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Droplets, Inc. v. E*TRADE Bank

Incorporation by Reference May Not Cure Failure to Properly Recite Priority Claim

Droplets, Inc. v. E*TRADE Bank, __ F.3d __, 2018 WL 1866903 (Fed. Cir. Apr. 19, 2018) (Dyk, O’MALLEY, Wallach) (PTAB) (3 of 5 stars)

Fed Cir affirms IPR obviousness determination, and dismisses cross-appeal. The Board did not err in rejecting Droplets’ priority claim against its own invalidating prior art. To establish a priority claim, § 120 requires a “specific reference” to an earlier filed application. And 37 C.F.R. § 1.78 requires that the reference include both the application number and familial relationship, set forth on either an application data sheet or the specification. Droplet’s patent included, in the first sentence of the specification, a reference to an earlier filed application, but did not specifically recite a priority claim to that application’s parent, and so Droplet’s attempt to swear behind its own prior art failed. Per Medtronic, 741 F.3d 1359 (Fed. Cir. 2014), the burden to clearly disclose the priority chain is on the applicant, not the public. The opinion rejects Droplets’ argument that its violation of § 120 could be overlooked as “hypertechnical” or that the public had sufficient notice of the priority claim. The opinion discusses how the purpose of § 120 is to enable the public to determine an invention’s priority claim with a minimum of effort. That Droplet’s application incorporated by reference its parent application (which did have a sufficient priority claim) was insufficient to satisfy § 120. The opinion analyzes Rule 1.57(c) and (d), which discuss incorporation by reference, and concludes that they do not permit incorporation by reference to satisfy § 120’s disclosure requirements. Finally, the Fed Cir rejects review-preserving arguments by Droplets concerning constitutionality of IPR, and the Director’s ability to delegate institution decisions, which Droplets did not press in a substantive way.

E*TRADE’s “conditional cross-appeal,” which urged errors in the Board’s alternative claim construction and obviousness analysis, but only should the Court reverse as regards the priority claim issue, was improper and is dismissed. Per SkyHawke Technologies, 828 F.3d 1373 (Fed. Cir. 2016), the grant of appeal rights to a party “dissatisfied with” an IPR decision in § 141(c) does not confer a right to appeal for parties merely dissatisfied with the Board’s reasoning, and not its result. “Where, as here, the Board has entered a judgment of invalidity as to all claims, there is no basis for a cross-appeal as to additional grounds for invalidity.” Op. at 22–23.

KEYWORDS: INTER PARTES REVIEW; INVALIDITY (YES); PRIORITY; SECTION 120; CROSS-APPEAL