Latest Federal Court Cases - May 2021 #2

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Cap Export, LLC v. Zinus, Inc., Appeal No. 2020-2087 (Fed. Cir. May 5, 2021)

The Federal Circuit issued a single precedential patent case this week. The district court set aside a judgement and injunction originally in favor of Zinus and against Cap Export, pursuant to Rule 60(b)(3), in light of apparently fraudulent testimony offered by a critical witness. In a rare decision addressing Rule 60, the Federal Circuit affirmed.

The case stems from Zinus’s patent relating to an assemblable mattress support that can be shipped in a compact state with all of its components packed into the headboard. Cap Export filed a declaratory judgment action against Zinus alleging that the patent was invalid and not infringed. Zinus counterclaimed, alleging infringement. The district court granted partial summary judgment holding that the patent was valid as a matter of law because none of the prior art references considered by the district court either anticipated or made obvious the relevant claims of the patent. Based on the district court’s ruling, the parties stipulated to the entry of a final judgment in favor of Zinus for infringement.

Following the stipulated judgment, Cap Export discovered evidence of false testimony during the deposition of Zinus’s president, Colin Lawrie, as to prior art. In particular, Lawrie repeatedly testified that the ability to package an unassembled bed into a headboard and have it shipped in one box was novel, and that he had never seen a bed prior to filing the patent in 2013 that was shipped disassembled in one box. In fact, Cap Export was aware of beds manufactured by a Chinese company that had all of the components of the bed (except the headboard) packed inside a zippered compartment in the headboard as early as 2012.

Upon later discovering this information, Cap Export filed a motion to vacate the judgment and injunction pursuant to Rule 60(b)(3), which the district court granted. Zinus appealed, and the Federal Circuit addressed the question of whether the misrepresentations supported relief under Rule 60(b)(3).

Zinus argued that Cap Export did not meet the due diligence requirement under Rule 60(b)(3), as articulated by the Ninth Circuit, which requires that fraud not be discoverable by due diligence before or during the proceedings. According to Zinus, Cap Export failed to issue document requests seeking prior art and it did not depose the inventor of the patent. While finding the Ninth Circuit’s due diligence rule questionable, the Federal Circuit followed it and addressed what constitutes “due diligence.”

Looking at various Ninth Circuit caselaw, the Federal Circuit held that due diligence turns on whether a reasonable company in Cap Export’s position should have had reason to suspect the fraud, and, if so, whether it took reasonable steps to investigate. Applying this test, the Court found there was no reason to suspect that Lawrie’s statements were fraudulent. The Court reasoned that Cap Export deposed Lawrie, as a person claiming knowledge of the relevant facts, and asked him repeatedly about his knowledge of disassembled beds shipped in a single box with all components stored in the headboard, and Lawrie then repeatedly misrepresented his knowledge of such bed designs. Moreover, the Court noted that Cap Export undertook numerous searches for prior art, and that the evidence was not widely available to the public or already in Cap Export’s possession. On this record, the Federal Circuit found the Ninth Circuit’s due diligence requirement satisfied.

The Federal Circuit also found that the other prongs of the test for Rule 60(b)(3) were satisfied, namely that Lawrie’s false testimony constituted an affirmative misrepresentation, that Lawrie’s explanation that he misunderstood the questions or that the misrepresentations were not intentional were implausible, and that the prior art was material to Cap Export’s arguments.

A copy of the opinion can be found here.

By Mario Delegato

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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