Checkpoint Systems, Inc. v. All-Tag Security S.A. , 858 F.3d 1371 ( 2017 )

United States Court of Appeals
for the Federal Circuit
______________________
CHECKPOINT SYSTEMS, INC.,
Plaintiff-Appellant
v.
ALL-TAG SECURITY S.A., ALL-TAG SECURITY
AMERICAS, INC., SENSORMATIC ELECTRONICS
CORPORATION, KOBE PROPERTIES SARL,
Defendants-Appellees
______________________
2016-1397
______________________
Appeal from the United States District Court for the
Eastern District of Pennsylvania in No. 2:01-cv-02223-
PBT, Judge Petrese B. Tucker.
______________________
Decided: June 5, 2017
______________________
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, Philadelph-
ia, PA, argued for all defendants-appellees. Defendant-
appellee Sensormatic Electronics Corporation also repre-
sented by CHARLES S. MARION, ERIK N. VIDELOCK.
2 CHECKPOINT SYSTEMS, INC. v. ALL-TAG SECURITY S.A.
THEODORE A. BREINER, Breiner & Breiner, Alexan-
dria, 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 merchan-
dise, and deactivated when the goods are purchased. The
accused tags are manufactured in Europe, and imported
into the United States. Checkpoint brought an infringe-
ment 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
1 Checkpoint Sys., Inc. v. All-Tag Security S.A.,
2015 WL 4941793 (E.D. Pa. Aug. 19, 2015) (“Dist. Ct.
Op.”).
CHECKPOINT SYSTEMS, INC. v. ALL-TAG SECURITY S.A. 3
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 infringe-
ment 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 prod-
ucts. . . . 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 trans-
ferred from Switzerland to Belgium. There was no con-
trary 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.” Check-
point 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 Proper-
ties 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.
4 CHECKPOINT SYSTEMS, INC. v. ALL-TAG SECURITY S.A.
Cir. 2014). In the remand order, we instructed the dis-
trict court to “consider the guidance from our prior opin-
ion 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 exception-
al, 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 opin-
ions “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 Court’s rulings in Octane Fitness
and in Highmark do not support the award of attorney
fees.
DISCUSSION
Section 285 of the Patent Act provides for the award
of attorney fees in “exceptional cases.” In Octane Fitness
the Court explained that fee awards are for “the rare case
in which a party’s unreasonable conduct—while not
necessarily independently sanctionable—is nonetheless so
‘exceptional’ as to justify an award of fees.” 134 S. Ct. at
1757. The Court explained that the standard applied by
CHECKPOINT SYSTEMS, INC. v. ALL-TAG SECURITY S.A. 5
the Federal Circuit had been too rigorous, and that “an
‘exceptional’ case is simply one that stands out from
others with respect to the substantive strength of a par-
ty’s litigating position (considering both the governing law
and the facts of the case) or the unreasonable manner in
which the case was litigated.” Id. at 1756.
On appeal, all aspects of a district court’s § 285 de-
termination are reviewed for an abuse of discretion.
Highmark, 134 S. Ct. at 1749. A district court abuses its
discretion when “it base[s] its ruling on an erroneous view
of the law or a clearly erroneous assessment of the evi-
dence.” Id. at 1748 n.2 (internal citations omitted). Here,
we find error in the district court’s legal analysis and
assessment of the record evidence.
Checkpoint states that its litigating position was of
objectively reasonable strength as to law and fact, despite
the error as to which sample tag was provided to its
expert for analysis. The manufacture of that tag in
Switzerland rather than in Belgium was made known by
All-Tag before trial, and All–Tag attempted to exclude
Checkpoint’s expert’s testimony pre-trial and moved for
judgment as a matter of law post-trial. The district court
denied both motions.
Although the jury found against Checkpoint, the dis-
trict court denied JMOL, and we affirmed, the district
court agreed that Checkpoint’s claims were not frivolous.
The district court nonetheless found the case to be excep-
tional, explaining:
Frivolousness is not required to find exceptionali-
ty under Section 285. See Octane Fitness, LLC,
134 S. Ct. at 1756 n.6 (listing “frivolousness” as
only one of several “nonexclusive . . . factors” to be
considered in the totality of the circumstances).
Certainly, Checkpoint may rely on this Court’s
denial of Defendants’ Daubert and JMOL motions
6 CHECKPOINT SYSTEMS, INC. v. ALL-TAG SECURITY S.A.
to indicate the reasonableness of its claims, but
doing so is not dispositive.
Dist. Ct. Op. at *5. The aspects that the district court
stated were dispositive were Checkpoint’s motivation in
bringing the lawsuit, inadequate pre-suit investigation,
and the failure of Checkpoint’s expert to inspect the
correct accused product.
The district court stated that Checkpoint brought suit
for an improper purpose, that is, to “interfere improperly”
with All-Tag’s business and “to protect its own competi-
tive advantage.” Dist. Ct. Op. at *3. The district court
cited Checkpoint’s lawsuits against other asserted in-
fringers, its market share, and its acquisition of compet-
ing producers as showing the improper motive of
“protect[ing] its own competitive advantage.” Id. Howev-
er, the patent law provides the statutory right to exclude
those that infringe a patented invention. Enforcement of
this right is not an “exceptional case” under the patent
law.
All-Tag argues that it was appropriate to consider
Checkpoint’s competitive motivation because the Supreme
Court mentioned “motivation” as a factor to be considered.
Octane Fitness, 134 S. Ct. at 1756 n.6 (instructing that
when evaluating the totality of the circumstances “district
courts could consider a ‘nonexclusive’ list of ‘factors,’
including ‘frivolousness, motivation, objective unreasona-
bleness (both in the factual and legal components of the
case) and the need in particular circumstances to advance
considerations of compensation and deterrence.’” (internal
citations omitted)). Indeed, “motivation” to harass or
burden an opponent may be relevant to an “exceptional
case” finding. See SFA Sys., LLC v. Newegg Inc., 793 F.3d
1344, 1350 (Fed. Cir. 2015) (“[A] pattern of litigation
abuses characterized by the repeated filing of patent
infringement actions for the sole purpose of forcing set-
tlements, with no intention of testing the merits of one’s
CHECKPOINT SYSTEMS, INC. v. ALL-TAG SECURITY S.A. 7
claims, is relevant to a district court’s exceptional case
determination under § 285.”). However, motivation to
implement the statutory patent right by bringing suit
based on a reasonable belief in infringement is not an
improper motive. A patentee’s assertion of reasonable
claims of infringement is the mechanism whereby patent
systems provide an innovation incentive.
Here, no such harassment or abuse is shown. In Med-
tronic Navigation, Inc. v. BrainLAB Medizinische Com-
putersysteme GmbH, 603 F.3d 943, 954 (Fed. Cir. 2010),
this court explained that there is a “presumption that an
assertion of infringement of a duly granted patent is made
in good faith.” Checkpoint states that it had obtained two
infringement opinions from counsel and previously ob-
tained judgments against All-Tag for infringement of the
Swiss counterpart of the ’555 patent.
Further, Checkpoint points to the district court’s find-
ing that Checkpoint had sufficient evidence of infringe-
ment to survive summary judgment motions and a
Daubert challenge, and to proceed to a jury trial. See
ResQNet.com, Inc. v. Lansa, Inc., 594 F.3d 860, 875 (Fed.
Cir. 2010) (“[T]he district court’s denial of summary
judgment of noninfringement reflects the belief that it
was reasonable for ResQNet to have retained that patent
for suit.”). “Absent misrepresentation to the court, a
party is entitled to rely on a court’s denial of summary
judgment and JMOL . . . as an indication that the party’s
claims were objectively reasonable and suitable for resolu-
tion at trial.” Medtronic Navigation, 603 F.3d at 954.
The district court also found the expert’s failure to
test an accused product supported the exceptional case
finding and fee award. Dist. Ct. Op. at *4. In light of the
guidance in the remand order, the district court “clarified”
its earlier finding on this point. Id. The district court
found Checkpoint’s expert’s reliance on two of All–Tag’s
manufacturing process patents, the ’466 and ’343 patents,
8 CHECKPOINT SYSTEMS, INC. v. ALL-TAG SECURITY S.A.
as evidence of infringement “insufficient,” stating “there
was evidence that All–Tag’s manufacturing processes
were not the same as those disclosed in the ’466 and ’343
patents, making comparisons of the patents, instead of
the actual products, insufficient.” Id.There was no representation by All–Tag that the ac-
cused products were different from the tested products,
and the district court did not so find. There was no alle-
gation of falsity or fraud or bad faith on the part of
Checkpoint or its expert. Further, All–Tag’s witness
testified that the All–Tag patents explained how All–Tag
manufactured its resonance tags, agreeing with counsel
that to understand the process by which the accused tags
were produced, it was “enough to just read the patent,”
and providing no additional details. See Checkpoint Sys.,
Inc., 711 F.3d at 1347 (citing trial testimony). This aspect
does not support the “exceptional case” ruling against
Checkpoint.
CONCLUSION
The Court has cautioned that fee awards are not to be
used “as a penalty for failure to win a patent infringement
suit.” Octane Fitness, 134 S.Ct. at 1753 (quoting Park–In–
Theatres, Inc. v. Perkins, 190 F.2d 137, 142 (9th Cir.
1951)). The legislative purpose behind § 285 is to prevent
a party from suffering a “gross injustice”: “The exercise of
discretion in favor of [awarding attorney fees] should be
bottomed upon a finding of unfairness or bad faith in the
conduct of the losing party, or some other equitable con-
sideration of similar force, which makes it grossly unjust
that the winner of the particular law suit be left to bear
the burden of his own counsel fees.” S. Rep. No. 1503,
79th Cong., 2d Sess. (1946) (addressing the § 70 precursor
to § 285); see also Octane Fitness, 134 S. Ct. at 1753 (“The
provision enabled [district courts] to address ‘unfairness
or bad faith in the conduct of the losing party, or some
other equitable consideration of similar force,’ which
CHECKPOINT SYSTEMS, INC. v. ALL-TAG SECURITY S.A. 9
made a case so unusual as to warrant fee-shifting.” (quot-
ing Park–In–Theatres, 190 F.2d at 142)).
We conclude that the district court erred, and thus
abused its discretion, in its assessment of “exceptional
case,” for the record shows that the charge of infringe-
ment was reasonable and the litigation was not brought
in bad faith or with abusive tactics. The award of attor-
ney fees under 25 U.S.C. § 285 is reversed.
REVERSED