Broyhill Furniture Industries, Inc. v. Craftmaster Furniture Corp., 91-1014

Citation12 F.3d 1080,29 USPQ2d 1283
Decision Date20 December 1993
Docket NumberNo. 91-1014,91-1014
Parties, 29 U.S.P.Q.2d 1283 BROYHILL FURNITURE INDUSTRIES, INC., Plaintiff-Appellant, v. CRAFTMASTER FURNITURE CORPORATION, Defendant-Appellee.
CourtUnited States Courts of Appeals. United States Court of Appeals for the Federal Circuit

Floyd A. Gibson, Bell, Seltzer, Park & Gibson, Charlotte, NC, argued, for plaintiff-appellant. With him on the brief, were Blas P. Arroyo and William M. Atkinson.

Jack W. Floyd, Floyd, Allen & Jacobs, Greensboro, NC, argued, for defendant-appellee. With him on the brief, were Louis C. Allen, III and James H. Slaughter. Also on the brief, was Edward W. Rilee, Rhodes, Coats & Bennett, of Greensboro, NC, of counsel, were Jack B. Hicks and C. Robert Rhodes.

Before RICH, PLAGER, and LOURIE, Circuit Judges.

LOURIE, Circuit Judge.

Broyhill Furniture Industries appeals from the order of the United States District Court for the Western District of North Carolina granting Craftmaster Furniture Corporation's motions for relief from a consent judgment and for leave to file various counterclaims. Broyhill Furniture Indus., Inc. v. Craftmaster Furniture Corp., Civ. No. ST-C-85-0034-M (W.D.N.C. Sept. 11, 1990). Because the court abused its discretion in granting Craftmaster's motion for relief from the consent judgment, we vacate that part of the order and remand. Because Broyhill's appeal from the court's order granting Craftmaster's motion for leave to file its counterclaims is interlocutory and not otherwise appealable, we dismiss that portion of the appeal.

BACKGROUND

Broyhill is the owner of U.S. Design Patent 274,485 which relates to an ornamental design for upholstered furniture. Two lawsuits are pertinent to the present appeal. The first was commenced on July 17, 1984, when three furniture manufacturers and sellers, collectively referred to as "Benchcraft," brought a declaratory judgment action against Broyhill in the United States District Court for the Northern District of Mississippi, seeking a declaration that the '485 patent was, inter alia, unenforceable. Benchcraft asserted that Broyhill had engaged in inequitable conduct in procuring its patent by intentionally withholding material prior art photographs from the Patent and Trademark Office (PTO) during patent prosecution.

Broyhill counterclaimed, asserting willful infringement.

The lawsuit from which this action arises was instituted by Broyhill against Craftmaster for infringement of the '485 patent on February 19, 1985, while the Mississippi lawsuit was pending. Soon thereafter, Broyhill and Craftmaster entered into a settlement agreement pursuant to which the District Court for the Western District of North Carolina entered a consent order and judgment on June 5, 1985, enjoining Craftmaster from infringing the patent.

In June of 1986, while the Mississippi lawsuit was still pending, Broyhill petitioned the North Carolina district court to hold Craftmaster in contempt of the consent judgment on the ground that Craftmaster was selling infringing furniture in violation of the judgment. Following an evidentiary hearing, the court held Craftmaster in contempt. Approximately one year later, in June of 1987, Broyhill filed a second petition seeking to hold Craftmaster in contempt.

On March 14, 1988, while the second contempt petition was pending, the Mississippi district court in Benchcraft found that Broyhill, through the actions of certain of its employees, including its president and patent attorney, had engaged in inequitable conduct before the PTO by withholding material prior art photographs. The court thus held that the '485 patent was unenforceable. Benchcraft, Inc. v. Broyhill Furniture Indus., Inc., 681 F.Supp. 1190, 7 USPQ2d 1257 (N.D.Miss.1988). Thereafter, Broyhill filed a motion to stay the contempt proceedings pending appeal. On appeal, the Mississippi court's judgment in Benchcraft was vacated and remanded by this court for further proceedings. Benchcraft, Inc. v. Broyhill Furniture Indus., Inc., 871 F.2d 1096, 10 USPQ2d 2036 (Fed.Cir.1989) (nonprecedential). On remand, the Mississippi court again found that Broyhill had engaged in inequitable conduct before the PTO and that the patent was unenforceable. Benchcraft, Inc. v. Broyhill Furniture Indus., Inc., Civ. No. WC 84-143-D-D, 1989 WL 436445 (N.D.Miss. Nov. 7, 1989).

Broyhill did not appeal the Mississippi decision on remand and immediately moved to dismiss with prejudice its contempt petition against Craftmaster. Craftmaster then filed a motion in the North Carolina court pursuant to Federal Rule of Civil Procedure 60(b) to vacate and set aside the consent judgment, asserting that "[t]he circumstances surrounding entry of [the consent] judgment amount[ed] to fraud both on the defendant and on th[e c]ourt." Craftmaster also filed a motion for leave to file counterclaims for fraud, unfair competition, and unfair trade practices, seeking, inter alia, damages in the amount of previously paid royalties. The district court granted both of Craftmaster's motions, and Broyhill now appeals from that order.

DISCUSSION
A. Rule 60(b) Relief

The first issue before us is whether the court properly granted Craftmaster's motion to set aside the consent judgment pursuant to Rule 60(b). Generally, in reviewing rulings under Rule 60(b), we defer to the law of the regional circuit in which the district court sits because such rulings commonly involve procedural matters that are not unique to patent law. See, e.g., Fraige v. American-National Watermattress Corp., 996 F.2d 295, 27 USPQ2d 1149 (Fed.Cir.1993) (under Ninth Circuit law, testimony based on fraudulent documentation was sufficient to justify setting aside a jury verdict under Rule 60(b) and ordering a new trial on the issue of patent validity); W.L. Gore & Assocs., Inc. v. C.R. Bard, Inc., 977 F.2d 558, 561 n. 3, 24 USPQ2d 1451, 1453 n. 3 (Fed.Cir.1992) (under Third Circuit law, the district court did not abuse its discretion in declining to modify a consent order under Rule 60(b)(5) following a change of law); Amstar Corp. v. Envirotech Corp., 823 F.2d 1538, 3 USPQ2d 1412 (Fed.Cir.1987) (failure to disclose publicly available prior art references to district court did not justify Rule 60(b) relief under Tenth Circuit standard); Ashland Oil, Inc. v. Delta Oil Prods. Corp., 806 F.2d 1031, 1 USPQ2d 1073 (Fed.Cir.1986) (change in law of obviousness after entry of judgment of invalidity does not justify Rule 60(b) relief under Seventh Circuit standard).

However, in the instant case we will not accord such deference because our review of the district court's Rule 60(b) ruling turns on substantive matters that are unique to patent law. See Hybritech, Inc. v. Abbott Lab., 849 F.2d 1446, 1451 n. 12, 7 USPQ2d 1191, 1995 n. 12 (Fed.Cir.1988) (Federal Circuit law provides the standards governing the issuance of a preliminary injunction pursuant to 35 U.S.C. Sec. 283 because this issue, although a procedural matter, involves substantive matters unique to patent law). The issues before us are whether a consent judgment enjoining infringement of a patent should be set aside pursuant to certain subsections of Rule 60(b) following a judicial determination that the patent was procured through inequitable conduct in the PTO. Because we perceive a clear need for uniformity and certainty in the way the district courts treat this issue, we resolve it as a matter of Federal Circuit law. See Foster v. Hallco Mfg. Co. Inc., 947 F.2d 469, 475, 20 USPQ2d 1241, 1245 (Fed.Cir.1991) (in order to promote uniformity in patent law, the Federal Circuit must resolve for itself the effect of Supreme Court precedent on consent judgments holding a patent valid and infringed). 1

We review the district court's ruling under Rule 60(b) to determine whether the court abused its discretion. Browder v. Director, Ill. Dept. of Corrections, 434 U.S. 257, 263 n. 7, 98 S.Ct. 556, 560 n. 7, 54 L.Ed.2d 521 (1978). An abuse of discretion exists when, inter alia, the lower court's decision was based on an erroneous conclusion of law or on a clearly erroneous finding of fact. A.C. Aukerman Co. v. R.L. Chaides Constr. Co., 960 F.2d 1020, 1039, 22 USPQ2d 1321, 1333 (Fed.Cir.1992) (in banc) (citations omitted); Heat & Control, Inc. v. Hester Indus., Inc., 785 F.2d 1017, 1022, 228 USPQ 926, 930 (Fed.Cir.1986) (relying expressly on Fourth Circuit law for guidance).

Rule 60(b) provides in pertinent part:

On motion and upon such terms as are just, the court may relieve a party ... from a final judgment, order, or proceeding for the following reasons: (1) mistake, inadvertence, surprise, or excusable neglect; (2) newly discovered evidence ... (3) fraud (whether heretofore denominated intrinsic or extrinsic), misrepresentation, or other misconduct of an adverse party; (4) the judgment is void; (5) ... it is no longer equitable that the judgment should have prospective application; or (6) any other reason justifying relief from the operation of the judgment. The motion shall be made within a reasonable time, and for reasons (1), (2) and (3) not more than one year after the judgment, order, or proceeding was entered or taken.... This rule does not limit the power of a court to entertain an independent action to relieve a party from a judgment, ... or to set aside a judgment for fraud upon the court.

Fed.R.Civ.Pro. 60(b) (emphasis added).

It is undisputed that Craftmaster did not file its motion within one year after entry of the consent judgment and was thus unable to come within the specific fraud provision of subsection (3). The court nevertheless concluded that there were two alternative grounds on which to premise relief. First, the court concluded that the consent judgment was "void" under subsection (4), and second, the court concluded that Broyhill had committed a "fraud upon the court" within the meaning of the provision in the rule stating that "this rule does not limit the power of a court ... to set aside a judgment for fraud...

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