By Amanda Whorton

On April 23, 2015, the Fourth Circuit issued a published opinion in the civil case Shammas v. Focarino. The court held that 15 U.S.C. § 1071(b)(3) of the Lanham Act requires that a dissatisfied trademark applicant who elects to commence a de novo action in a federal district court to challenge a ruling of the United States Patent and Trademark Office (“USPTO”) must pay all reasonable expenses of the proceeding, regardless of whether he wins or loses. These expenses include attorney’s fees.

Plaintiff’s Trademark Application

In 2009, Milo Shammas (“Shammas”) filed a federal trademark application to register the mark “PROBIOTIC.” This mark was being used to market fertilizer products that his company, Dr. Earth, Inc., manufactures. An examining attorney for the USPTO denied his application based on the mark being “generic” and “descriptive.” Shammas appealed to the Trademark Trial and Appeal Board, which affirmed this decision.

Procedure for Trademark Applicant to Appeal Adverse Ruling

The Lanham Act, in 15 U.S.C. § 1071, sets forth two choices for a dissatisfied trademark applicant if he or she wants a review of an adverse ruling: The applicant can (1) under § 1071(a)(1), appeal to the Court of Appeals for the Federal Circuit, or (2) under § 1071(b)(1), commence a de novo action in a federal district court.

With the first option, the appeal is taken “on the record.” The court gives considerable favor to the USPTO’s factual findings unless they are “unsupported by substantial evidence.” However, if the dissatisfied applicant seeks the second option and no party opposes the application, the applicant must name the Director of the USPTO as a defendant. Because this option is a much more expansive and expensive procedure (due to the court reviewing the record de novo), the applicant, under § 1071(b)(3), must pay all the reasonable expenses of the proceeding, regardless of whether he prevails.

The District Court Grants Director of USPTO’s Request

Shammas elected the second option and after losing the case, the Director sought all expenses, including fees, to pay the salaries of the USPTO attorneys and a paralegal who represented the Director in the action. The district court granted the Director’s request and required that Shammas pay $36,320.49 in expenses and attorney’s fees to the USPTO. The district court further held that expenses encompass attorney’s fees.

Shammas’ Appeal to the Fourth Circuit

Shammas appealed to the Fourth Circuit, arguing that the district court erred in awarding the Director attorney’s fees because it is contrary to the American Rule. The American Rule states that each party bears the burden of paying his or her own attorney’s fees if the underlying statute does not expressly provide for the losing party to pay the prevailing party’s attorney’s fees. Shammas argued that § 1071 doesn’t explicitly provide for the award of attorney’s fees.

The American Rule Does Not Apply

The Fourth Circuit reasoned that normally “expenses” is too broad a term and doesn’t include attorney’s fees. However, because Congress added the word “all” to modify “expenses” in § 1071(b)(3), this indicates that expenses shouldn’t be limited. While the statute doesn’t explicitly call for attorney’s fees, the structure of the Lanham Act and the legislative history point to a congressional intent to reduce the financial burden to the USPTO because de novo actions are time-intensive. The Fourth Circuit found that the American Rule did not apply in this case; § 1071(b)(3) calls for expenses to be imposed on the party regardless of whether he prevails.

Fourth Circuit Affirms District Court’s Ruling

Judge King dissented because the Lanham Act makes no specific reference to awards of attorney’s fees, which suggested that Congress did not intend to authorize these awards. The Fourth Circuit affirmed the district court’s award of attorney’s fees to the USPTO, holding that a dissatisfied trademark applicant who chooses to file a de novo proceeding must pay all reasonable expenses, including attorney’s fees, regardless of whether the applicant prevails or loses.