By: Vishal Khatri

Droplets, Inc. v. E*TRADE Bank, No. 16-2504 (Fed. Cir. Apr. 19, 2018), is a cautionary tale on the need for careful patent prosecution.  Because of an error in the priority claim, Droplets lost its right to claim an earlier effective filing date, and its claims were invalidated over its own PCT application.

To understand the Federal Circuit’s holding, it is helpful to understand the relationship between the applications in the patent family, all shown in the figure below.  On September 14, 1999, Droplets filed provisional patent application No. 60/153,917.  Droplets then filed the Franco PCT (“Franco”) and three applications that issued as U.S. Patents 6,687,745, 7,502,838, and 8,402,115.  The ’745 patent claims priority to the ’917 provisional.  The ’838 patent’s priority claim was to both the ’745 patent and the ’917 provisional.  The ’115 patent claims priority to the ’838 patent and the ’917 provisional, incorporates the ’838 patent by reference, but does not claim priority to the ’745 application.  Importantly, the ’838 patent application was never co-pending with the ’917 provisional.

E*TRADE Bank filed an IPR petition arguing that the ’115 patent was obvious over Franco in view of certain other references.  Droplets tried to antedate Franco by arguing that the ’115 patent was entitled to the 1999 priority date of the ’917 provisional.  The Board found that the ’115 patent had not properly claimed priority to the ’917 provisional, because it had not expressly claimed priority to the intermediate ’745 patent.  It therefore found that Franco was prior art and the claims of the ’115 patent were obvious over Franco.  E*TRADE appealed.

The Federal Circuit affirmed.  The statute is explicit that a claim for the benefit of the filing date of an earlier application must include “a specific reference to the earlier filed application.”  35 U.S.C. § 120.  In earlier cases, the Federal Circuit had held that a priority claim needs to specifically reference every application in the priority chain, not just the first and last applications.  E.g., Medtronic CoreValve, LLC v. Edwards Lifesciences Corp., 741 F.3d 1359, 1363 (Fed. Cir. 2014).

In this case, the Federal Circuit makes clear that this “specific reference” requires more than incorporation by reference of another patent that includes the missing portion of the chain.  Because the ’115 patent was found not to specifically reference the intermediate ’745 patent, the ’115 patent was not entitled to a priority date earlier than the publication of Franco.

Takeaway:  This case confirms the importance of careful prosecution.  Patent prosecutors need to be vigilant that the requested priority claim is accurate and complete.  Patent challengers should look for a defective priority claim, because that will allow them to introduce prior art from the patent-owner’s own portfolio – which is often the best available prior art.

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Vishal Khatri is an intellectual property lawyer with more than 15 years of experience representing clients in high stakes, bet-the-company patent litigation and procurement matters around the world. He routinely represents clients in matters before U.S. district courts, the United States International Trade Commission (ITC), and the United States Patent and Trademark Office (USPTO), including Inter Partes Review (IPR) proceedings before the Patent Trial and Appeal Board (PTAB). He has also advised clients regarding enforcement practices before U.S. Customs and Border Protection.