In 2013, the United States Patent and Trademark Office (“USPTO”) introduced a new rule requiring applicants who appeal a USPTO decision to a federal district court to pay the USPTO’s legal bills. This means even if the applicant wins its appeal in federal court, it must pay the USPTO’s legal fees.
Not surprisingly, it did not take long for the legal challenges to follow. Interestingly enough, The Patent Act and the Lanham Act always have required patent and trademark applicants who file an appeal to a federal district court, regardless of the ultimate outcome, to pay “all expenses of the proceeding.” For many years the USPTO typically applied “expenses” only to such items as agency travel costs and expert fees. However, in what has been a relatively recent trend, the USPTO now asserts that the “expenses” provision also applies to the cost of salaries for attorneys who have worked on appeals. Critics stress that this significant change to the “expenses” provision will make the appeals process too expensive for all but the wealthiest applicants.
The USPTO has argued that its new interpretation of the “expenses” provision in the Patent Act and the Lanham Act is necessary to keep up with rising legal costs due to what are becoming common and expensive court proceedings. Furthermore, the USPTO has argued that even if there is a question about the applicability of the “American Rule” (requiring parties to pay their own legal fees regardless of who prevails), Congress unambiguously intended the expenses associated with voluntarily-pursued applicant appeals to be covered by the applicant.
There has been a divide among courts on this issue. In 2015, the Fourth Circuit endorsed the rule, but in February 2017, a district court, citing the American Rule, disfavored it when it held an applicant did not have to pay the USPTO’s attorneys’ fees without an explicit authorization from Congress. In June, a split three-judge Federal Circuit panel again endorsed the USPTO’s position that applicants appealing in district court must pay the USPTO’s expenses, including attorneys’ fees, regardless of the outcome. The court’s majority reiterated that it was Congress’ intent to include attorneys’ fees when it included the “expenses” language in both the Patent Act and the Lanham Act. The court’s majority declined to view the American Rule so narrowly and disagreed that the word “fee” needed to be used by Congress in this circumstance. However, the dissent clearly was troubled by that position and stated that the “expenses” provision did not meet the American Rule’s requirement for express Congressional authorization that would obligate even a prevailing plaintiff/applicant to pay the USPTO’s fees.
In the latest twist, last week the full Federal Circuit vacated the June ruling and announced that it would rehear the case challenging the USPTO’s current interpretation of the “expenses” provision. Could this battle be headed to the U.S. Supreme Court? Regardless, this is a serious development in the appellate process against adverse UPSTO rulings and it is important for intellectual property applicants to understand the potential additional costs associated with appealing USPTO decisions regarding their patents and trademarks.