Argument analysis: Justices seem hesitant to award attorney’s fees to government in litigation challenging denial of patent applications

The first morning of the term showed a welcome moment of camaraderie on the bench, as justices from both sides of the ideological spectrum seemed to join in their skepticism of the government’s position in Peter v. NantKwest.

The case involves an odd provision of the Patent Act (Section 145) that gives disappointed applicants the option to challenge the denial of a patent by instituting full-blown litigation in the federal district court for the Eastern District of Virginia. That procedure is not the norm; the typical way to challenge the denial of a patent is by an appeal to the Federal Circuit, which reviews the case on the administrative record compiled by the Patent and Trademark Office. Because the district-court route is likely to involve expert witnesses, depositions and all the attributes of commercial litigation, it is likely to be much more expensive. Accordingly, the Patent Act has provided since the 1830’s that the disappointed applicants that choose the district-court route must, whether they win or lose, pay the government’s “expenses.”

The question in this case is whether the “expenses” that the government can charge the litigant include compensation for the time that in-house government attorneys spend on the litigation. Although the government did charge litigants for attorneys’ fees before the Civil War, it did not impose those charges for about 150 years, until earlier this decade. As explained in my preview, the arguments of the parties are simple. The government argues that “expenses” is a simple all-encompassing term that should reach everything that the PTO spends. The applicant, Nantkwest, argues that the word “expenses” is not specific enough to overcome a presumption (the so-called “American rule”) against forcing one party to pay the attorney’s fees of the other.

In general, with a few discordant notes, the justices seemed skeptical of the government’s position. For some of the justices, it seemed remarkable – a “radical departure” in the words of Justice Brett Kavanaugh – for Congress to force a successful litigant to pay the attorney’s fees of the other.

Others seemed troubled by the recent shift from the government’s longstanding view that it was not entitled to those fees.  Justice Ruth Bader Ginsburg, for example, suggested that “you were violating the statute” throughout “all the years that you weren’t doing it.” Similarly, although he plainly was fascinated by the implications of the back and forth in the government’s position, Justice Stephen Breyer at one point interrupted Deputy Solicitor General Malcolm Stewart to emphasize that the case presented an “interpretation” contrary to Stewart’s position manifested “through action by the agency itself over the period of 190 years or something.”

Even Justice Samuel Alito, who seemed to be the questioner most sympathetic to Stewart’s arguments, wondered whether the government’s failure to “advance an interpretation of the statute that would benefit them” should be “strong evidence” that the statute can’t bear “the … interpretation that would have benefited [the government.]”

Another group (Chief Justice John Roberts and Justice Neil Gorsuch) seemed to think that the government’s current position gave the government far too much leeway. Gorsuch suggested that there was nothing in the government’s stated view “that would inhibit the government from … allocat[ing] to litigants” unrelated “forms of overhead” like an “electric bill” or “sewage bill.” For his part, Roberts asked whether Stewart was “going to send the [applicant Nantkwest] a bill for your time today?”

Finally, the justices seemed well aware that denying fees to the government in this case would not upset the system: Stewart accepted Ginsburg’s estimate (taken from the decision of the lower court) that the PTO would need to raise the fees for each applicant only $1.60 if the Supreme Court adopted a firm rule against awards of attorney’s fees. To be sure, Alito seemed unpersuaded by that point, as he commented that “maybe it is only going to be $1.60, but still other people are paying th[ese] expenses. … Just as a matter of fairness, why should these other people pay for the costs that you have caused the Patent Office to incur?”

The justices spent much of the argument of Morgan Chu, representing NantKwest, exploring the boundaries of the American rule – with questions about whether statutes that referred only to “fees” or the costs of “the services of [government] personnel” would be clear enough to satisfy the presumption that Chu drew from the American rule.

By the end of the argument, the consensus of the justices seemed clear: Congress would have to legislate much more clearly than it has so far before the justices would force private litigants to pay the costs of the government’s in-house legal personnel. I would mark this one down as a likely candidate to be one of the earliest decisions of the term.

Editor’s Note: Analysis based on transcript of oral argument.