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

United States Court of Appeals, Federal Circuit

June 5, 2017

CHECKPOINT SYSTEMS, INC., Plaintiff-Appellant
v.
ALL-TAG SECURITY S.A., ALL-TAG SECURITYAMERICAS, INC., SENSORMATIC ELECTRONICS CORPORATION, KOBE PROPERTIES SARL, Defendants-Appellees

         Appeal from the United States District Court for the Eastern District of Pennsylvania in No. 2:01-cv-02223-PBT, Judge Petrese B. Tucker.

          Robert J. Palmersheim, Honigman Miller Schwartz and Cohn LLP, Chicago, IL, argued for plaintiff-appellant. Also represented by Anand C. Mathew; Dennis R. Suplee, Nancy Winkelman, Schnader, Harrison, Segal & Lewis LLP, Philadelphia, PA.

          M. Kelly Tillery, Pepper Hamilton LLP, Philadelphia, PA, argued for all defendants-appellees. Defendant-appellee Sensormatic Electronics Corporation also represented by Charles S. Marion, Erik N. Videlock. Theodore A. Breiner, Breiner & Breiner, Alexandria, VA, for defendants-appellees All-Tag Security S.A., All-Tag Security Americas, Inc., Kobe Properties SARL. Also represented by Tracy Zurzolo Quinn, Reed Smith LLP, Philadelphia, PA.

          Before Newman, Lourie, and Moore, Circuit Judges.

          Newman, Circuit Judge.

         This is the second attorney fee appeal arising from a patent infringement suit brought by Checkpoint Systems, Inc. ("Checkpoint") against All-Tag Security S.A., All-Tag Security Americas, Inc., Sensormatic Electronics Corp., and Kobe Properties SARL (collectively, "All-Tag"). The district court deemed the case "exceptional" and awarded attorney fees to All-Tag.[1] We conclude that the court erred in its application of fee-shifting principles; the award is reversed.

         Background

         U.S. Patent No. 4, 876, 555 ("the '555 patent") relates to improved anti-theft tags that are attached to merchandise, and deactivated when the goods are purchased. The accused tags are manufactured in Europe, and imported into the United States. Checkpoint brought an infringement suit in the Eastern District of Pennsylvania. Trial was to a jury, who found the '555 patent not infringed, invalid, and unenforceable. Following the verdict, the district court found the case to be "exceptional" under 35 U.S.C. § 285, and awarded the defendants approximately $6.6 million in attorney fees, costs, and interest. The district court stated that the case was "exceptional" because Checkpoint's expert witness based his infringement opinion on examination of imported tags that were manufactured by All-Tag in Switzerland, although the accused tags were manufactured by All-Tag in Belgium. 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) ("Dr. Zahn's factual assumptions were derived from his review of All-Tag's patents, rather than its actual accused products. . . . The evidence established that Checkpoint never looked at the accused products in relation to the '555 patent. This alone warrants an exceptional case finding.") (internal citations omitted)).

         On appeal to us, Checkpoint pointed to evidence in the record explaining that the tags from Belgium were manufactured on the same machines that All-Tag transferred from Switzerland to Belgium. There was no contrary evidence. We affirmed the judgment entered on the jury verdict, but reversed the attorney fee award, holding that "[t]he infringement charge was not shown to have been made in bad faith or objectively baseless." Checkpoint Sys., Inc. v. All-Tag Security S.A., 711 F.3d 1341, 1348 (Fed. Cir. 2013).

         All-Tag sought certiorari, which was granted, with the opinion vacated, and remanded to this court, Kobe Properties SARL v. Checkpoint Sys., Inc., 134 S.Ct. 2134 (2014), in conjunction with the Supreme Court's decisions on fee-shifting in Octane Fitness, LLC v. ICON Health & Fitness, Inc., 134 S.Ct. 1749 (2014), and Highmark Inc. v. Allcare Health Management System, Inc., 134 S.Ct. 1744 (2014).

         On remand from the Supreme Court, we remanded to the district court for further consideration of the attorney fee award in light of the Court's decisions. Checkpoint Sys., Inc. v. All-Tag Security S.A., 572 F.App'x 988 (Fed. Cir. 2014). In the remand order, we instructed the district court to "consider the guidance from our prior opinion in which we explained that tests or experiments on the actual accused products are not always necessary to prove infringement." Id. at 989.

         The district court again held the case to be exceptional, citing the same ground, viz., that Checkpoint's pre-suit investigation was inadequate because Checkpoint's expert inspected tags produced in Switzerland rather than in Belgium. Dist. Ct. Op. at *4. The district court also found Checkpoint's pre-suit investigation, based on an European infringement verdict against All-Tag on a counterpart of the '555 patent and two infringement opinions from counsel, to be inadequate because the infringement opinions "were given years before filing." Id. Finally, the district court cited Checkpoint's "improper motivation" behind the lawsuit, because Checkpoint brought suit "to interfere improperly with Defendants' business and to protect its own competitive advantage." Id. at *3.

         Checkpoint appeals, arguing that its expert proceeded reasonably in light of the available information, for it was never disputed that the tags tested by the expert were produced on the same machines that were transferred to Belgium. Checkpoint states that it had a reasonable, good faith basis for bringing this infringement action, and that application of the ...


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