CAP EXPORT, LLC v. ZINUS, INC.
Before Dyk, Bryson, and Hughes. Appeal from the United States District Court for the Central District of California.
Summary: A judgment and injunction were properly set aside pursuant to FRCP 60(b)(3) when it was discovered that the patentee’s president and testifying technical expert lied about knowledge of prior art during his deposition and the defendant had no reason to suspect the fraud.
Cap Export sought a declaratory judgment of invalidity and non-infringement for a patent owned by Zinus that is directed to an unassembled bedframe having parts stored within a compartment in the headboard. Zinus counterclaimed, alleging infringement. Cap Export deposed a Zinus witness, who was its president and serving as a testifying technical expert, specifically asking him if he had ever seen a bed that was shipped disassembled in one box (which the witness denied knowledge of) and whether he could think of any piece of furniture that was shipped disassembled with components that were contained within another component (to which the witness identified a cabinet with shelves). Zinus ultimately succeeded in obtaining a motion for partial summary judgment of no invalidity and Cap Export stipulated to infringement and a permanent injunction. Thereafter, Zinus asserted the same patent against another company and Cap Export, who was monitoring the docket, discovered an exhibit with invoices, signed by the same Zinus witness that Cap Export deposed, that described a third party’s sale to Zinus of a bed that had all the components of the bed (except the headboard) packed inside of a zippered compartment in the headboard. Cap Export then tracked down the third party, which provided a prior art invoice describing the same sale of beds having this description and was signed by the same Zinus witness that denied knowing of any such beds or furniture. Cap Export then moved to vacate the final judgment and injunction on grounds of “fraud…, misrepresentation, or misconduct by an opposing party” under FRCP 60(b)(3). The District Court granted the motion and Zinus appealed.
The Federal Circuit affirmed the District’s Court’s decision. Because this was a procedural issue, the Federal Circuit analyzed the decision under Ninth Circuit precedent which requires, in addition to the fraud preventing the losing party from fully and fairly presenting their defense, that the fraud “not be discoverable by due diligence before or during the proceedings.” After noting that the Ninth Circuit’s requirement of diligence is at odds with the plain language of the rule, the Federal Circuit determined that due diligence in discovering fraud does not require the losing party to investigate the fraud unless there is a reason to suspect fraud. It then determined that there was no reason for Cap Export to suspect the fraud under the circumstances here and emphasized the District Court’s findings concerning the witness’s affirmative misrepresentation of his knowledge of “highly material prior art” and the “wholly implausible” explanation for the witness’s answers. Thus, the Federal Circuit determined that the District Court did not abuse its discretion in granting the motion to vacate.
Editor: Paul Stewart
