Fourth Circuit Rules That Plaintiff in Appeal from Ex Parte TTAB Decision Must Pay ALL Expenses

A divided panel of the United States Court of Appeals for the Fourth Circuit affirmed the decision of the U.S. District Court for the Eastern District of Virginia, upholding the lower court's ruling (Shammas v. Focarino, 109 USPQ2d 1320 (E.D. Va. 2014)) that, in a Section 1071(b) civil action for review of an ex parte TTAB decision, the plaintiff/applicant must pay the PTO's expenses (including attorney and paralegal fees). Dissenting Judge Robert Bruce King maintained that the American Rule (that each party pays its own expenses) should be applied absent “explicit statutory authority” for proceeding differently. Shammas v. Focarino, 114 USPQ2d 1489 (4th Cir. 2015) [published].

The Lanham Act provides that a dissatisfied trademark applicant may seek review of a final refusal to register either via appeal to the CAFC under 15 U.S.C. §1071(a)(1), or by commencing a de novo civil action in a federal district court under §1071(b)(1). If the applicant proceeds in a district court, the applicant must name the Director of the PTO as a defendant and must pay "all the expenses of the proceeding," whether the final decision is "in favor of such party or not," unless the expenses are unreasonable. §1071(b)(3).

Here, Mr. Shammas lost in the district court, and the court awarded the USPTO $32,836.27 in attorney salaries, $3,090.32 in paralegal salaries, and $393.90 in photocopying expenses.

In his appeal to the 4th Circuit, Shammas acknowledged that the term "expenses" is a sufficiently broad term that "in ordinary parlance" includes attorneys fees. However, he argued that the district court erred in "shifting" the PTO’s attorneys fees to him, contrary to the American Rule under which each party bears its own attorneys fees, because the governing statute does not expressly provide for the shifting of attorneys fees.

The majority rejected this fee-shifting argument, observing that in "fee-shifting" statutes the fees are awarded to a party that has succeeded in its claim. Here, the majority concluded, the imposition of all expenses on a plaintiff in an ex parte proceeding, regardless of whether the plaintiff wins or loses, "does not constitute fee-shifting that implicates the American Rule but rather an unconditional compensatory charge imposed on a dissatisfied applicant who elects to engage the PTO in a district court proceeding." The majority confirmed that these "expenses" include the PTO’s salary expenses for the attorneys and paralegals who represented the Director.

The majority observed that a de novo civil action under § 1071(b)(1) results in a more complicated and expensive procedure than an appeal to the CAFC, where no new evidence is allowed and no discovery or other facets of civil litigation are permitted. In short, in a civil action for review, "the PTO is required to expend substantially greater time and effort and incur substantially greater expense than it would otherwise in an appeal to the Federal Circuit." Reviewing the legislative history of Section 1071(b)(3), the majority found that it was plainly meant to "incentivize[] trademark applicants to appeal routine trademark denials to the Federal Circuit."

In dissent, Circuit Judge King maintained that because §1071(b)(3) makes no reference to attorney’s fee awards, the American Rule should be followed. He noted that the words "attorney’s fees" are not found in §1071(b)(3), and he found no "clear support" for the award of such fees in the statute or its legislative history.

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TTABlog note: So if you are contemplating an appeal from an adverse TTAB ruling in an ex parte case, you might want to avoid the Fourth Circuit, if you can. Here's a question: does the USPTO now have a (reasonably) blank check to hire experts, conduct surveys, and take discovery in a §1071(b) civil action?

Text Copyright John L. Welch 2015.