Last week, the U.S. Court of Appeals for the Federal Circuit issued an order in CAP Export, LLC v. Zinus, Inc., No. 20-2087 (May 5, 2021).
Zinus owns a patent directed to a mattress support shipped with its components packed into the headboard. Cap Export filed a declaratory judgment action against Zinus alleging its patent was invalid and not infringed. Zinus moved for partial summary judgment of no invalidity relying on a declaration from its president and “testifying technical expert”, Mr. Lawrie. The district court allowed Cap Exports to depose Lawrie and present evidence that the patent was invalid. During Lawrie’s deposition, he denied knowledge of any prior art mattress supports having components packed into the headboard. The district court granted summary judgment of no invalidity. The parties stipulated to the entry of final judgment in favor of Zinus for infringement.
Thereafter, Cap Export discovered Lawrie’s denial of knowledge of prior art was false. Cap Export filed a motion to vacate the judgment under Rule 60(b)(3), which provides grounds for relief when there has been “fraud…, misrepresentation, or misconduct by an opposing party.” The district court found Lawrie’s explanation for his false testimony to be “wholly implausible” and set aside the judgment. Zinus appealed.
On appeal, the Federal Circuit affirmed. Because relief under Rule 60(b)(3) is procedural, the Court applied the law of the Ninth Circuit. Under Ninth Circuit precedent, setting aside a judgment for fraud under Rule 60(b)(3) requires a determination that the fraud was not discoverable by due diligence before or during the proceedings. Noting that the Ninth Circuit’s “due diligence” requirement is contrary to the text of Rule 60(b)(3) and “seems questionable,” the Federal Circuit nevertheless applied the “due diligence” standard. The Court articulated the standard as looking at (1) whether a reasonable company in Cap Export’s position should have suspected the fraud and, if so, (2) whether Cap Export took reasonable steps to investigate it. On the first factor, the Court concluded there was no clear error in the district court’s determination that Cap Export had no reason to suspect that Lawrie’s statements were fraudulent. As such, Cap Export had no duty to investigate. As to the other elements of Rule 60(b)(3), the Court concluded that the district court did not abuse its discretion in concluding Mr. Lawrie’s deposition testimony constituted an affirmative representation and that was material to the issue of patent validity.