May 18, 2021

The Federal Circuit recently affirmed a district court ruling setting aside a final judgment of patent infringement, including a $1.1 million damages award and a permanent injunction. The appellee brought the motion to vacate the judgment under Federal Rule of Civil Procedure 60(b)(3), which states:

(b) Grounds for Relief from a Final Judgment, Order, or Proceeding. On motion and just terms, the court may relieve a party or its legal representative from a final judgment, order, or proceeding for the following reasons:

. . .

(3) fraud (whether previously called intrinsic or extrinsic), misrepresentation, or misconduct by an opposing party; . . . .¹

A motion under Rule 60(b)(3) “must be made within a reasonable time,” “no more than a year after the entry of judgment.”²

Zinus owns U.S. Patent No. 8,931,123 (“the ’123 patent”), directed to an assemblable mattress support that can be shipped with all of its components packed into the headboard.³ In 2016, Cap Export (“Cap”) filed a declaratory judgment action alleging that the ’123 patent’s claims were invalid and not infringed.⁴ Zinus, in turn, alleged infringement and filed a motion for partial summary judgment of no invalidity, relying on a declaration provided by Zinus’s then-president Colin Lawrie.⁵ Counsel for Cap deposed Lawrie in October 2016, and he denied knowledge of the existence of prior art.⁶ The district court granted Zinus’s motion, and the parties stipulated to the entry of a final judgment of infringement, including damages and a permanent injunction.⁷

Cap later discovered Lawrie’s testimony that he was unaware of any prior art was false.⁸ A lawsuit by Zinus against an unrelated third-party revealed evidence of an invoice, dated before the ’123 patent’s filing date, bearing Lawrie’s signature, for a purchase of 405 beds which allegedly had “all components fitting in the headboard.”⁹ These invoiced beds were highly relevant prior art to the ’123 patent. After learning of this evidence, Cap moved to vacate the judgment under Rule 60(b)(3).¹⁰

The court found that Rule 60(b)(3) applied. During Lawrie’s October 2016 deposition, Cap had asked him repeatedly about his knowledge of disassembled beds; for example: “Q. Prior to September 2013 had you ever seen a bed that was shipped disassembled in one box? A. No. Q. Not even—I’m not talking about everything stored in the headboard, I’m just saying one box. A. No, I don’t think I have.”¹¹ But the invoice that was later discovered contradicted this testimony.¹² When challenged about this contradiction, Lawrie submitted a declaration admitting that his testimony that he had never seen “a bed that was shipped disassembled in one box” was “literally incorrect,” but he did not “intend to answer falsely” because he “meant that [he] had not seen a bed shipped disassembled in one box with all of the components in the headboard.”¹³ The district court found Lawrie’s explanation “wholly implausible,” and granted Cap’s motion to set aside the judgment because the invoiced beds were “functionally identical in design to the claims in the ’123 patent,” and Lawrie’s “repeated denials” of knowledge of prior art were affirmative misrepresentations.¹⁴ Zinus appealed.¹⁵

The issue before the Federal Circuit was whether Lawrie’s misrepresentations about his knowledge supported relief under Rule 60(b)(3).¹⁶ Relief under this rule is a procedural issue on which the court applies regional circuit law.¹⁷ Here, Ninth Circuit law applied, under which “the moving party must prove by clear and convincing evidence that the verdict was obtained through fraud, misrepresentation, or other misconduct,” “the conduct complained of prevented the losing party from fully and fairly presenting the defense,” and the fraud must not have been “discoverable by due diligence.”¹⁸

On appeal, Zinus argued that Cap did not meet its burden under Rule 60(b)(3), focusing “primarily on the due diligence requirement.”¹⁹ Zinus argued that emails relating to the invoiced beds would have been discovered if Cap’s “incompetent lawyers” had “exercised due diligence and propounded standard document production requests for a patent case.”²⁰

The Federal Circuit noted that the Ninth Circuit’s due diligence requirement is not in the text of Rule 60(b)(3) and “seems questionable,” yet followed it.²¹ The Federal Circuit found that “[i]n other contexts, due diligence in discovering fraud does not require investigation unless there is reason to suspect fraud.”²² Thus, the question was whether a reasonable company in Cap’s position “should have had reason to suspect the fraud.”²³

The Federal Circuit found “no . . . reason to suspect that Lawrie’s statements were fraudulent.”²⁴ Lawrie repeatedly misrepresented his knowledge; Cap undertook numerous prior art searches that failed to reveal evidence of the invoiced beds; and the material evidence concealed was not widely available, a matter of public record, or already in Cap’s possession.²⁵ The other two prongs of the Rule 60(b)(3) test were also satisfied: Lawrie’s answers constituted affirmative misrepresentations, and evidence of the invoiced beds would have been material to invalidity, preventing Cap from fully and fairly presenting its defense.²⁶ “Showing the material’s likely worth as trial evidence or by elucidating its value as a tool for obtaining meaningful discovery” is enough to establish that withheld material “deprived the movant of a full and fair opportunity to present its case.”²⁷ The Federal Circuit therefore affirmed the district court in vacating the judgment.²⁸

Here, ironically, Zinus tried to argue that the lack of due diligence by Cap’s “incompetent lawyers” was the reason the fraud was not discovered. This opinion demonstrates that this argument had no merit. Under Rule 60(b)(3), the existence of the fraud was justification for the court to set aside the judgment, including a damages award. As set forth in this opinion, misrepresentations of knowledge of highly material prior art can result in overturning a judgment that relied on such misrepresentations.