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Droplets v. E*Trade

decided on April 19, 2018 by the Court of Appeals for the Federal Circuit

review by J. Matt Buchanan | published April 23, 2018 | updated April 23, 2018

tags: prosecution, priority, continuation, incorporation by reference, statutory construction

In Droplets v. E*Trade Bank, the Court of Appeals for the Federal Circuit considered the question of whether one patent in a family is entitled to the priority date of an earlier application in the family by virtue of an incorporation of the earlier application by reference. Droplets sued E*Trade for infringement of U.S. Patent No. 8,402,115 [text]. E*Trade, in turn, petitioned the Patent Trial and Appeal Board for inter partes review seeking invalidation of the '115 patent in light of a related international application that published after the filing date of the earlier application that was incorporated by reference but before the effective filing date of the '115 application. The PCT application qualified as prior art, E*Trade argued, because the incorporation by reference of the earlier application failed to satisfy the 'specific reference' required by 35 U.S.C. §120 for a valid priority claim. The chain was broken, so to speak. The PTAB agreed, holding that the incorporation by reference was not a valid priority claim under §120 and that priority claims cannot be made via an incorporation by reference. Noting the regulatory framework established by the USPTO regarding priority claims and the public policy rationale behind the 'specific reference' provision of §120 (and the parallel requirements of §119), the court concluded that "§120's 'specific reference' requirement does not contemplate incorporation by reference.…Accordingly, Droplets cannot invoke incorporation by reference to rewrite the priority claim statement in the '115 Patent." Droplets is immediately placed on the required reading list for new patent prosecution — and litigation — attorneys for its practical, simple, and invaluable lesson: always make sure your priority claim, or the priority claim of a patent you are evaluating, contains a specific reference to every application in the chain.

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priority | prosecution | statutory construction

35 U.S.C. §120, and PTO's implementing regulation, mean what they say

The court noted that 35 U.S.C. 120 requires “a specific reference to the earlier filed application” for a priority claim to be valid. For patent families, the court noted that the implementing regulations require that “an application contain a specific reference to each prior-filed application to which the application seeks to claim priority.” (emphasis added) The court even notes that the MPEP provides “detailed guidance” (and an example) on how to claim priority to multiple prior-filed applications.

The court falls short of expressing its frustration explicitly, but the message between the lines is clear: the statute, regulation, and MPEP mean exactly what they say—for each earlier application in a priority claim, include a specific reference to the earlier application that lists the application number and familial relationship.

While not endorsing it, the court also notes that the PTO indicates that the priority claim can be included in an Application Data Sheet (ADS). This form is design to ensure all required information is included for each application in the chain. The ADS takes a lot of guesswork out of the equation for complex priority claims, making it a valuable tool for practitioners.

priority | statutory construction

Federal Circuit emphasizes its own prior rejection of a 'reasonable person' test for the 'specific reference' requirement of 35 U.S.C. §120

Addressing Appellant’s argument that the Board invalidated its patent due to a “hypertechnical violation,” the court rejected its appeal for leniency, explaining that several courts have long-recognized the important public policy purpose that is served by placing the burden of proper identification on the patent applicant.

The court even cited its own decision in Medtronic CoreValve v. Edwards Lifesciences where it refused to adopt a ‘reasonable person’ test for compliance with 35 U.S.C. §120, noting that Medtronic clarified “that the ‘specific reference’ requirement in § 120 mandates each [intermediate] application in the chain of priority to refer to the prior applications.” (Internal quotations omitted).

incorporation by reference

Detailed background on the law of incorporation by reference

Droplets’ argument centered around an incorporation by reference of the intervening application. The incorporation, Droplets argued, satisfied the priority claim requirements of 35 U.S.C. §120 since the incorporated application included the specific reference to the earlier application. The court rejected this argument, ultimately holding that an incorporation by reference can not satisfy the specific reference requirement of §120.

The court took the opportunity to provide a detailed background on the law of incorporation by reference, including an overview of “essential material” and “nonessential material.” This makes Droplets a starting point for any question regarding incorporation by reference.