CAFC Dismisses USPTO’s Appeal on Expert Witness Fees in Hyatt II Based on Supreme Court NantKwest Analysis

On August 18, the U.S. Court of Appeals for the Federal Circuit issued a precedential decision in Hyatt v. Hirshfeld (Hyatt II), the latest in a line of court rulings regarding a series of much maligned patent applications filed by prolific inventor Gil Hyatt with the U.S. Patent and Trademark Office (USPTO) in the 1990s. While the Federal Circuit’s most recent decision, which denied the USPTO’s request to shift expert witness fees even while the appellate court vacated attorney’s fees awarded to Hyatt, could be seen as a mixed victory for Hyatt, it continues to shine a light on an unfortunate legal situation in which an independent inventor continues to be denied patent rights despite strong evidence that the USPTO dragged their feet on examining Hyatt’s patents.

The Limits of Section 145 ‘Expenses’

The Federal Circuit panel, composed of Chief Judge Kimberly Moore and Circuit Judges Jimmie Reyna and Todd Hughes, quickly vacated the District Court for the District of Columbia’s grant of attorney’s fees, as Hyatt was no longer the prevailing party in the case. The present appeal stems from a 35 U.S.C. § 145 suit filed by Hyatt to challenge the USPTO’s rejection of patent claims. In an earlier appeal from the same case (Hyatt I), the Federal Circuit held that the USPTO had met its burden to show that Hyatt’s lawsuit was barred under the doctrine of prosecution laches. In dismissing the prosecution laches defense, the District of Columbia had ordered the USPTO to grant some of Hyatt’s patent claims, but the Federal Circuit decision this June undid the district court’s relief. Because the grant of attorney’s fees to Hyatt was premised on his prevailing over the USPTO’s prosecution laches defense, the present vacature of Hyatt’s attorney’s fee award was an inevitable outcome of the Federal Circuit’s June decision in Hyatt I.

Much of the Federal Circuit’s recent decision analyzes whether the USPTO is able to shift expert witness fees in patent applicant lawsuits filed pursuant to Section 145, which are sometimes pursued to introduce new evidence not available on the administrative record in USPTO appeals taken directly to the Federal Circuit. The language of Section 145 provides that “[a]ll expenses of the proceeding shall be paid by the applicant” filing suit in U.S. district court. In the lower decision, the District of Columbia held that the language of Section 145 was not sufficiently explicit to overcome the American Rule’s presumption against fee-shifting despite a longstanding practice of district courts awarding expert witness fees to the USPTO in Section 145 cases.

In determining the limits of the expenses paid by applicants in Section 145 proceedings, the Federal Circuit’s analysis focused heavily on the U.S. Supreme Court’s 2019 decision in Peters v. NantKwest Inc., in which the nation’s highest court ruled that Section 145 does not allow the USPTO to recover fees incurred for legal personnel. While Peters was an appeal involving attorney’s fees, the American Rule presumption applied in that case also extends to other costs of litigation including expert witness fees.

Section 145 Does Not Clearly Invoke Expert Witness Fees to Overcome American Rule

The American Rule is a basic precept of the legal system as it has developed in the United States, and it stands for the premise that each party in a lawsuit is liable for their own fees incurred while pursuing litigation. This contrasts with the English Rule by which prevailing parties in British courts often recoup their fees from the party losing the case. Statutes shifting costs or legal fees onto certain parties exist throughout U.S. civil law, Section 145 being one example of such a provision within patent law.

In Hyatt II, the Federal Circuit noted that while “[n]o magic words are needed to override the American Rule… the requirement that Congressional intent be specific and explicit is a high bar.” Following the Supreme Court’s NantKwest decision, the Federal Circuit ruled that Section 145 does not invoke expert witness fees with enough clarity to overcome the American Rule presumption. The phrase “expenses of the proceeding” in Section 145 as introduced in the 1830s was defined by a contemporary dictionary to cover expenses of the suit, out-of-pocket costs required to sustain the suit in court, but not expenses incurred through legal fees paid to counsel. As in NantKwest, the Federal Circuit cited a list of statutory provisions throughout U.S. law that explicitly shift fees for attorneys and expert witnesses; such explicitness is lacking in the language of Section 145.

The Federal Circuit appellate panel dismissed several arguments raised on appeal by the USPTO as unpersuasive. Although the Supreme Court has decided cases with statements in dicta indicating that “expenses” can sometimes be construed to include expert witness fees, the value of those statements was directly undercut by the Supreme Court’s construction of the relevant language in Section 145 in NantKwest. The USPTO also noted that district court’s have been awarding expert witness fees to the agency in Section 145 litigation since the agency began using such witnesses in 1991, but the Federal Circuit panel found no appellate decisions endorsing that practice.

While courts in other cases have construed provisions shifting “expenses” to include fees, those cases have been decided based on legislative history showing Congressional intent, which is absent in Section 145’s legislative history, or have been based on reasoning rejected by NantKwest. Although some legislative history for Section 145 indicates that Congress intended to separate “expenses” and “costs,” the Federal Circuit found that this failed to provide the explicit intent required to avoid the American Rule presumption against fee shifting. Finally, the USPTO argued that denying expert witness fees could have the negative impact of increasing patent applicant fees at the agency, as agency costs are funded by applicants, the Federal Circuit questioned whether such fees in Section 145 cases would have a significant impact on the USPTO’s budget.

Hyatt II is Latest in Series of Adverse Decisions in Hyatt Appeals

While the Federal Circuit’s Hyatt II decision means that Gil Hyatt will avoid having to pay costly expert witness fees on behalf of the USPTO, it has not been an auspicious summer for Hyatt’s other legal matters. This May, the Ninth Circuit ruled against Hyatt in an appeal affirming that individualized communications between patent applicants and USPTO patent examiners are not subject to the terms of the Paperwork Reduction Act such that Office of Management and Budget (OMB) was required to review and approve certain rules on patent applicant submissions. Then the Federal Circuit issued its decision on prosecution laches in Hyatt I despite several declarations from former high-level staff at the USPTO and entered in the district court litigation indicating that the agency purposefully stalled the examination of Hyatt’s patent applications. Hyatt continues to pursue legal claims against the USPTO’s to lawfully procure his patent rights and most recently filed a suit against the USPTO in the Eastern District of Virginia this Tuesday, August 17.

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Author: iqoncept
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