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Decided: April 23, 2015  

The Fourth Circuit held that the imposition of all expenses in an ex parte proceeding, regardless of whether a plaintiff wins or loses, does not involve “fee shifting” that would implicate the American Rule but instead an unconditional compensatory charge imposed on a dissatisfied applicant who elects to engage the Patent and Trademark Office (PTO) in a district court proceeding.

This appeal stemmed from the district court granting the Director of the PTO’s request and ordering Shammas to pay the PTO a total of $36,320.49 in expenses, including the salary expenses of the PTO attorneys and a paralegal who were required to defend the Director. In June 2009, Shammas applied for a federal trademark for the mark “PROBIOTIC” to be used regarding the fertilizer products produced by his company. The trademark-examining attorney for the PTO denied Shammas’ application in an ex parte proceeding because the term was “generic and descriptive.” The Trademark Trial and Appeal Board affirmed this decision. Instead of appealing to the Federal Circuit, Shammas elected to bring this action against the PTO in district court, allowable under 15 U.S.C. § 1071(b)(1). The district court granted the PTO’s motion for summary judgment and ordered Shammas to pay the $36,320.49 in expenses that the PTO incurred in the proceeding. Shammas opposed this motion, claiming that the PTO was in essence claiming attorney’s fees and that § 1071(b)(3) did not, in authorizing the recovery of all expenses in the proceeding, explicitly provide for the shifting of attorney’s fees as would be required to overcome the American Rule. The district court granted the PTO’s motion in its entirety, reasoning that the terms “all expenses” clearly seem to include attorney’s fees.

Shammas’ main argument is the American Rule, which states that “the prevailing party may not recover attorneys’ fees as costs or otherwise.” Shammas argued “a district court may not read a federal statute to authorize attorney-fee-shifting unless the statute makes Congress’ intention clear by expressly referring to attorney’s fees.”  Shammas’ argument depended on the assumption that if § 1071(b)(3) were to be construed to include attorney’s fees, it would constitute a fee-shifting statute that would need to refer explicitly to attorney’s fees in order to overcome the presumption of the American Rule.

The Fourth Circuit determined that this assumption was incorrect under the circumstances of this case. A statute that requires the payment of attorney’s fees without regard to a party’s success is not a fee shifting statute that operates “against the backdrop of the American Rule.” It is clear that § 1071(b)(3) is not a fee-shifting statute that is held to the American Rule. This statute, instead, imposes expenses on the ex parte plaintiff, “whether the final decision is in favor of such party or not,” rather than imposing expenses based on whether the PTO prevails.  

Further, the reading that § 1071(b)(3) imposes a unilateral, compensatory fee, including attorney’s fees, on every ex parte applicant who elects to engage the resources of the PTO when bringing an action in district court, whether the applicant succeeds or fails, is confirmed by the statute’s structure and legislative history. This is mainly due to the higher costs of the district court having to review this case de novo. Shammas had the option of appealing the decision directly to the Federal Circuit, but he chose to commence a de novo civil action in the federal district court. By requiring the dissatisfied applicant to pay “all of the expenses of the proceeding,” whether successful or unsuccessful, Congress clearly intended to reduce the financial costs of the PTO in defending such a proceeding. Due to this specific purpose, it makes sense for all of the expenses to include the attorney and paralegal fees. Additionally, the statute’s legislative history shows that § 1071(b)(3) was intended to be a funding provision, created to relieve the PTO of the financial burden that results from the applicant’s decision to pursue the more expensive de novo review of the district court.

Therefore, the Fourth Circuit affirmed the decision of the district court. In his dissent, Judge King stated that § 1071(b)(3) makes no reference to attorney’s fees and does not accurately reflect Congress’ intention to authorize these awards. The American Rule is a well-settled tradition that should not have been disregarded. Judge King concluded his dissent by saying that “Absent explicit statutory language authorizing attorney’s fees awards, the courts can only speculate on whether the phrase ‘all the expenses of the proceeding’ includes the PTO’s attorney’s fees. Against the backdrop of the American Rule, however, the courts are not entitled to make educated guesses.”

Full Opinion

Austin T. Reed