and to allow attorneys' fees under some, but not others." Alyeska Pipeline, 421 U.S. at 263. Congress has not "extended any roving authority to the Judiciary to allow counsel fees as costs or otherwise whenever the courts might deem them warranted." Id. at 260. Thus, the Supreme Court has held that the American Rule presumptively applies and any statutory deviations from it must be "specific and explicit." Id. at 260-62, 269.

         According to the Supreme Court, one "good example of the clarity . . . required to deviate from the American Rule" can be found in the Equal Access to Justice Act's attorneys' fees provision. Baker Botts, 135 S.Ct. at 2164. That provision commands courts to "award to a prevailing party other than the United States fees and other expenses . . . incurred by that party in any civil action," so long as certain conditions are met. Id. at 2164 (emphasis added) (quoting 28 U.S.C. § 2412(d)(1)(A)). As the Supreme Court explained, "there could be little dispute that this provision-which mentions 'fees,' a 'prevailing party,' and a 'civil action'-is a 'fee-shifting statut[e]' that trumps the American Rule." Id. (alteration in original).

         Not all fee-shifting statutes follow this template though. For example, the Supreme Court has a separate line of precedent "addressing statutory deviations from the American Rule that do not limit attorney's fees awards to the 'prevailing party.'" Hardt, 560 U.S. at 254. In Hardt, the Court analyzed whether Congress deviated from the American Rule when it passed a statute providing that a "court in its discretion may allow a reasonable attorney's fee and costs of action to either party." Id. at 251-52 (quoting 29 U.S.C. § 1132(g)(1)). The same is true in Ruckelshaus v. Sierra Club, where the Court examined a provision of the Clean Air Act allowing a court to "award costs of litigation (including reasonable attorney and expert witness fees) whenever it determines that such an award is appropriate." 463 U.S. 680, 682-83 (1983) (emphasis omitted) (quoting 42 U.S.C. § 7607(f)).

         And while the American Rule sets a high bar for shifting attorneys' fees, it does not impose a magic words requirement so long as Congress's intent is "specific and explicit." See Summit Valley Indus., Inc. v. Local 112, United Bhd. of Carpenters, 456 U.S. 717, 721-22 (1982). As the Supreme Court acknowledged in Key Tronic Corp. v. United States, "[t]he absence of [a] specific reference to attorney's fees is not dispositive if the statute otherwise evinces an intent to provide for such fees." 511 U.S. 809, 815 (1994); see Baker Botts, 135 S.Ct. at 2165 (discussing statute providing for "reasonable compensation for actual, necessary services rendered by" various "professional person[s]," including "attorney[s]" (emphasis omitted) (quoting 11 U.S.C. § 330(a)(1)(A))).


         This brings us to the procedural background of the current case. In 2001, Dr. Hans Klingemann filed a patent application directed to a method for treating cancer using natural killer cells. Dr. Klingemann's application was eventually assigned to NantKwest, Inc. The examiner rejected the application as obvious in 2010, and the Board affirmed the rejection in 2013.

         Pursuant to § 145, NantKwest challenged the Board's decision by filing a complaint against the Director of the PTO in the U.S. District Court for the Eastern District of Virginia. Discovery ensued and the PTO moved for summary judgment that the application's claims would have been obvious. The district court granted the PTO's motion, and we affirmed. See NantKwest, Inc. v. Lee, 686 Fed.Appx. 864, 865 (Fed. Cir. 2017). After prevailing on the merits, the PTO filed a motion for reimbursement of the "expenses of the proceedings" under § 145. The $111, 696.39 sum sought by the PTO included $78, 592.50 in attorneys' fees-calculated based on the pro rata salaries of the two PTO attorneys and one paralegal who worked on the case-and $33, 103.89 in expert witness fees.

         The district court denied the PTO's motion with respect to attorneys' fees, citing the American Rule. Nan[tK]west, Inc. v. Lee, 162 F.Supp.3d 540, 542-43 (E.D. Va. 2016). In the court's view, "Congress's reference to 'all . . . the expenses' merely points to a collection of the expenses used, commonly understood to encompass . . . printing, travel, and reasonable expert witness expenses." Id. at 543. The district court noted that "[i]n § 145 Congress neither used the phrase 'attorneys' fees' nor 'fees' nor any alternative phrase demonstrating a clear reference to attorneys' fees." Id. at 545. It then concluded that the "ambiguity regarding the exact reach of the term 'expenses' means § 145 does not meet the Supreme Court's Baker Botts standard and therefore, cannot deviate from the American Rule." Id.

         The PTO appealed the denial of its motion to recover attorneys' fees, and a divided panel of this court reversed the district court's judgment. The majority relied on the Fourth Circuit's opinion in Shammas v. Focarino, which interpreted a nearly identical provision of the Lanham Act, 15 U.S.C. § 1071(b)(3). 784 F.3d 219, 223-24 (4th Cir. 2015). There, the Fourth Circuit held that the American Rule only applies to statutes that refer to a "prevailing party." Id. at 223. Referring to this language, the majority here voiced "substantial doubts" that § 145 implicates the American Rule because it imposes the PTO's expenses on applicants without referring to a "prevailing party." NantKwest, Inc. v. Matal, 860 F.3d 1352, 1355 (Fed. Cir. 2017). Nevertheless, the majority assumed the American Rule applied for purposes of its analysis and concluded that the word "expenses" "'specific[ally]' and 'explicit[ly]' authorizes an award of fees." Id. at 1356 (alterations in original) (quoting Alyeska Pipeline, 421 U.S. at 260). For support, the majority relied on dictionaries defining "expenses" as "expenditure[s] of money, time, labor, or resources to accomplish a result," id. (alteration in original) (quoting Black's Law Dictionary 698 (10th ed. 2014)), and a statement from Taniguchi v. Kan.Pacific Saipan, Ltd., distinguishing "taxable costs" from "nontaxable expenses," id. at 1357 (quoting 566 U.S. 560, 573 (2012)). Finally, the majority rejected NantKwest's contention that pro-rata salaries of the PTO's employees were not "expenses of the proceedings." Id. at 1359.[3]

         Our court voted sua sponte to hear the appeal en banc and vacated the panel's judgment. NantKwest, Inc. v. Matal, 869 F.3d 1327 (Fed. Cir. 2017). We requested briefing on a single question: whether the panel "correctly determine[d] that 35 U.S.C. § 145's '[a]ll the expenses of the proceedings' provision authorizes an award of the [PTO's] attorneys' fees." Id. at 1327. In addition to the parties' briefs and argument, we received seven amicus briefs, none of which support the PTO's position. We now affirm the judgment of the district court.


         We review de novo a district court's interpretation of a statute. Boston Sci. Scimed, Inc. v. Medtronic Vascular, Inc., 497 F.3d 1293, 1296 (Fed. Cir. 2007). Unless otherwise defined, words in a statute "will be interpreted as taking their ordinary, contemporary, common meaning." Summit Valley, 456 U.S. at 722 (quoting Perrin v. United States, 444 U.S. 37, 42 (1979)).

         According to the PTO, the American Rule does not govern our interpretation of § 145. Even if it does, the PTO and the dissent aver that the statutory text suffices to displace this long-standing, common-law rule. We disagree on both counts and address each issue in turn.


         At the outset, we hold that the American Rule applies to § 145. As noted, the American Rule provides that each litigant bears its own attorneys' fees, win or lose, and a statute must use "specific and explicit" language to depart from this rule. The Supreme Court in Baker Botts emphasized that the American Rule is the starting point whenever a party seeks to shift fees from one side to the other in adversarial litigation. 135 S.Ct. at 2164 (explaining that "when considering the award of attorney's fees," the American Rule constitutes the "basic point of reference" (quoting Hardt, 560 U.S. at 252-53)). Because the PTO contends that § 145 should be construed to shift its attorneys' fees to the patent applicants bringing suit, the American Rule necessarily applies. Accordingly, we must be able to discern from § 145's text a "specific and explicit" congressional directive to make an award of attorneys' fees available. Alyeska Pipeline, 421 U.S. at 260.

         We are not persuaded by the PTO's contrary arguments for why the American Rule should not apply to litigation under § 145. The PTO begins by relying on the Fourth Circuit's Shammas opinion for the proposition that the American Rule only governs the interpretation of statutes that shift fees from a prevailing party to a losing party. Because § 145 imposes "[a]ll the expenses" on the applicant, win or lose, the PTO asserts it is not a fee-shifting statute that falls within the American Rule's ambit. We disagree. Given the primary purpose of the American Rule-protection of access to courts-the PTO's alleged distinction makes little sense. We submit that the policy behind the American Rule would be even more strongly implicated where attorneys' fees would be imposed on a winning plaintiff.

         In Shammas, a divided panel of the Fourth Circuit awarded attorneys' fees to the PTO under 15 U.S.C. § 1071(b)(3)-the trademark analogue to § 145-which also refers to "all the expenses of the proceeding." The Shammas court reached this decision only by first holding that the American Rule does not apply to § 1071(b)(3). 784 F.3d at 223. Based on a narrow interpretation of the Supreme Court's statement in Alyeska Pipeline, the Fourth Circuit held that "the American Rule provides only that 'the prevailing party may not recover attorneys' fees' from the losing party." Id. (quoting Alyeska Pipeline, 421 U.S. at 245). The Fourth Circuit also relied on the Supreme Court's observation in Ruckelshaus that "virtually every one of the more than 150 existing federal fee-shifting provisions predicates fee awards on some success by the claimant" to conclude that a statute mandating fees without regard to a party's success is not a fee-shifting statute governed by the American Rule. Id. (quoting Ruckelshaus, 463 U.S. at 684).

         We respectfully submit that Shammas's holding cannot be squared with the Supreme Court's line of non-prevailing party precedent applying the American Rule. Although Alyeska Pipeline does refer to the American Rule in the context of a "prevailing party," the rule is not so limited. Rather, the Supreme Court has consistently applied the rule broadly to any statute that allows fee shifting to either party, win or lose. For example, the Supreme Court in Hardt evaluated a request for attorneys' fees under 29 U.S.C. § 1132(g)(1), which grants courts authority to award "reasonable attorney's fee[s] . . . to either party" at the court's "discretion." 560 U.S. at 251-52. The Supreme Court held that "a fee claimant need not be a 'prevailing party' to be eligible for an attorney's fees award under § 1132(g)(1)" because the statutory text contained no such limitation. Id. at 252. But the absence of a "prevailing party" requirement did not render the American Rule inapplicable to the fee-shifting inquiry. ...

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