1ST Media, LLC v. Elec. Arts, Inc.

• Decision Date: 03 December 2012
• Docket Number: No. 2010–1435.,2010–1435.
• Citation: 694 F.3d 1367
• Parties: 1ST MEDIA, LLC, Plaintiff–Appellant, v. ELECTRONIC ARTS, INC., Harmonix Music Systems, Inc., and Viacom, Inc., Defendants–Appellees, and Sony Computer Entertainment America, INC., Defendant–Appellee.
• Court: U.S. Court of Appeals — Federal Circuit

694 F.3d 1367

1ST MEDIA, LLC, Plaintiff–Appellant,

v. ELECTRONIC ARTS, INC., Harmonix Music Systems, Inc., and Viacom, Inc., Defendants–Appellees,andSony Computer Entertainment America, INC., Defendant–Appellee.

No. 2010–1435.

United States Court of Appeals, Federal Circuit.

Sept. 13, 2012.

Rehearing En Banc Denied Dec. 3, 2012.

Robert P. Greenspoon, Flachsbart & Greenspoon, LLC, of Chicago, IL, argued for plaintiff-appellant. Of counsel was William W. Flachsbart.

Eric A. Buresh, Erise IP, P.A., of Leawood, KS, argued for all defendants-appellees. With him on the brief for Sony Computer Entertainment America, Inc., was Abran J. Kean. Of counsel was B. Trent Webb, Shook, Hardy & Bacon, L.L.P., of Kansas City, MO. On the brief for Electronic Arts, Inc., et al., were Richard F. Ziegler, Jenner & Block LLP, of New York, New York, and Benjamin J. Bradford, of Chicago, IL. Of counsel was John Josef Molenda, of New York, New York.

Before RADER, Chief Judge, LINN and WALLACH, Circuit Judges.

LINN, Circuit Judge.

1st Media, LLC (“1st Media”) is the assignee of U.S. Patent No. 5,464,946 (“'946 Patent”) and appeals from the United States District Court for the District of Nevada's dismissal of 1st Media's complaint alleging infringement of the '946 Patent by Electronic Arts, Inc., Harmonix Music Systems, Inc., Viacom Inc., and Sony Computer Entertainment America LLC (collectively “Appellees”). 1st Media v. doPi Karaoke, Inc., No. 07–cv–1589 (Apr. 23, 2010) (“ 1st Media ”). The court found that during prosecution of the '946 Patent, the named inventor, Dr. Scott Lewis (“Lewis”), and his attorney, Joseph Sawyer (“Sawyer”), withheld from the United States Patent and Trademark Office (“PTO”) three material references and information about PTO rejections in two related prosecutions, thereby committing inequitable conduct and rendering the '946 Patent unenforceable. Because the record contains no evidence of a deliberate decision to withhold those references from the PTO as required under Therasense, Inc. v. Becton, Dickinson & Co., 649 F.3d 1276 (Fed.Cir.2011) (en banc), and because Appellees admit that the record is complete, this court reverses.

I. Background

The '946 Patent is titled “System and Apparatus for Interactive Multimedia Entertainment” and covers an entertainment system for use in purchasing and storing songs, videos, and multimedia karaoke information. On Lewis's behalf, Sawyer filed the application that led to the '946 Patent (“'946 Application”) on November 13, 1992. On September 14, 1994, the examiner rejected all claims of the '946 Application as anticipated or obvious in view of five prior art references. To overcome the rejections, Sawyer argued on February 21, 1995, that the claimed entertainmentsystem included a multimedia call processing system, an element not found in the cited references. He also amended current claim 16 to limit it to karaoke devices. The examiner responded by issuing a Notice of Allowance on May 2, 1995; Sawyer paid the issue fee on August 1, 1995; and the PTO issued the '946 Patent on November 7, 1995.

While the '946 Application was pending, Sawyer prosecuted a number of other patent applications for related inventions made by Lewis. The applications relevant to this appeal are: (1) International Patent Application No. PCT/US93/10930 (“PCT Application”); (2) U.S. Patent Application No. 07/975,824, which became U.S. Patent No. 5,325,423 (“'423 Patent”), and; (3) U.S. Patent Application No. 08/265,391, which became U.S. Patent No. 5,564,001 (“'001 Patent”).

The PCT Application, as filed on November 11, 1993, was identical to the as filed '946 Application, but was never amended to add the karaoke limitation. In a June 25, 1995, supplemental search report, a European Patent Office (“EPO”) examiner cited as prior art International Publication WO 90/01243 (“Bush”), noting that Bush was a category “Y” reference, meaning it was particularly relevant if combined with another document of the same category. Sawyer received the supplemental European report citing Bush on July 24, 1995, eight days before he paid the issue fee for the '946 Patent. Neither Lewis nor Sawyer ever disclosed the Bush reference to the PTO and Bush was not considered during the course of examination of the '946 Application. The EPO ultimately rejected the PCT Application on November 3, 1998, citing Bush as the closest prior art document.

Lewis filed the application that led to the '423 Patent (“'423 Application”) on the same day as the '946 Application. Large portions of the ' 423 Patent's specification are identical to the '946 Patent. Those portions include descriptions of terms Lewis coined—“interactive multimedia mastering system” (“IMM”), a “multimedia call processing system” (“MCPS”), and “interactive multimedia devices” (“IMD”). Compare '946 Patent col. 4 l. 62–col. 11 l. 63, with '423 Patent col. 6 l. 4–col. 13 l. 24. On July 16, 1993, an examiner rejected several claims of the '423 Application as anticipated by U.S. Patent No. 5,027,400 (“Baji”), which discloses what the examiner considered to be an IMM, MCPS, and IMD—the same components of the karaoke device covered by claim 16 of the '946 Patent. On October 29, 1993, Sawyer responded to the rejection by cancelling the rejected claims. The ' 423 Patent issued on June 28, 1994. Neither Lewis nor Sawyer ever disclosed Baji to the PTO, and the PTO did not consider the reference during prosecution of the '946 Patent.

On June 24, 1994, Lewis filed the application leading to the '001 Patent (“'001 Application”) as a continuation-in-part of the '423 Application. On June 12, 1995, an examiner contended that the IMM, MCPS, and IMD structures, to the extent claimed, were disclosed in U.S. Patent No. 5,220,420 (“Hoarty”) and rejected independent claim 1 of the '001 Application as obvious in view of Hoarty. On September 12, 1995, Sawyer replaced claim 1 with new claim 40, distinguishing Hoarty while retaining the IMM, MCPS, and IMD limitations. The '001 Patent ultimately issued on October 8, 1996. Neither Lewis nor Sawyer ever disclosed Hoarty to the PTO, and the PTO did not consider the reference during prosecution of the '946 Patent.

On November 29, 2007, 1st Media filed a complaint in the United States District Court for the District of Nevada alleging infringement of at least claim 16 of the '946 Patent. Appellees asserted an inequitable conduct defense and also counterclaimedfor declaratory judgment of inequitable conduct. The court bifurcated the case, focusing initial proceedings on the question of inequitable conduct. 1st Media moved to put its evidence on first, arguing that “[c]ommon sense dictates that a patentee should inform the Court of the background circumstances of patent procurement before an infringer steps in to attack the patentee.” Pl.'s Mot. In Limine # 1: To Confirm the Normal Order of Proofs at 2, 1st Media (Aug. 21, 2009), ECF No. 204. Appellees opposed the motion, arguing that because they had the burden to prove inequitable conduct, they should present their evidence first. The court agreed with the Appellees and held a bench trial on February 25 and 26, 2010, allowing Appellees to begin with a direct examination of Lewis.

At trial, Appellees alleged five incidents of inequitable conduct, three based on the failure to cite references, and two based on the failure to disclose rejections in the '423 and '001 Patent prosecutions that respectively brought to light two of those references. Because the Appellees do not rely on appeal on the non-disclosure of the rejections themselves as a basis for affirming the district court's decision, we consider those grounds conceded and address only the allegations of inequitable conduct relating to the three references noted. Appellee's Br. 55 n. 18.

With respect to the three references, both Lewis and Sawyer testified that they did not appreciate the materiality of any of them. Lewis testified under direct examination by Appellees that nondisclosure of the Bush reference was “an oversight that got lost in the cracks at that time and wasn't a conscious decision not to report [it].” Tr. of Inequitable Conduct Hr'g, Day One at 183, 1st Media (Feb. 25, 2010), ECF No. 267 (“Day One Tr.”). Although Sawyer testified that he could not recall why he did not disclose the Bush reference, Appellees pointed to his previous declaration in which he claimed that “the Bush publication itself never sparked an awareness or belief in my mind that Bush should be disclosed.” Tr. of Inequitable Conduct Hr'g, Day Two at 134, 1st Media (Feb. 26, 2010), ECF No. 270 (“Day Two Tr.”). Sawyer also testified that he generally considered patentability issues in a case only during what he termed “active prosecution,” or the time between the first office action and the notice of allowance. Id. at 149. During the time period that Sawyer was prosecuting the '946 Patent, he had newly set up a solo office out of his home and characterized his practice as being at times “very active.” Id. at 153 (Sawyer's testimony that he was handling about 170 open prosecution files by the end of 1995). As for the Baji and Hoarty references, Lewis and Sawyer each testified that the technology in the co-pending '423 and '001 Applications was so distinct from the '946 Application that it did not occur to them to disclose Baji or Hoarty during prosecution of the '946 Patent.

The district court found their explanations not credible. Findings of Fact and Conclusions of Law Following Trial on Inequitable Conduct at 4, 1st Media (Apr. 23, 2010), ECF No. 276 (“Findings”) (“Dr. Lewis and Mr. Sawyer offered explanations for their failure to disclose the material prior art ... that were not credible.... Mr. Sawyer's explanation, like Dr. Lewis' ... was neither factually nor legally sufficient to explain the failure to disclose the Bush Reference, which was highly material.”); id. at 4–5 (“As to Baji [and] Hoarty ... Dr. Lewis and Mr. Sawyer...