No attorneys’ fees for the USPTO in district court actions challenging patent denials
Patent applicants who challenge a rejected application in the Eastern District of Virginia under 35 U.S.C. §145 will not have to pay the attorneys’ fees incurred by the Patent Office in defending the action.
Sitting en banc, the U.S. Court of Appeals for the Federal Circuit in NantKwest, Inc. v. Iancu, No. 2016-1794 (Fed. Cir. July 27, 2018) held that §145’s mandate that a plaintiff filing an action under that section pay “[a]ll the expenses of the proceedings” does not include an obligation to pay the U.S. Patent and Trademark Office’s (USPTO) attorneys’ fees, contrary to arguments made by the USPTO.
This decision effectively gives applicants two meaningful ways to challenge the USPTO’s rejection of an application and makes proceeding under §145 an attractive alternative to an appeal to the Federal Circuit under §141(a), says Charles H. Mottier, a member in Leydig’s Chicago office.
“Section 145 cases can provide applicants with advantages that are not available in an appeal to the Federal Circuit,” Mottier says. “These are stand-alone actions in which the district court can essentially review the application rejection de novo, admitting new evidence and thus giving little, if any, deference to the USPTO’s determination. It is not surprising that the office would want to defend its decisions in the confines of an appellate court, where the record on appeal is set.”
After the Patent Trial and Appeal Board (PTAB) affirmed a rejection of NantKwest’s patent application, NantKwest filed suit in district court under §145, contesting the rejection. The USPTO prevailed in the district court action and sought reimbursement of its litigation expenses, including its attorneys’ fees. While the district court granted the office’s request as to out-of-pocket costs, it denied its request for attorneys’ fees.
On appeal, a Federal Circuit panel reversed the district court’s decision as to attorneys’ fees, only to have the full circuit vacate the panel’s decision and affirm the district court’s interpretation of §145 regarding “all the expenses of the proceeding.”
In its 7-4 decision, the Federal Circuit noted that the USPTO had relied on this language for over a century to recover costs for such things as depositions, travel, printing, and expert witness fees, but had never before sought or been granted attorneys’ fees as part of its “expenses.” There was a good reason for that, the court concluded, holding that the “American Rule” regarding attorneys’ fees “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.”
The impact of the Federal Circuit’s decision may extend beyond patent applications and influence how courts treat the government’s request for fees and expenses in corresponding trademark application challenges, says Claudia W. Stangle, a member in Leydig’s Chicago office.
“In the trademark context, NantKwest creates a split with the 4th Circuit which has held that a trademark applicant appealing a Trademark Trial and Appeal Board decision to the district court must pay the government’s expenses, including its attorneys’ fees,” Stangle says. “It will be interesting to see how the NantKwest case may influence or persuade other district courts handling trademark matters.”
Design patents may help Amazon sellers combat infringement
Amazon has no rival in global reach and the power of its distribution channels. In 2016, Amazon generated $23 billion in third-party seller service revenues and third-party sellers account for half of all paid units sold on the site.
As lucrative as Amazon can be for third-party sellers, the platform is also rife with intellectual property infringement. Competitors and counterfeiters, often located overseas and hiding behind fake names or shell companies, offer their infringing products at discounted prices, undercutting patent, trademark, and copyright holders and confusing consumers.
Companies that face patent infringement by illegitimate Amazon sellers have ways to fight back, but the cost and time to initiate litigation in the federal courts may not be the most attractive option in some cases, says Elias P. Soupos, a member in Leydig’s Chicago office.
“The challenges and costs of holding elusive Amazon counterfeiters to account in patent litigation are prohibitive for many small third-party sellers, even when the stakes for them are extremely high,” Soupos says.
Over the past several years, Amazon has refined its system for addressing intellectual property infringement claims against sellers on its site. For example, Amazon’s Brand Registry program allows sellers to share their trademark information with Amazon so the company can find and remove counterfeit pages.
Similarly, companies can notify Amazon that a seller is infringing on their patent rights and request that the seller’s pages be suspended. Amazon is responsive to such complaints if the aggrieved company provides evidence of its rights.
For Amazon sellers whose products may have a unique aesthetic design, obtaining design patent protection may provide a good method to enforce their rights as it is generally less costly and quicker to obtain than utility patent protection, according to Soupos.
“A design patent is cheaper, quicker and more easily obtained than a utility patent, but can still accomplish the goal of getting infringing goods removed from Amazon in short order,” Soupos says. “If you are investing in Amazon sales to any significant degree, investing in a design patent, if available, is a smart, proactive move.”
When Amazon initiates an infringement claim, it is up to the two parties involved to resolve the dispute.
Allergan’s sovereign immunity adventure continues after Federal Circuit rejection
The question of whether tribal sovereign immunity can be used to avoid inter partes review (IPR) proceedings continues to work its way through the courts. Drugmaker Allergan’s novel – and heavily criticized – attempt to protect its patents for Restasis, its $1.5 billion dry-eye drug, from IPRs by transferring them to New York’s St. Regis Mohawk Tribe was rejected in July by a panel of the U.S. Court of Appeals for the Federal Circuit. In August, however, the tribe petitioned the Federal Circuit for rehearing en banc on the issue.
The ruling by the Federal Circuit panel in St. Regis Mohawk Tribe v. Mylan Pharmaceuticals Inc. that sovereign immunity does not apply to IPRs affirmed the conclusion of the Patent Trial and Appeal Board (PTAB) that “reconsideration of the patentability of issued claims via inter partes review is appropriate without regard to the identity of the patent owner.”
A reversal of the panel’s decision by the full Federal Circuit could open the floodgates for similar gambits by patent holders hoping to avoid IPRs they see as stacked against them, says Steven H. Sklar, a member in Leydig’s Chicago office.
“Any patent holder would be remiss not to consider strategies to avoid IPR attacks on their patent, especially if the patent has potentially significant validity concerns,” Sklar says. “While the public perception of assigning a patent to an Indian tribe could potentially be unfavorable, the desire to maximize corporate profits might prevail.”
The concept of sovereign immunity shields tribes like the St. Regis Mohawk from lawsuits by private parties in federal court. Such immunity does not, however, apply to agency-initiated enforcement proceedings. On appeal, the tribe argued that tribal immunity applies to IPRs because IPRs are contested adjudicatory proceedings between private parties in which petitioners, rather than the U.S. Patent and Trademark Office (PTO), defines the parameters of the action.
In rejecting the tribe’s argument, the Federal Circuit panel held that an IPR “is more like an agency enforcement action than a civil suit brought by a private party,” because the PTO “is acting as the United States in its role as a superior sovereign to reconsider a prior administrative grant and protect the public interest in keeping patent monopolies within their legitimate scope.”
Allergan’s deal with the St. Regis Mohawk caused controversy and a congressional backlash from the moment Allergan announced it in fall 2017. A district court decision that invalidated the patents on unrelated grounds also criticized the move, stating that sovereign immunity "should not be treated as a monetizable commodity that can be purchased by private entities as part of a scheme to evade their legal responsibility."
Whether the tribe (and Allergan) will continue to seek a judicial seal of approval on its creative use of tribal immunity remains to be seen. Shoshana G. Marvin, an associate in Leydig’s Washington, D.C., office, believes that if the full Federal Circuit or the Supreme Court were to find such a tactic to be a permissible way to sidestep IPRs, the outcry might be sufficient to spur a legislative response.
“After Allergan’s deal became public, a bill was introduced in the U.S. Senate to specifically strip tribes of sovereign immunity in patent-related proceedings, including IPRs,” Marvin notes. “If subsequent decisions find these arrangements to be valid, there’s every reason to believe that Congress will step in, as they see such tactics as a way to delay generic competition that could lower drug prices.”
Supreme Court grants certiorari in copyright infringement and ‘on-sale bar’ cases
The U.S. Supreme Court’s new term features two important cases that will determine whether and when copyright holders can file infringement suits and outline the contours of the “on-sale bar” in the America Invents Act.
What constitutes copyright ‘registration’ for purposes of infringement actions?
While a copyright attaches to a creative work upon its creation, a copyright owner cannot bring an infringement suit in federal court until “registration of the copyright claim has been made” with the Copyright Office. In June, the Supreme Court granted a petition for writ of certiorari in Fourth Estate Public Benefit Corporation v. Wall-Street.com, LLC, to resolve a split between circuits as to what constitutes “registration” of a copyrighted work as a prerequisite for an infringement action.
The U.S. Courts of Appeals for the 5th and 9th Circuits take the position that “registration … has been made” upon the owner’s initial submission of an application, fees, and supporting materials to the Copyright Office. The 10th and 11th Circuits have held that the Copyright Office must either issue a certificate of registration or reject an application before the owner may file suit.
In Fourth Estate, the 11th Circuit affirmed the district court’s dismissal of a copyright infringement suit based on the latter interpretation, holding that “filing an application does not amount to registration.”
The Supreme Court’s resolution of this issue will determine whether aggrieved copyright owners must wait for the Copyright Office to issue a registration (or rejection) before initiating litigation, or if simply filing application paperwork is sufficient.
Scope of the ‘on-sale bar’ in the America Invents Act
The Court will also bring clarity to the parameters of the “on-sale bar” in the America Invents Act (AIA). Specifically, by granting certiorari in Helsinn Healthcare S.A., v. Teva Pharmaceuticals USA, Inc., et al., the Court will decide whether an inventor’s sale of an invention to a third party that is obligated to keep the invention confidential qualifies as prior art for purposes of determining the patentability of the invention.
Before the enactment of the AIA, 35 U.S.C. §102 barred the patentability of an invention that was “patented or described in a printed publication in this or a foreign country or in public use or on sale in this country, more than one year prior to the date of the application for patent.”
The AIA amended §102 to bar the patentability of an “invention [that] was patented, described in a printed publication, or in public use, on sale, or otherwise available to the public before the effective filing date of the claimed invention.”
At issue in Helsinn Healthcare is the effect of the “otherwise available to the public” language in the post-AIA version of §102. Helsinn, as well as the government, have argued that this phrase means that a sale now must make the invention’s details available to the public to trigger the “on-sale bar.”
The U.S. Court of Appeals for the Federal Circuit disagreed, holding that the AIA’s “on-sale bar” operates to invalidate patent claims on an invention, regardless of whether the sale resulted in a public disclosure of the invention.
“After the AIA, if the existence of the sale is public, the details of the invention need not be publicly disclosed in the terms of sale” for purposes of the ‘on-sale bar,’ the court concluded.
This case represents the Supreme Court’s first opportunity to address the AIA’s new “on-sale bar” language, and its decision could affect the validity of many existing patents and pending applications.
Leydig Awards
The Best Lawyers in America recognized David Airan, John Augustyn, H. Michael Hartmann, Robert Jambor, John Kilyk, Jr., and Mark Liss in the 2019 edition of the publication, which also selected Mr. Hartmann as a Lawyer of the Year for Patent Law in Chicago.
Managing Intellectual Property ranked Leydig as a top firm in their 2018 IP Stars survey, recognizing Bruce Gagala, H. Michael Hartmann, John Kilyk, Jr., Tamara Miller, Charles Mottier, Wesley Mueller, Pamela Ruschau, and Claudia Stangle. Ms. Ruschau and Ms. Stangle were also listed among the global Top 250 Women in IP in 2018.
Leydig Announces
Leydig welcomes William Fischer to its Boulder office as an associate. He holds a bachelor’s degree in electrical engineering from the University of Colorado, a bachelor’s degree in biotechnology from Rutgers University, a master’s degree in molecular bioscience and biotechnology from Lehigh University, and a law degree from the University of Colorado Law School.
Mark Liss was featured in Leading Lawyers - 2018 Business Edition. The article, Creating Valuable Client Outcomes in Trademark Law, discusses Mr. Liss’ storied career in trademark law.