Today the Supreme Court heard oral argument in Peter v. NantKwest, and—to put it lightly—the government had a tough go. Malcolm Stewart of the Office of the Solicitor General faced a barrage of questions finding fault with the government’s position that patent applicants must pay the U.S. Patent and Trademark Office’s attorneys’ fees when challenging rejections in federal district court. NantKwest’s Morgan Chu, by contrast, faced many questions seeking to clarify the historical record and NantKwest’s position, but few directly challenging NantKwest’s position on the merits.
As we previewed last week, this case presents the question of whether, when a patent applicant takes her challenge of a rejection of her application into federal district court, the applicant is responsible to pay the U.S. Patent and Trademark Office’s personnel expenses, including attorneys’ fees.
Deputy Solicitor General Stewart argued on behalf of the named petitioner, Laura Peter, the Deputy Director of the USPTO, seeking to overturn the Federal Circuit’s judgment that USPTO attorneys’ fees are not recoverable.
Justices Ginsburg and Kavanaugh were the first to ask questions, with both wondering whether other statues “provide for attorneys’ fees on the basis of the word ‘expenses’ alone” or “provide for fees . . . that are awarded against the prevailing party.” While conceding the relatively unique nature of the statute, Stewart explained that “[i]f you compare it to other stages of the patent application process, it’s not unusual at all.” It is not unusual, according to Stewart, because the USPTO “in sort of a rough and ready way . . . tried to create a scenario in which applicants who cause the PTO to . . . incur greater expenses must pay more.” So, he went on, “if your proposed patent has an unusually large number of claims, you may have to pay a larger fee,” and “[i]f you seek continued examination or if you file an administrative appeal to the PTAB, you have to pay additional fees. And none of that is contingent on how the application is ultimately disposed of.” Later he explained that “a Section 145 suit [is] a continuation of the examination process.”
Justice Gorsuch, however, pounced on Stewart’s concession that the USPTO for 170 years had been collecting fees covering personnel expenses during the application process (albeit not for proceedings in federal district court). In response to a question indicating disbelief about how the government changed its longstanding position with respect to personnel expenses for proceedings in federal district court, Stewart conceded that “we don’t have a good explanation for why we weren’t doing it before.”
Justices Kavanaugh and Kagan then asked Stewart to explain how the American Rule, which is a presumption that attorneys’ fees do not shift absent a clear statement to the contrary, applies here. In response, Stewart relied upon the Fourth Circuit’s finding in the context of a trademark dispute that “because the Section 145 mandate applies without regard to the ultimate outcome of the litigation, the American Rule doesn’t apply.”
Later, Stewart agreed with Justice Ginsburg that “if this cost of the PTO attorneys is spread among all patent applicants, even the ones who don’t use 145, that added cost per applicant would be $1.60.” “But,” he argued, “when we have this congressional mandate and when we have a situation whereby filing suit under Section 145, you’ve caused the PTO to incur 30 times the expenses that . . . go with a typical patent examination, it . . . seems fair and appropriate to make the applicant pay.”
As mentioned, Irell & Manella’s Morgan Chu argued for NantKwest. His first question came from Chief Justice Roberts, who asked “why isn’t this just like a filing fee? In other words, the applicant can take the normal appeal to the court of appeals, but if he or she wants to go through the much more elaborate proceeding of trying the case, bringing in new evidence, they have to pay a filing fee?” Chu responded by arguing that “this is not a filing fee” but instead “a claim for attorneys’ fees against the strong backdrop of the American Rule,” and that “this is not inside the Patent Office” but instead “is adversarial litigation.”
In response to questions from Justices Ginsburg, Sotomayor, and Kagan, Chu again focused his argument on the American Rule, clarifying that “[i]f Congress had a specific provision that showed it was intending to include lawyers, Congress has the authority to enact such legislation.” “This Court,” he argued, “has made clear Congress needs to enact a statute that is specific and explicit” using the term “lawyers” or “words to that effect.”
Later Justice Alito asked, “as a matter of fairness, why should these other people pay for the costs that you have caused the Patent Office to incur?” No doubt providing music to Justice Alito’s ears, Chu explained that “[i]f we were Congress—and we’re not—Congress could decide what it thinks is fair or wise or good public policy.” “But,” he went on, “no matter how good that policy might be, this Court does not have the roving authority to make those decisions. It is up to Congress.”
Stewart’s rebuttal argument served only to highlight his defensive posture throughout the argument. He began by confronting the fact—emphasized by Chu during his argument time and by several of the Justices—that the government failed over a 170-year period to assert its current position that the agency’s recoverable expenses include its attorneys’ fees. “[T]here is no question,” he conceded to laughter, “this is an atmospherically unhelpful point for us.”
In response to Stewart’s point that there was no “body of lower court case law saying that the term expenses doesn’t include personnel expenses, Justice Breyer seemed unperturbed, noting that “[y]ou do have that interpretation through action by the agency itself over the period of 190 years or something.” Likewise, in response to the argument that “it’s not as though the agency ever promulgated a regulation or issued some similarly formal statement to the effect that we think expenses means the following things,” Justice Sotomayor pointed to the American Rule and the need for a “clear statement [that] attorneys’ fees is encompassed,” the “170 years the PTO didn’t think of expenses including attorneys’ fees,” and the consistency between the American Rule and the PTO’s longstanding position.
In short, the Justices overall seemed unconvinced that the American Rule ought to be set to the side in these circumstances, or that the USPTO’s current position deserves any respect given both the American Rule and the USPTO’s longstanding contrary position.