Supreme Court Decides Peter v. NantKwest, Inc.

On December 11, 2019, the Supreme Court of the United States decided Peter v. NantKwest, Inc., No. 18-801, holding that Section 145 of the Patent Act does not require dissatisfied patent applicants who file a civil action in federal district court to pay the salaries of attorney and paralegal employees of the United States Patent and Trademark Office (PTO).

The Patent Act provides an applicant dissatisfied with the PTO’s decision two avenues of relief: direct appeal to the United States Court of Appeals for the Federal Circuit under Section 141 or a civil action filed with the United States District Court for the Eastern District of Virginia under Section 145. The first option precludes an applicant from offering new evidence, and the Federal Circuit simply reviews the same administrative record that was before the PTO. The second option is a fresh start, allowing the applicant to present new evidence that is reviewed de novo by the district court. But with that fresh start comes an obligation for the applicant to pay “[a]ll expenses of the proceedings.” 35 U.S.C. § 145.

The PTO denied NantKwest, Inc.’s patent application for a method to treat cancer. NantKwest sued the PTO under Section 145, rather than seeking direct review by the Federal Circuit, and the district court later granted the PTO summary judgment. The PTO then sought to recoup its “expenses,” and it argued — for the first time in the statute’s 170-year history — that those expenses included the salaries of its attorneys and paralegal staff who worked on the case. The district court denied the PTO’s motion to recover those legal fees because Section 145’s expense provision did not clearly rebut the “American Rule,” which is a long-standing presumption that parties are responsible for their own attorney fees.

The PTO appealed the denial to the Federal Circuit, where a divided panel reversed. The majority thought that the American Rule was inapplicable because Section 145 did not address payment to a prevailing party — a common provision that rebuts the American Rule — and it also held that the term, “expenses,” was broad enough to authorize an award of attorney fees. The en banc Federal Circuit reversed the panel’s decision, holding that the American Rule presumption applied to Section 145 and that the text of Section 145 did not overcome the American Rule’s presumption.

The Supreme Court agreed with the district court and the en banc Federal Circuit. It rejected the government’s argument that the American Rule presumption only applies to prevailing-party statutes. The Court explained that it has never so limited the American Rule and noted that its precedent confirms that the presumption against fee shifting applies to all statutes, with or without prevailing-party provisions. The Court also rejected the government’s argument that Section 145 proceedings aren’t the kind of adversarial litigation to which the American Rule applies. An applicant files a new civil action in district court and presents evidence anew in a Section 145 proceeding. The Court found no basis for distinguishing it from other litigation in which fee shifting, and the presumption against it, is common. Accordingly, the Court held that the American Rule provides the “starting point” for assessing whether Section 145 authorizes payment of attorney fees. And after considering the language of the statute against that starting point, the Court concluded that the statute lacked the “clarity” required to depart from the rule’s presumption. Although the definition of “expenses” could be construed to include attorney fees, its use in other statutes allowing attorney fees appeared in tandem with the term “attorney’s fees.” Additionally, the full phrase, “expenses of the proceeding,” is a term that is and was commonly understood to mean “expenses of the litigation,” not attorney fees.

Justice Sotomayor delivered the opinion for a unanimous Court.