Checkpoint Systems, Inc. v. All-Tag Security S.A. ( 2013 )

United States Court of Appeals
for the Federal Circuit
______________________
CHECKPOINT SYSTEMS, INC.,
Plaintiff-Appellant,
v.
ALL-TAG SECURITY S.A. AND
ALL-TAG SECURITY AMERICAS, INC.,
Defendants-Appellees,
AND
SENSORMATIC ELECTRONICS CORPORATION,
Defendant-Appellee.
______________________
2012-1085
______________________
Appeal from the United States District Court for
the Eastern District of Pennsylvania in No. 01-CV-
2223, Judge Petrese B. Tucker.
______________________
Decided: March 25, 2013
______________________
ROBERT J. PALMERSHEIM, Schopf & Weiss, LLP, of
Chicago, Illinois, argued for plaintiff-appellant. With him
on the brief were STEVEN A. WEISS and LESLEY G. SMITH.
Of counsel on the brief were DENNIS R. SUPLEE and
2 CHECKPOINT v. ALL TAG
THOMAS W. HAZLETT, Schnader Harrison Segal & Lewis
LLP, of Philadelphia, Pennsylvania.
THEODORE A. BRIENER, Breiner & Breiner, L.L.C., of
Alexandria, Virginia, argued for defendants-appellees. Of
counsel on the brief were TRACY ZURZOLO QUINN, Reed
Smith LLP, of Philadelphia, Pennsylvania, and M. KELLY
TILLERY, ERIK N. VIDELOCK and CHARLES S. MARION,
Pepper Hamilton, LLP, of Philadelphia, Pennsylvania.
______________________
Before NEWMAN, LOURIE, and SCHALL, Circuit Judges.
NEWMAN, Circuit Judge.
Checkpoint Systems, Inc. (“Checkpoint”) sued All-Tag
Security S.A., All-Tag Security Americas, Inc., and an All-
Tag customer Sensormatic Electronics Corporation (col-
lectively, “All-Tag”) for infringement of U.S. Patent No.
4,876,555 (“the ’555 patent”), entitled “Resonance Label
and Method for its Fabrication.” A jury found the ’555
patent not infringed, invalid, and unenforceable. The
district court entered judgment on the verdict, held the
case “exceptional” in terms of 35 U.S.C. §285, and award-
ed the defendants approximately $6.6 million in attorney
fees, costs, and interest. The patent term has expired,
and only the award of attorney fees is appealed. We
reverse the award, for the requirements of §285 were not
met.
BACKGROUND
Checkpoint and All-Tag are competitors in the manu-
facture and sale of “resonance tags.” Resonance tags are
electronic anti-shoplifting devices that are attached to
merchandise whereby if the attached tag is not deactivat-
ed, for example by a cashier at check-out, the tag triggers
an alarm when the tagged goods move past detectors
located at the store’s exit.
CHECKPOINT v. ALL TAG 3
The patented resonance tag is constructed of three
layers: a middle dielectric layer sandwiched between two
conducting layers. The tag is deactivated in the check-out
procedure by passing a strong current through the tag,
which creates a short circuit between the conducting
layers whereby no alarm is given to the detectors. Check-
point’s ’555 patent is for a resonance tag that can be
deactivated “at a lower current and with greater reliabil-
ity.” ’555 patent Abstract. This property is achieved by
placing a “throughhole” or “continuous hole” in the middle
dielectric layer. Id. Claim 1 is representative:
1. A deactivatable resonance label, comprising:
a dielectric layer having first and second op-
posed faces;
a first conducting layer on the first face of the
dielectric layer, the first conducting layer being
shaped to form an inductor and a first capacitor
plate;
a second conducting layer on the second face
of the dielectric layer, the second conducting layer
being shaped to form a second capacitor plate, the
first and second conducting layers being at least
partially superimposed, said first and second con-
ducting layers and said dielectric layer forming
together an oscillating circuit; and
shorting means for enabling creation of a
short-circuit between the first and second conduct-
ing layers when it is desired to deactivate the os-
cillating circuit, the shorting means being
comprised of at least one throughhole passing
through the dielectric layer to provide a short cir-
cuit path between the first and second conducting
layers.
The issue of infringement was focused on whether All-
Tag’s resonance tags have such a throughhole in the
4 CHECKPOINT v. ALL TAG
dielectric layer. The attorney fee award was based on
Checkpoint’s presentation of expert testimony analyzing
the All-Tag tags, for the district court found that the tags
that were examined by the Checkpoint expert were not
the accused tags manufactured by All-Tag in Belgium, but
earlier tags manufactured by All-Tag in Switzerland.
Checkpoint’s expert was Dr. Markus Zahn, professor
of electrical engineering at MIT. Checkpoint furnished
Dr. Zahn with a roll of All-Tag tags to test for the infring-
ing throughhole. To expose the critical dielectric layer,
Dr. Zahn dissolved the conductive aluminum layer that
covered the dielectric material. Dr. Zahn then examined
the tags using a high-powered microscope; he observed
that they had a throughhole in the dielectric layer, and he
passed colored water through the hole to confirm this
observation. Dr. Zahn’s expert report, deposition, and
testimony at trial described his procedures and results,
including photographs.
Upon reviewing Dr. Zahn’s deposition exhibits a few
days before trial, All-Tag Security S.A.’s President and
CEO Olivier Boels stated his belief that Dr. Zahn had
tested tags that were not the current accused products.
Mr. Boels stated that the tags that were tested were made
by All-Tag Security A.G. in Switzerland, and were not the
current tags which are made by All-Tag Security S.A. in
Belgium. The record states that the roll of tested tags
was acquired from an All-Tag customer “in the market-
place.” Dr. Zahn testified that the serial number of the
tags he tested was listed on All-Tag’s website at the time
of trial.
All-Tag moved to exclude Dr. Zahn from testifying,
arguing that his infringement opinion was fatally flawed
because the tags he examined were not the tags accused
of infringement. The district court denied All-Tag’s
motion and permitted Dr. Zahn to testify.
CHECKPOINT v. ALL TAG 5
Dr. Zahn testified that All-Tag’s resonance tags con-
tained a throughhole, and met all the terms of the assert-
ed claims of Checkpoint’s ’555 patent. Dr. Zahn based his
infringement opinion on his examination of the All-Tag
tags, and on two All-Tag patents, U.S. Patent No.
5,187,466 (“the ’466 patent”) and No. 7,023,343 (“the ’343
patent”). All-Tag stated that these patents generally
describe the process that All-Tag Security S.A. was using
in Belgium to produce the resonance tags that are
charged with infringement, the ’343 patent describing
improvements over the process described in the ’466
patent. Dr. Zahn explained that both of the All-Tag
patents describe products having a hole in the dielectric
layer, as required by the claims of the Checkpoint patent
in suit. Dr. Zahn concluded that tags produced in accord-
ance with the process in the All-Tag patents would in-
fringe the Checkpoint ’555 patent.
The record states that in 1994 All-Tag moved its
manufacture of resonance tags from Switzerland to Bel-
gium, and transferred its machinery and equipment to a
newly formed Belgian company. The Belgian company
resumed making resonance tags on the same equipment
within about a week of the move.
Checkpoint filed this infringement suit in May 2001
against the All-Tag Belgian manufacturer and its United
States company, in the United States District Court for
the Eastern District of Pennsylvania. During pre-trial
procedures, Checkpoint asked All-Tag to admit that its
resonance tags contained a throughhole. All-Tag re-
sponded that its tags were made “generally in accordance
with” All-Tag’s ’466 patent and the then-pending applica-
tion for the ’343 patent. All-Tag stated that it used the
manufacturing process described in the ’466 patent until
April 2001, and that it thereafter modified the process as
described in the ’343 application. Both patents describe
methods of producing at least one “hole” or “crater” or
6 CHECKPOINT v. ALL TAG
“material free” area in the dielectric layer of a three-layer
resonance tag.
The ’466 patent describes making a resonance tag by
burning “at least one hole” in the dielectric material using
a heated rod. ’466 patent col.2 ll.65-66. A “complete
melting of the material” forms the “holes (craters).” Id.col.3 ll.18-22. The heated rod melts the dielectric materi-
al, which is “displaced completely” and “removed com-
pletely.” Id. col.4 ll.6-22. This leaves a “hole 6” and an
“air gap S.” Id. Fig. 4. Checkpoint’s expert Dr. Zahn
referred to this description of the All-Tag process as
producing a product covered by Checkpoint’s ’555 patent.
The ’343 patent states that its object is to produce a
resonance tag “having as small as possible a material free
distance (deactivation area) between two opposite capaci-
tor plates.” ’343 patent col.2 ll.50-57. The ’343 patent
describes a process whereby a heated tool melts away the
dielectric material such that “[a] short circuit is thus
obtained between the plates without any dielectric mate-
rial remaining between them.” Id. col.3 ll.6-21. The
process is said to “ensure” that “there is no dielectric
material between the capacitor plates in the deactivation
zone.” Id. col.3 ll.45-48. The figures show this material-
free gap 7 between the capacitor plates. Id. Fig. 6. Dr.
Zahn referred to this description as well.
At the close of Checkpoint’s infringement case, All-
Tag moved for judgment as a matter of law, on the ground
that Dr. Zahn’s testimony was unreliable because he did
not know All-Tag’s exact process and did not test All-Tag’s
present products. The court denied the motion, stating
that “[t]he testimony is sufficient at this point for us to
continue this matter.”
All-Tag presented no contradictory evidence. All-
Tag’s expert Dr. Christopher Rose testified that he had
not examined the All-Tag tags. Dr. Rose testified:
CHECKPOINT v. ALL TAG 7
I don’t have any evidence to present to this jury to
say that there is or is not a hole, that there is
short-circuiting through the hole or there is not
short-circuiting through the hole. You have to
find these things out.
Dr. Rose did not state that the accused tags did not con-
tain a hole as described in the All-Tag manufacturing
patents. No All-Tag witness so testified, and All-Tag’s
counsel did not so argue.
All-Tag renewed its JMOL motion at the end of the
evidentiary presentations. The court again denied the
motion, stating that “the evidence is sufficient to go to the
jury on the issue of infringement.”
Although All-Tag had acknowledged in its Admissions
that its tags were made “generally in accordance” with its
patents, All-Tag argued to the jury that Dr. Zahn did not
know what “generally” meant and so could not definitively
determine whether the All-Tag tags were within the
Checkpoint patent. The jury returned a verdict in favor of
All-Tag, finding that All-Tag did not infringe the ’555
patent and that the ’555 patent was invalid and unen-
forceable. Judgment was entered on the verdict. Check-
point Sys., Inc. v. All-Tag Sec. S.A., No. 01-cv-2223 (E.D.
Pa. June 20, 2008), ECF No. 275.
All-Tag then moved for attorney fees pursuant to 35
U.S.C. §285:
The court in exceptional cases may award reason-
able attorney fees to the prevailing party.
The district court granted the motion. The court ex-
plained that the case was exceptional because Checkpoint
through its expert witness did not inspect the tags it
accused of infringement, despite having ample opportuni-
ty to do so. The district court stated, “that Checkpoint
never looked at the accused products in relation to the
’555 patent . . . alone warrants an exceptional case find-
8 CHECKPOINT v. ALL TAG
ing.” Checkpoint Sys., Inc. v. All-Tag Sec. S.A., No. 01-cv-
2223, 2011 WL 5237573, at *1 n.1 (E.D. Pa. Nov. 2,
2011). This appeal is directed to the award of attorney
fees; the ’555 patent has expired.
DISCUSSION
The general rule, called the “American Rule,” is that
each side shall normally bear its litigation burdens. The
philosophy of the American Rule is to avoid that “the poor
might be unjustly discouraged from instituting actions to
vindicate their rights if the penalty for losing included the
fees of their opponents’ counsel.” Fleischmann Distilling
Corp. v. Maier Brewing Co., 386 U.S. 714, 718 (1967); see
Alyeska Pipeline Serv. Co. v. Wilderness Soc’y, 421 U.S.
240, 251 (1975) (explaining the concern that “losing
litigants were being unfairly saddled with exorbitant fees
for the victor’s attorney”).
The American Rule is not absolute, for the policy of
avoiding undue burden on access to judicial remedy gives
way when litigation is devoid of any justification, or is
tainted by grievous misconduct. Section 285 codifies for
patent cases the policy of “compensating the prevailing
party for the costs it incurred in the prosecution or de-
fense of a case where it would be grossly unjust, based on
the baselessness of the suit or because of litigation or
Patent Office misconduct, to require it to bear its own
costs.” Highmark, Inc. v. Allcare Health Mgmt. Sys., Inc.,
687 F.3d 1300, 1309-10 n.1 (Fed. Cir. 2012). To receive
attorney fees under §285, “a prevailing party must estab-
lish by clear and convincing evidence that the case is
‘exceptional.’” Id. at 1308.
In turn, patentees seeking to assert their government-
granted patent rights, and accused infringers with
grounds for believing the patent to be invalid or not
infringed, are shielded from the additional litigation
burden of fee-shifting when their positions are reasonable.
In Highmark the court explained: “It is established law
CHECKPOINT v. ALL TAG 9
under section 285 that absent misconduct in the course of
the litigation or in securing the patent, sanctions may be
imposed against the patentee only if two separate criteria
are satisfied: (1) the litigation is brought in subjective bad
faith, and (2) the litigation is objectively baseless.” Id.
“To be objectively baseless, the infringement allegations
must be such that no reasonable litigant could reasonably
expect success on the merits.” Id. at 1309 (quoting Domi-
nant Semiconductors Sdn. Bhd. v. OSRAM GmbH, 524
F.3d 1254, 1260 (Fed. Cir. 2008)).
On appellate review of an attorney fee ruling this
court determines de novo whether the litigation was
objectively baseless, id. at 1309-10 & n.1, and the district
court’s findings regarding subjective bad faith are re-
viewed for clear error. Id. at 1310. Thus this court may
conduct “a retrospective assessment of the merits of the
entire litigation” to determine “whether the record estab-
lished in the proceeding supports a reasonable argument
as to the facts and law.” Id. at 1310 n.1.
Here, the district court stated: “The Court further
found that Plaintiff’s claim was brought in bad faith, the
basis for its finding of an ‘exceptional’ case.” The district
court faulted Checkpoint for “only examin[ing] tags from
All-Tag A.G. of Switzerland, not the Actual Accused
Product manufactured by All-Tag S.A. of Belgium.” The
district court stated that “All-Tag provided all parties
with samples of the Accused Product on November 22,
2002, giving Checkpoint ample time to have the expert’s
infringement analysis completed.”
Checkpoint argues that it was not objectively baseless
to bring or continue this suit based on the tags tested by
Dr. Zahn, even if those tags were made in Switzerland
before the move to Belgium. Checkpoint stresses that
when All-Tag moved its equipment from Switzerland to
Belgium, the Belgian operation resumed manufacture
within a week, on the same equipment. All-Tag did not
10 CHECKPOINT v. ALL TAG
show at trial that All-Tag Switzerland’s resonance tags
differed from All-Tag Belgium’s tags in any respect mate-
rial to infringement of the ’555 patent, although All-Tag
witnesses testified that All-Tag was continually making
manufacturing improvements.
There was no evidence that All-Tag’s equipment pro-
duced tags with throughholes in Switzerland but without
throughholes in Belgium. In a pre-trial motion for sum-
mary judgment, All-Tag’s counsel stated that “it is undis-
puted 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 manufac-
tured by All-Tag A.G.” Checkpoint Sys., Inc. v. All-Tag
Sec. S.A., No. 01-cv-2223 (E.D. Pa. Aug. 15, 2006), ECF
No. 165, at 4.
As we have discussed, Dr. Zahn referred to the de-
scription of All-Tag’s products in All-Tag’s patents, for All-
Tag stated that it was practicing the process in these
patents. Mr. Boels, All-Tag’s CEO, testified that the All-
Tag patents explain how All-Tag manufactured its reso-
nance tags:
Q. So if somebody wanted to understand how All-
Tag makes its product, is it enough to just read
the patent? Does the patent tell you everything
about how you actually make your product?
A. I believe. I think so.
The ’343 patent states that the process “ensures that
there is no dielectric material between” the conductive
layers. ’343 patent col.3 ll.45-48. Dr. Zahn reviewed the
’343 patent and determined that a resonance tag made in
accordance with that method would have a hole in the
dielectric layer. Both the ’466 and ’343 patents show that
the products have holes in the dielectric, as claimed in
Checkpoint’s ’555 patent.
CHECKPOINT v. ALL TAG 11
All-Tag argues that Dr. Zahn’s reliance on the All-Tag
patents was unreasonable because of the qualifier “gener-
ally” in All-Tag’s pre-trial “Admission” that its manufac-
turing process practiced the All-Tag patents. All-Tag
states that “generally” does not mean “exactly,” and that
Checkpoint should not have relied on the admission.
However, a party may rely on an admission as “conclu-
sively established” unless the admission is recanted. See
Fed. R. Civ. P. 36(b) (“A matter admitted under this rule
is conclusively established unless the court, on motion,
permits the admission to be withdrawn or amended.”);
Ajinomoto Co. v. Archer-Daniels-Midland Co., 228 F.3d
1338, 1351 (Fed. Cir. 2000) (pre-trial infringement admis-
sions were binding because accused infringer “offered no
correction of these admissions before the court’s judg-
ment”).
All-Tag provided no evidence and presented no argu-
ment that its pre-trial admission was incorrect. All-Tag’s
expert Dr. Rose testified that he did not examine the
accused tags, although Dr. Rose conceded that All-Tag
would infringe if the “physical reality” matched the de-
scription in the All-Tag patents. As to All-Tag’s ’466
patent, Dr. Rose testified:
So, if the physical reality is exactly [as shown in
the patent], if that is the physical reality, then
again, we are done, I agree.
Similarly, as to the ’343 patent, Dr. Rose testified:
So, if the product reflected -- so, if the recipe speci-
fied in that patent gave you exactly what they say
in the patent . . . then again I think we are done.
Because what they say in the patent is that there
is an air gap, there is no dielectric in between an-
ything . . .
What that means is if the physical reality of the
product is exactly as described in the patent, then
12 CHECKPOINT v. ALL TAG
I -- I think we would have infringement . . . . I
can’t say infringement. I would say that we have
a throughhole.
All-Tag cites L & W, Inc. v. Shertech, Inc., 471 F.3d
1311 (Fed. Cir. 2006), where this court rejected the as-
sessment of liability based solely on the alleged infringer’s
statements that the accused products are “covered” by its
own patent, because the patent included multiple embod-
iments and it was unclear whether the patent disclosed
the critical infringing feature. In contrast, All-Tag’s ’466
and ’343 patents are specific to resonance tags having a
hole in the dielectric; the All-Tag patents describe no
embodiments without the hole, which is the critical fea-
ture of Checkpoint’s ’555 patent. All-Tag’s admission that
its products are made “generally in accordance” with its
patents could reasonably have been relied on by Check-
point and its expert Dr. Zahn. Such reliance was not
“objectively baseless.” See Martek Biosciences Corp. v.
Nutrinova, Inc., 579 F.3d 1363, 1374 (Fed. Cir. 2009)
(rejecting “a general rule requiring one who alleges in-
fringement of a claim containing functional limitations to
perform actual tests or experiments on the accused prod-
uct or method”).
The infringement charge was not shown to have been
made in bad faith or objectively baseless. The district
court’s determination that this was an exceptional case
under §285 is not supported by the record. The award of
attorney fees with costs and interest is reversed.
REVERSED