Heads I Win, Tails You Pay: Challengers Pay PTO’s Legal Fees

Two recent decisions should strongly influence any decision as to how challenge Patent and Trademark Office decisions in court. Parties have two options: bring a civil action in district court against the PTO (which has the advantage of a de novo trial, with new evidence allowed and no deference to the PTO), or appeal to the Federal Circuit (deferential review, limited to the record before the PTO).

But recent decisions (one for trademarks, one for patents) now require challengers to pay the PTO’s legal fees for district court challenges – win or lose. Fees awarded have been significant – in one case exceeding $75,000. Appeals to the Federal Circuit, in contrast, do not require payment of the PTO’s fees.

Companies deciding how to appeal an adverse PTO decision must now balance the advantages of de novo review in district court against the prospect of paying out heavy fees to the PTO. Unless there is a strong reason to take the district court option (and the IP involved is very valuable), the better option in most cases is an appeal to the Federal Circuit.

By statute, many PTO rulings can be challenged in court in two ways. But recent decisions have put the proverbial thumb on the scale to favor one of the options.

The Trademark Trial and Appeal Board hears appeals of refusals to allow trademark registrations, and conducts inter partes proceedings on trademark issues – opposition and cancellation proceedings. Parties can challenge a TTAB decision in two ways: they can appeal to the Federal Circuit, or file a new action in the district court. 15 USC § 1071(a, b)

There are procedural advantages to the second option. It is a de novo trial: the TTAB decision is given no deference, and one can even introduce completely new evidence. In contrast, on appeal to the Federal Circuit, that court defers to the TTAB’s factual determinations, and no new evidence can be introduced.

Under the second option, “all the expenses of the proceeding shall be paid by the party bringing the case, whether the final decision is in favor of such party or not.” What are “expenses?” In 2015, the Fourth Circuit ruled that this includes the PTO’s legal fees. Shammas v. Focarino (2015). But a later Supreme Court interpretation of a similar provision of the Bankruptcy Code arguably undermined that decision.

Not so, ruled the Eastern District of Virginia in late October. Booking.com B.V. v. Matal (2017) After rejecting that argument and Constitutional challenges, that court imposed $76,000 in fees against Booking.com – even though it had prevailed on its challenge. This included over $21,000 in expert fees and over $51,000 in legal fees. Ouch!

A similar situation exists on the patent side – the Patent Trial and Appeal Board hears both appeals of refusals of patent applications and inter partes proceedings. Parties who do not like the result similarly have a choice of appealing to the Federal Circuit or bringing a new action in the district court. 35 USC §§ 141, 145.

And, there are parallel differences in the review process: the Federal Circuit reviews PTAB decisions deferentially, but does not impose fees on the challenger; district court proceedings are de novo, but by statute “[a]ll the expenses of the proceedings shall be paid by” the challenging party, again regardless of success or loss.

In June, in a 2-1 decision, the Federal Circuit ruled that “expenses” in the patent statute include attorney’s fees. Nantkwest v. Matal (2017). Two months later, it vacated that decision and granted a petition for rehearing en banc on that issue.

The Federal Circuit’s now-vacated decision candidly acknowledged that this interpretation would be a “heavy burden” on challengers. But that is a feature, not a bug. Congress deliberately intended this provision to discourage seeking review in the district court.

In deciding where to appeal, companies must now balance the steep price of a district court challenge (pay the PTO’s fees regardless of success) against the procedural advantages of a de novo review