Holding
In
Background
In 2016, Cap Export filed a request for declaratory judgment of noninfringement and invalidity of
The district court sua sponte granted summary judgment of invalidity to Cap Export, but this decision was vacated on appeal and remanded, “in part because the district court had improperly granted summary judgment of invalidity sua sponte without proper notice to
About two and a half years later,
After final judgment, Cap Expert discovered, through documents submitted in a later infringement suit filed by
Cap Export discovered these documents and sent company representatives to meet with
During the ensuing Rule 60(b)(3) district court proceeding, Lawrie presented a declaration, “in which he admitted that his
The district court found Lawrie's explanation to be “wholly implausible.” Id. at *8. The court instead determined that Lawrie's repeated denials that he had knowledge of beds shipped disassembled in one box were affirmative misrepresentations, evidenced by the repeated purchases by Jusama of such beds prior to the filing of the '123 patent. Moreover,
The district court granted Cap Export's motion to set aside the stipulated judgment under Rule 60(b)(3).
Federal Circuit
On appeal, the Federal Circuit upheld the district court's grant of Cap Export's motion to set aside the stipulated judgment.
The Federal Circuit rejected this argument, finding “no clear error in the district court's determination that the Ninth Circuit's due diligence requirement was satisfied.” Id. at *15-16. Although skeptical of the due diligence requirement, the Court held that due diligence in discovering fraud “does not require investigation unless there is reason to suspect fraud.” Id. at 13.
The issue thus is not whether the conduct of Cap Export's counsel fell below the standard of care for attorneys practicing patent litigation, but whether a reasonable company in Cap Export's position should have had reason to suspect the fraud—here, that Lawrie had testified falsely—and, if so, took reasonable steps to investigate the fraud.
Id. at *14-15.
Here, the Court found “no showing that there was reason to suspect that Lawrie's statements were fraudulent.” Id. at *15. Cap Export asked Lawrie several times about his knowledge of disassembled beds shipped in a single box with all components stored in the headboard, and Lawrie repeatedly said he had none. Cap Export also conducted several prior art searches, none of which revealed evidence of Jusama's purchases of beds from
The Federal Circuit also found that the district court did not abuse its discretion in determining that the misrepresentations prevented Cap Export from fully and fairly presenting its case.
According to the district court, the [prior art] beds were “functionally identical in design to the claims in the '123 patent,” and “[i]f Lawrie had fully disclosed his prior experience and knowledge of the [prior art] beds, the evidence Cap Export present[ed] now regarding purchases made in advance of the filing of the '123 patent would have been available for the Court to consider during its prior analysis on obviousness and anticipation, which led to partial summary judgment for
Id. at *18.
Takeaway Lessons
This case represents a dilemma for prosecuting attorneys. To be sure, nothing was said by the district court or by the Federal Circuit imputing any knowledge of the prior art bed-in-a-box to the prosecuting attorney.
But, going forward, no patent prosecutor wants to learn in this manner that her client was concealing knowledge of the closest prior art. Compare
One thing the prosecutor can do, whilst preparing the patent application, is to ask questions such as those presented to Lawrie by Cap Export:
Q: What do you think the novelty or the invention is?
A: The ability to package an unassembled bed into a headboard and have it ship in one box.
Q: Prior to
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.
Q: So prior to 2013, September of 2013, the only piece of furniture that you can think of that shipped in one box, disassembled, and the components were contained in another component, was just a with shelves; is that accurate?
>>>>
Q: That would be then no, just the cabinet essentially?
A: That I'm aware of.
Cap Export, at *6-7.
Also, as part of the prefiling due diligence, the prosecuting attorney can show each inventor a draft claim that embodies the claimed invention and ask:
Prior to [put in the critical date], did you or anyone under your control sell or offer to sell an apparatus embodying the claimed invention?
Prior to [put in the critical date], did you or anyone under your control purchase an apparatus embodying the claimed invention?
And if you get a whiff of misrepresentations, withdraw your representation and do not file the patent application.
Additionally, when an already-filed application is transferred to you, as was the case in
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