April 19, 2018

Droplets Drops Its Priority Claim, and Lets E*Trade Crush Its Patent

Details matter in patent law. In Droplets Inc. v. E*Trade Bank, the patentee’s inattention to detail proved costly.

Droplets owns US 8,402,115 (“the ‘115 patent”), which is a continuation of US 7,502,838 (“the ‘838 patent”). The ‘838 patent is, in turn, a continuation of US 6,687,745 (“the ‘745 patent”), which claims the benefit of a U.S. provisional application (60/153,917, “the ‘917 application”) filed on 14 Sept. 1999. Neither the ‘115 patent nor the ‘838 patent were ever copending with the ‘917 application, so they can only obtain the benefit of the ‘917 filing date by virtue of their relationship to the ‘745 patent. The ‘115 patent, when it was filed, explicitly claimed the benefit of the ‘838 patent’s filing date, but neglected to mention the ‘745 patent. Instead, the ‘115 patent avers that “[t]he present application is a continuation of … U.S. Pat. No. 7,502,838, the di[s]closure of which is hereby incorporated by reference in its entirety.” Meanwhile, the ‘838 patent avers that “[t]he present application is a Continuation application of … U.S. Pat. No. 6,687,745 …”

E*Trade petitioned for Inter Partes Review (IPR) of the ‘115 patent, asserting that the ‘115 patent is anticipated by WO 2001/20848 — the PCT publication of this same application, which published on 22 March 2001. Of course, if the ‘115 patent is entitled to the 1999 filing date of the ‘917 application, then WO 2001/20848 is not prior art. The Patent Trial and Appeal Board (PTAB), however, agreed with E*Trade that ‘115 patent’s effective filing date only goes back as far as the ‘838 patent’s 2003 filing date. On this basis, the PTAB concluded that WO 2001/20848 anticipates the ‘115 patent.

On appeal, Droplets argued that because the ‘115 patent has “incorporated [the ‘838 patent] by reference in its entirety,” that means that the ‘115 patent has also incorporated the ‘838 patent’s averment that “[t]he present application is a Continuation application of … U.S. Pat. No. 6,687,745 …” On this basis, Droplets argued that the ‘115 patent could connect each link in the chain going back to the ‘917 application and its 1999 filing date.

The Court of Appeals for the Federal Circuit, however, disagreed. The court reasoned that “[35 U.S.C. §120] requires that the patent application ‘contain a specific reference to the earlier filed application’ to which it purports to claim priority.” The court also noted that “[a]lthough §120 might appear to be a technical provision, courts have long-recognized that it embodies an important public policy, and thus have required strict adherence to its requirements.” The court did not consider that an incorporation by reference of the ‘838 patent’s mention of the ‘745 patent is enough to satisfy the strict §120 requirement for a “specific reference” to the ‘745 patent in the ‘115 patent. Therefore, the ‘115 patent does not get the benefit of the ‘917 application’s filing date. The PTAB’s verdict of anticipation was affirmed.

Take away:

The lesson to learn from this case is that it does not pay to be terse with the recitation of priority claims. If instead of merely incorporating the ‘838 patent’s claim to the ‘745 patent by reference, Droplets had referenced the ‘745 patent explicitly in the ‘115 patent text, this case would all have been different. Only one extra sentence was needed in the ‘115 patent text to totally change the outcome here. It pays to be explicit about priority claims, even if such recitations seem redundant or tedious.