Checkpoint Systems Inc. v. All-Tag Security S.A.

Addressing the exceptional case standard under 35 U.S.C. § 285, the U.S. Court of Appeals for the Federal Circuit reversed a district court’s award of attorneys’ fees, costs and interest to a defendant, finding that the failure to test samples of the accused infringing products, and instead testing non-accused versions made in a different facility, did not make the litigation “objectively baseless.” Checkpoint Systems Inc. v. All-Tag Security S.A., Case No. 12-1085 (Fed. Cir., Mar. 25, 2013) (Newman, J.).

Checkpoint Systems sued its competitor All-Tag Security for patent infringement on asserted claims directed to electronic theft-deterrent tags that may be disengaged by a store clerk at checkout. A key claim limitation was the requirement for a “throughhole,” a feature that could be identified following a technical product analysis. Checkpoint’s infringement allegations were specifically based on product made by All-Tag in Belgium. However, during the litigation, All-Tag identified that Checkpoint had examined only tags previously manufactured by All-Tag in Switzerland. Despite an opportunity to do so, Checkpoint never examined the Belgian-made tags.

In considering whether the Checkpoint’s actions were “objectively baseless,” the Court credited Checkpoint’s argument that, upon the move from Switzerland, “the Belgian operation resumed manufacture within a week, on the same equipment.” Further, there was no evidence that the Belgian products did not have a throughhole or that the Belgian products were materially different than the Swiss products, consistent with defendant’s prior assertion that “it is undisputed that All-Tag S.A. purchased equipment and other assets from All-Tag A.G., and continued to manufacture the same resonant tags which were previously manufactured by All-Tag A.G.”

All-Tag’s CEO also testified that he “believed” that the manufacture of the defendant’s products was made in accordance with All-Tag’s own patents. Checkpoint’s expert opined that such tags would infringe the asserted claims. Further, All-Tag’s expert conceded that the Belgian products would have a throughhole if made in accordance with All-Tag’s patents. The Court found that Checkpoint was entitled to rely on All-Tag’s admission as an unqualified admission, because there was only a single, admittedly infringing embodiment described in All-Tag’s patents as opposed to multiple embodiments, some of which might not infringe.

In view of the entire record, the Court could not find that the “infringement allegations [were] such that no reasonable litigant could reasonably expect success on the merits” and so did not undertake to determine whether “the litigation [was] brought in subjective bad faith” per the legal framework recently articulated by the Court in Highmark v. Allcare Health Mgmt. (See IP Update, Vol. 15, No. 9.)