Noninfringement Judgment Freed Exclusive Supplier

In Louisville Bedding Company v. Pillowtex Corporation No. 05-1595 (Fed. Cir., July 25, 2006), despite the fact that Pillowtex and Louisville concluded their litigation in 1998, Louisville filed a Rule 60(b)(6) motion in 2005 to reopen the case and have the district court partially vacate its judgment of noninfringement of U.S. Patent No. 5,249,322 for "Fitted mattress cover and method of making same," left. According to Louisville, when it agreed to settle its suit against Pillowtex, Pillowtex and Xymid had an exclusive supply agreement for the 4059 mattress pad skirt material and there were no indications at that time that Pillowtex would soon go out of business. Louisville thus assumed, when it agreed to have the district court enter a final judgment of noninfringement as to the 4059 mattress pad, that no other competitor would have access to Xymid’s 4059 mattress pad skirt material.

When Pillowtex went out of business in 2003, its exclusive supply agreement with Xymid was conveniently terminated, and Xymid began selling it’s 4059 mattress pad skirt material to competitors that were not licensed by Louisville. Louisville argued that only by partially vacating that judgment can it be freed from the collateral estoppel effect and effectively obtain license revenue from its competitors who sell products using the Xymid 4059 mattress pad skirt material.

The Federal Circuit concluded that the district court did not abuse its discretion in denying Louisville’s motion under Rule 60(b)(6). According to Circuit Judge Lourie,

Typically, a district court may grant relief under Rule 60(b)(6) only for "exceptional or extraordinary circumstances." Jalapeno Prop. Mgmt., LLC v. Dukas, 265 F.3d 506, 509 (6th Cir. 2001). Louisville has not made such a showing. Because businesses fail every day, the failure of Pillowtex in this case, even though it appeared to be highly commercially successful in 1998, is not an "exceptional or extraordinary circumstance." To say the least, Louisville took a calculated risk that did not turn out the way that it expected.

Nor can we say that the equities in this case particularly favor Louisville and its fateful business decision. In the Pillowtex case, Louisville was faced with a summary judgment of noninfringement and an unfavorable claim construction with respect to the ’322 patent. Its position looked bleak at that time. There was no certainty that Louisville could have had that result changed in the district court or on appeal if it did not enter into the settlement agreement. Thus, it was greatly to Louisville’s benefit to settle the case under the terms that it did.

Furthermore, we note that all of Louisville’s claims directed to Pillowtex’s accused mattress pads were dismissed pursuant to the settlement agreement except those relating to the 4059 mattress pad. Thus, Louisville salvaged significant benefit with respect to the 4059 mattress pad in reaching the settlement agreement. We therefore reject Louisville’s request to nullify what it concedes was a bargained-for provision in the settlement agreement. The fact that there has been no appearance by Pillowtex in this appeal further weakens Louisville’s argument to partially vacate the earlier judgment.

Moreover, although the district court did not issue an opinion articulating its basis for denying the motion, our review of the transcript of the hearing on the motion makes clear that the district court had a well-founded belief in the need for finality of the noninfringement judgment that it entered in 1998. As the Supreme Court has recognized, "[p]ublic policy dictates that there be an end of litigation; that those who have contested an issue shall be bound by the result of the contest, and that matters once tried shall be considered forever settled as between the parties." W.L. Gore & Assocs., Inc. v. C.R. Bard, Inc., 977 F.2d 558, 561 (Fed. Cir. 1992) (citing Federated Dep’t Stores, Inc. v. Moitie, 452 U.S. 394, 401 (1981) (quoting Baldwin v. Traveling Men’s Ass’n, 283 U.S. 522, 525 (1931))). This policy concern is even stronger when a case is ended by the deliberate choice of the parties. Id. (citing U.S. Steel Corp. v.
Fraternal Ass’n of Steel Haulers, 601 F.2d 1269, 1274 (3d Cir. 1979)).

The district court in the Pillowtex case articulated that same policy concern when
it made the following statement: "[W]hen a Court’s judgment is made as a result of a settlement . . . and it’s not appealed and it’s not reversed, and it’s been in the books for a number of years, there is a thought that the state of the law should not be subjected to such later strategic, market-driven economic requests. . . . The integrity issue was whether court judgments can be relied upon or whether they are subject to being . . . tweaked later by a party who has no opponent. Transcript of Record at 39-40, Louisville Bedding v. Pillowtex Corp., No. 3:94CV-722-S (W.D. Ky. Aug. 1, 2005). The court’s policy concern provides sufficient basis for us to affirm its denial of Louisville’s Rule 60(b)(6) motion.