Federal Circuit Affirms Setting Aside Patent Award Where Patentee’s President Misrepresented His Knowledge Of Material Prior Art
On May 5, 2021, the Court of Appeals for the Federal Circuit (CAFC) upheld a decision of the United States District Court for the Central District of California setting aside a judgment and injunction pursuant to Federal Rule of Civil Procedure 60(b)(3). Cap Export, LLC v. Zinus, Inc., ___ F.3d ___, (Fed. Cir. May 5, 2021). The CAFC found that the district court did not abuse its discretion in granting a motion to vacate the judgment under Rule 60(b)(3) where the patentee’s president and expert witness misrepresented his knowledge of highly material prior art in his deposition.
Rule 60(b)(3) provides that “the court may relieve a party … from a final judgment, order, or proceeding” upon a finding of “fraud (whether previously called intrinsic or extrinsic), misrepresentation, or misconduct by an opposing party[.]”
On September 11, 2018, Zinus, Inc. (“Zinus”) filed a motion for partial summary judgement of no invalidity, which was successful. Then, the parties stipulated to the entry of final judgement in favor of Zinus for infringement, including $1.1 million in damages to be paid to Zinus. Thereafter, Cap Export, LLC (Cap Export) discovered evidence that the October 2016 deposition testimony of Lawrie, the then-president of Zinus, had been false as to the prior art. During that deposition, Cap Export asked Lawrie, repeatedly, about his knowledge of relevant prior art products. Lawrie repeatedly denied any knowledge, despite the fact that later-identified documentary evidence showed that Lawrie had personal experience with those prior art products.
On September 29, 2019, Cap Export filed a motion to vacate the judgement and injunction under Rule 60(b)(3). Following an initial hearing on the motion, Lawrie submitted a declaration in which he admitted that his deposition testimony was “literally incorrect,” but he asserted that he did not “intend to answer falsely” because he misunderstood the question. On May 11, 2020, the district court granted the motion to set aside the May 30, 2019, judgment under Rule 60(b)(3) and vacated the injunction. Zinus appealed.
The CAFC found that Ninth Circuit law applied to this procedural issue. Ninth Circuit law requires that fraud not be discoverable by due diligence before or during the proceeding. The CAFC noted that the due diligence requirement was “contrary to the text” of the statute, but nonetheless applied the Ninth Circuit law.
At the CAFC, Zinus focused primarily on the due diligence requirement. It argued that Cap Export’s lawyers were incompetent because they failed to propound standard document requests that would have revealed Lawrie’s knowledge of the relevant prior art system. The CAFC found that, as a matter of law, the standard of care provided by Cap Export’s counsel was not relevant. Instead, the relevant inquiry was whether a reasonable company in Cap Export’s position would have had reason to suspect the fraud here, and, if so, took reasonable steps to investigate the fraud. The CAFC then found that the district court did not abuse its discretion in finding that there was no reason to suspect that Lawrie’s statements were fraudulent because Cap Export had deposed Lawrie, asked him repeatedly about his knowledge, and had conducted multiple prior art searches that failed to reveal the prior art products.
Finally, the CAFC noted that when information called for by discovery is withheld, the moving party “need not establish that the result in the case would be altered” for Rule 60(b)(3) to apply. Instead, the moving party only needs to show “that the withholding of the material deprived the movant of a full and fair opportunity to present its case.” The CAFC then concluded that the district court did not abuse its discretion in determining that the misrepresentations prevented Cap Export from fully and fairly presenting its case.