Last Week in the Federal Circuit (May 3-7): The case of the missing beds and affirmative misrepresentations

Last week was Court week, so it was busy in the Federal Circuit with telephonic oral arguments. Despite all the activity, the Court still issued a dozen opinions, including two precedential ones. For our case of the week, we decided to focus in on a pretty rare question: how much fraud is required to reopen a patent judgment? For the answer, read below and take a look at our usual weekly statistics.

Precedential opinions:

Non-precedential opinions: 10 

Rule 36: 7 

Longest pending case from argument: Cap Export, LLC v. Zinus, Inc., No. 20-2087 (65 days) 

Shortest pending case from argument (non-Rule 36): Olaplex, Inc. v. L'Oreal USA, Inc., No. 20-1382 (27 days) 

Case of the week: Cap Export, LLC v. Zinus, Inc., No. 20-2087 

Panel: Judges Dyk, Bryson, and Hughes, with Judge Dyk writing the opinion

You should read this case if: you have a motion to reopen a judgment under Rule 60(b)(3)

This week we take a look at a rare feat: a successful motion to set aside a judgment (and injunction) under Rule 60(b)(3) of the Federal Rules of Civil Procedure. Rule 60(b)(3) provides for relief from a judgment for reason of “fraud … , misrepresentation, or misconduct by an opposing party.” 

So how did the motion here clear Rule 60(b)(3)’s high bar? Basically, it took the patent owner’s president (who was also serving as an expert) denying knowledge of prior art in a deposition, and then admitting after judgment that his deposition statements were “literally incorrect” when it was revealed that he had knowledge of undisclosed prior art “functionally identical in design to the claims” of the patent. And the district court found the president’s explanations for his false deposition testimony “wholly implausible” and an affirmative misrepresentation.

As background: the patent claims here are directed to a bedframe, where all the components fit in a compartment in the bed’s headboard compartment for compact shipping. Litigation ensued between the patent owner and an alleged infringer. The patent owner’s president was deposed, and he denied ever seeing anything like a bed shipped in one box or some components stored in another component for shipping. After several rounds of summary judgment and one trip to the Federal Circuit, the alleged infringer stipulated to entry of judgment of infringement and non-invalidity, $1.1 million in damages, and a permanent injunction.

In most instances, that would be the end of the story. Not so here. The alleged infringer later learned the patent owner’s president actually knew of some prior art. In fact, before the patent’s priority date, he signed invoices buying 405 beds from a company that “had ‘all of the components of the bed (except the headboard) … packed inside of a zippered compartment in the headboard.” Based on this discovery, the alleged infringer moved to reopen the judgment, which the district court granted. 

On appeal, the Federal Circuit noted that it would apply regional circuit law—here, Ninth Circuit law—in addressing Rule 60(b)(3). In doing so, the Court ran into a wrinkle. It turns out that the Ninth Circuit imposes a due diligence requirement—that is, that the fraud not be discoverable by due diligence before or during the proceedings. The Federal Circuit noted that other Circuits don’t apply this requirement, and it runs counter to the text of other grounds for relief in Rule 60(b). For example, Rule 60(b)(2) imposes a diligence requirement for relief from judgments for newly discovered evidence. Nonetheless, the Court noted that even though the Ninth Circuit’s diligence requirement seems “questionable,” it would follow it in this case. 

In the end, the Ninth Circuit’s “questionable” requirement made no difference. The patent owner tried to use the diligence requirement “to blame the victim’s so-called ‘incompetent lawyers’ for the adverse consequences it suffered as a result of the fraud.” In other words, the patent owner argued that the alleged infringer’s lawyers could have discovered the prior art and the patent owner’s purchase of 405 prior art beds with better discovery requests. But the Court said that wasn’t the right inquiry. It’s not whether their lawyers fell below some “standard of care for attorneys practicing patent litigation,” but whether the alleged infringers “should have had reason to suspect fraud” and, if so, whether they took reasonable steps to investigate that fraud. On that test, the Court said ample evidence supported the district court’s determination that there was no reason to suspect fraud.