The 4th Circuit Authorizes a Heads I Win, Tails You Lose Attorneys' Fee Award in Certain Trademark Appeals

heads_tailsThe Fourth Circuit Court of Appeals' recent ruling on attorneys fees in Shammas v. Focarino, No. 14-1191 (April 23, 2015), will, unless overturned by the Supreme Court, make the "direct" appeal to federal district of an administrative ruling by the Patent and Trademark Office impractical in most cases, rendering the statute authorizing such appeals a dead letter, and in turn narrowing the options companies have in challenging denials of trademark registration and patents. More broadly, the case is troubling for finding the authority to award attorneys' fees in a statute that does not use the words "attorneys' fees" but instead merely authorizes an award of "expenses."

In Shammas, the Plaintiff was denied registration of a trademark by the U.S. Patent and Trademark Office ("PTO"). Rather than appealing the denial to the Court of Appeals for the Federal Circuit, Shammas opted for the alternative allowed by 15 U.S.C. § 1071, which is to file a civil action against the PTO in district court. This proceeding is a standalone, "de novo," civil action, not an administrative appeal. The statute makes clear that filing a civil action challenging the denial of trademark registration by the PTO is an alternative to an administrative appeal, and that neither alternative is more favored by law than the other.

The direct action can have some definite advantages over an administrative appeal for an applicant. First, the action can be tried in the applicant's home district. 28 U.S.C. § 1391(e)(1)(C). In addition, if the applicant's argument is based on factual evidence, the applicant has the ability introduce evidence that was not part of the administrative record, even if that evidence could have been part of the administrative record. "A disappointed party may present new evidence before the district court that was not presented to the TTAB [Trademark Trial and Appeal Board]." Kellogg Co. v. Toucan Golf, Inc., 377 F.3d 616, 622 (6th Cir. 2003). In addition, new issues may also be considered in the civil action. Atieselskabet AF 21 November 2001 v. Fame Jeans Inc., 525 F.3d 8, 13 (D.C. Cir. 2008).

Moreover, the PTO's fact-finding is not entitled to deference in the direct appeal to district court. In Kappos v. Hyatt, 132 S. Ct. 1690 (2012), the Supreme Court interpreted 35 U.S.C. § 145, the patent law equivalent to 15 U.S.C. § 1071, as allowing in any new evidence generally permitted in federal court, and further held that, where new evidence is before the district court, the court "cannot meaningfully defer to the PTO's factual findings" because the PTO "considered a different set of facts." 132 S. Ct. at 1700-01. The statute thus permits an applicant to choose as a tactical matter to forego introducing evidence at the administrative stage that is more suited for consideration in a civil trial court setting.

The direct ex parte appeal of a PTO ruling does have a price, which is a provision shifting all "expenses" to the applicant, regardless of the outcome. 15 U.S.C. § 1071 states that "[i]n any case where there is no adverse party … all the expenses of the proceeding shall be paid by the party bringing the case, whether the final decision is in favor of such or not." (The corresponding patent statute, 35 U.S.C. § 145, has a substantively identical provision on expenses.)

In Shammas, Plaintiff argued that "expenses" do not include attorneys' fees.   The Fourth Circuit, though, held that "§ 1071(b)(3) imposes a unilateral, compensatory fee, including attorneys' fees, on every ex parte applicant who elects to engage resources of the PTO when pursuing a de novo action in the district court, whether the applicant wins or loses." Slip Opinion, p. 12. The PTO's attorney fees, in context are "the PTO's salary expenses for the attorneys' and paralegals who represent the Director" of the PTO. Slip Opinion, p. 4.

The ruling is problematic both on practical grounds and in light of traditional statutory interpretation principles. As a practical matter, given that attorneys' fees will ordinarily be much greater than costs and other expenses, the ruling will probably be the death-knell for ex parte direct appeals of PTO decisions to district court -- which would thwart Congressional intent in creating the direct action alternative, but which in fact may be the PTO's intent in pressing for the rule. The dissent in Shammas notes that there is no record of the PTO seeking fees in such cases before 2013, which was soon after the 2012 decision in Kappos clarifying how little deference the administrative record is entitled to in a direct action.

From the standpoint of statutory interpretation, the ruling is troubling because it is contrary to the common expectation of litigants that attorneys' fees cannot be shifted unless expressly permitted by statute. In re Crescent City Estates, LLC v. Draper, 588 F.3d 822, 825 (4th Cir. 2009).Here, the statute merely says "expenses." The word "expenses," contrary to the Fourth Circuit's opinion, does not necessarily imply attorneys' fees. When Section 1071 was enacted in 1946, Congress may have been merely thinking of expenses such as train tickets and hotel bills for PTO attorneys forced to defend cases around the country. Also, it is unlikely that any one case would require the PTO add staff and incur expense, meaning that the salaries recoverable in the form of attorneys' fees would be paid anyway, which means that an attorneys' fees award is a windfall for the PTO rather than compensation of actual out-of-pocket expense. There is no basis in the context of § 1071 to assume "expenses" includes attorneys' fees.

Further, while the district court's opinion in Shammas cited a number of federal statutes authorizing an award of expenses that includes an award of attorneys' fees (Shammas v. Focarino, 940 F. Supp. 2d 587, 590 (E.D. Va. 2014)), those statutes undermine rather than support the court's interpretation, because in each instance attorneys' fees are expressly made recoverable by the statute. As the dissent in Shammas pointed out, "Congress has consistently shown that it knows how to draft a statute that authorizes attorneys' fees awards." Slip Opinion, p. 22.

It will be interesting to see if the Supreme Court accepts certiorari on the case. If it does, it will presumably not be because of an interest in the narrow issue under the patent and trademark statutes (important as that is to IP attorneys' and their clients), but because the decision sets a potentially dangerous precedent by construing a statute that never expressly mentions "attorneys' fees" as authorizing an award of attorneys' fees.

About The Author

Don Burton | Faruki Attorney