Trademark Applicants Must Pay USPTO Attorneys’ Fees in District Court Challenge, “Win, Lose or Draw”

A recent decision from the U.S. District Court for the Eastern District of Virginia serves as a cautionary tale for trademark applicants seeking to challenge adverse decisions rendered by the U.S. Patent and Trademark Office’s (“USPTO”) Trademark Trial and Appeal Board (the “TTAB”).  On January 3, 2014, the Court in Shammas v. Focarino ruled that applicants who choose to appeal ex parte TTAB decisions to a district court (as opposed to the U.S. Court of Appeals for the Federal Circuit) must pay the USPTO’s “expenses” for the proceeding – and that according to the governing statute, “expenses” includes the legal fees for the work performed by the USPTO’s attorneys and paralegals.  The case highlights important considerations in selecting the appropriate forum to appeal trademark registration refusals.

Under the Lanham Act, a dissatisfied litigant wishing to overturn an adverse decision from the TTAB may elect between appealing to the Federal Circuit or commencing a civil action in federal district court.  See 15 U.S.C.  § 1071.  While appeals to the Federal Circuit are confined to the original evidentiary record, pursuing an action in federal district court gives litigants the added benefit of being able to supplement the record below with additional evidence.  However, as the Court highlights in Shammas, doing so comes with a price – even if the litigant wins.

In particular, 15 U.S.C. § 1071(b)(3) provides that “[i]n any case where there is no adverse party . . . unless the court finds the expenses to be unreasonable, all the expenses of the proceeding shall be paid by the party bringing the case, whether the final decision is in favor of such party or not.”  The requirement to pay expenses is notably absent from 15 U.S.C. § 1071(b)(4), the subsection that deals with disputes involving adverse parties (i.e., inter partes proceedings).

In this case, after the TTAB affirmed a refusal to register the trademark PROBIOTIC for use in conjunction with fertilizer on grounds of genericness or descriptiveness, trademark applicant Shammas commenced an action against the USPTO in district court seeking a review of the TTAB’s decision, as permitted by 15 U.S.C. § 1071(b).  Ultimately, the Court granted summary judgment in favor of the USPTO, prompting the USPTO to file a motion seeking the reimbursement of attorneys’ fees in defending the action.

In a case of first impression, the district court was charged with determining whether the phrase “all the expenses of the proceeding” set forth in the statute includes attorneys’ fees, which are not explicitly mentioned in 15 U.S.C. § 1071(b)(3).  In a classic case of statutory interpretation, the district court looked at a variety of factors, including the plain meaning of the word “expenses” and the fact that the prefix “all” appears in front of the word “expenses.”  In addition, the district court conducted a brief overview of several other fee-shifting statutes that made clear that attorneys’ fees are regarded as a subset of expenses.  The fact that courts construing similar statutes have reached analogous results led the court to conclude that Congress intended the phrase “all expenses” to include attorneys’ fees.    Accordingly, the USPTO won $32,836.27 in attorney salaries, $3,090.32 in paralegal salaries, and $ 393.90 in photocopying expense.  (Because the PTO lawyers do not receive income by the hour, as do most lawyers in private practice, the USPTO divided its lawyers’ salaries into an hourly rate that could be applied to the hours spent on the case.)

The holding in Shammas makes clear that, regardless of the outcome on a Section 1071(b)challenge, an applicant seeking to overturn a trademark registration refusal at the district court level will be forced to pay the USPTO’s legal fees for defending the proceeding.   Although applicants can avoid this result by appealing to the Federal Circuit in lieu, doing so prevents the applicant from introducing new evidence or selecting a district court with more favorable legal precedent.   Accordingly, trademark applicants looking to appeal will need to consider the nature of the record and the costs of appeal in determining their choice of venue.