The key issue on appeal in 1st Media, LLC, v. Electronic Arts, Inc., was whether the district court's finding of inequitable conduct and patent unenforceability, made before the Federal Circuit decided Therasense, Inc. v. Becton, Dickinson & Co., was proper under the Therasense standard.

The case involved a patent infringement action initiated by 1st Media, LLC against Electronic Arts, Inc., Harmonix Music Systems, Inc., Viacom Inc. and Sony Computer Entertainment America LLC. Dr. Scott Lewis was the inventor of the patent at issue ('946 Patent). Joseph Sawyer acted as Lewis' attorney during patent prosecution. Sawyer filed an application for the '946 Patent on November 13, 1992. The examiner initially rejected all claims in the application as anticipated or obvious in view of certain prior art references. After Sawyer amended the application, the examiner issued a Notice of Allowance on May 2, 1992.

While the '946 Patent was pending, Sawyer also prosecuted other patent applications for Lewis, including:

In a supplemental search report for the PCT Application, the European Patent Office cited International Publication WO 90/01243 (Bush) as prior art and noted that Bush was a category Y reference that was relevant only if combined with another document of the same category. Sawyer received this report citing Bush eight days before he paid the issue fee for the '946 Patent.

Lewis filed the '423 Patent application the same day he filed the '946 Patent application. Large portions of the '423 Patent's specification are nearly identical to the '946 Patent. On July 16, 1993, an examiner rejected several claims of the '423 Patent application as anticipated by US Patent No. 5,027,400 (Baji), which discloses the same components of a device covered by a claim in the '946 Patent.

On June 24, 1994, Lewis filed the application leading to the '001 Patent as a continuation-in-part of the '423 Patent. On June 12, 1995, an examiner contended that certain claimed structures were disclosed in US Patent No. 5,220,420 (Hoarty) and rejected an independent claim in the '001 Patent application as obvious in view of Hoarty. These same structures were claimed in the 946 Patent.

Sawyer paid the issue fee for the '946 Patent on August 1, 1995, and the USPTO issued the patent on November 7, 1995. Sawyer and Lewis never disclosed the Bush, Baji or Hoarty references.

After 1st Media sued the defendants for infringement of the '946 Patent, the defendants asserted an inequitable conduct defense and counterclaimed for a judgement of inequitable conduct based on, among other allegations, the failure of Lewis and Sawyer to disclose the Bush, Baji or Hoarty references to the USPTO during the prosecution of the application for the '946 Patent.

At trial, Lewis and Sayer testified that they did not disclose the three references to the USPTO because, among other reasons:

The US District Court for the District of Nevada concluded, however, that Lewis and Sayer knew the references were material. It further concluded that because they failed to provide a credible good faith explanation for non-disclosure of the references, it was appropriate to infer that they intended to deceive the USPTO during the '946 Patent application's prosecution. The district court granted the defendants' requested inequitable conduct judgment and held the '946 Patent unenforceable.

In its decision issued on September 13, 2012, the US Court of Appeals for the Federal Circuit reversed the district court. The Federal Circuit concluded that the trial record contained no evidence of a deliberate decision to withhold the three prior art references from the USPTO as required under Therasense, which was decided after the district court's decision.

Under Therasense, to show inequitable conduct, the defendant must prove by clear and convincing evidence both that:

After reviewing the trial record, the Federal Circuit held that there was no evidence of the plaintiff's deliberate decision to withhold the Bush, Baji or Hoarty references. The court found that the evidence supported only that Lewis and Sawyer:

The court specifically noted that knowledge of a reference and of its materiality alone are not sufficient under Therasense to show an intent to deceive. Further, negligence or even gross negligence do not establish an intent to deceive. A deliberate decision to withhold a material reference must be shown. The court found no evidence of a deliberate decision to withhold any of the three references.

The Federal Circuit contrasted this case to the patentee's inequitable conduct in Aventis Pharma S.A. v. Hospira, Inc. (see Legal Update, Federal Circuit Affirms Inequitable Conduct and Unenforceability Judgment). In Aventis, there was affirmative conduct by the applicants showing not only their specific awareness of materiality but also their careful and selective manipulation of where, when and how much of the most material information to disclose. The court found no such evidence in this case.

Having found no inequitable conduct, the Federal Circuit did not address but-for materiality.

This decision highlights the high hurdle a patent challenger must now clear under Therasense to prove inequitable conduct. An intent to deceive the USPTO requires clear and convincing evidence of the applicant's deliberate decision to withhold a known material reference. Mere negligence, gross negligence or even suspicious omission surrounding the withholding of known material references does not establish the requisite intent.