Checkpoint Sys. v. All-Tag Sec. S.A, (Fed. Cir. June 5, 2017) (Before Newman, Lourie, and Moore, J.) (Opinion for the court, Newman, J.)
The Federal Circuit held that the district court erred in finding this case exceptional under 35 U.S.C. § 285, and it reversed its award of attorney fees to the defendants. The record showed that the plaintiff’s charge of infringement was reasonable and the litigation was not abusive or brought in bad faith.
Checkpoint Systems owns the ’555 patent, which relates to improved anti-theft tags that are attached to merchandise and deactivated when the goods are purchased. Checkpoint sued the All-Tag defendants for infringing the ’555 patent. The jury found the ’555 patent not infringed, invalid, and unenforceable. The district court subsequently found the case to be “exceptional” under 35 U.S.C. § 285 and awarded All-Tag approximately $6.6 million in attorney fees, costs, and interest. The district court considered the case to be exceptional because Checkpoint’s expert 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 appealed to the Federal Circuit, pointing 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. The Federal Circuit affirmed the judgment entered on the jury verdict but reversed the attorney fee award because the infringement charge was not shown to have been made in bad faith or objectively baseless. All-Tag sought certiorari, which was granted, with the opinion vacated, and remanded to the Federal Circuit in conjunction with the Supreme Court’s decisions on fee-shifting in Octane Fitness, LLC v. ICON Health & Fitness, Inc. (U.S. 2014) and Highmark, Inc. v. Allcare Health Management System, Inc. (U.S. 2014). On remand from the Supreme Court, the Federal Circuit remanded to the district court for further consideration of the attorney fee award in light of the Supreme Court’s decisions. The district court again held the case to be exceptional, for the same reasons. Additionally, the district court found Checkpoint’s pre-suit investigation, based on a 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.” The district court also cited Checkpoint’s “improper motivation” behind the lawsuit, stating that Checkpoint brought suit “to interfere improperly with Defendants’ business and to protect its own competitive advantage.”
In Octane Fitness, the Supreme Court explained that an “exceptional case” is one that “stands out from others with respect to the substantive strength of a party’s litigating position (considering both the governing law and the facts of the case) or the unreasonable manner in which the case was litigated.” Here, Checkpoint argued that its litigating position was objectively reasonable, despite the error in providing the wrong sample tag to its expert for analysis. The Federal Circuit noted that the manufacture of that tag in Switzerland rather than in Belgium was made known by All-Tag before trial. It also noted that All-Tag attempted to exclude Checkpoint’s expert testimony pre-trial and moved for judgment as a matter of law post-trial. The district court denied both motions, but still found the case to be exceptional, in part due to Checkpoint’s “improper motivation.” The Federal Circuit rejected this reasoning, stating that “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.” While motivation to harass or burden an opponent may be relevant to an “exceptional case” finding, motivation to implement a statutory patent right by bringing suit based on a reasonable belief in infringement is not an improper motive. The Federal Circuit found no harassment or abuse.
Additionally, the Federal Circuit pointed to the district court’s finding that Checkpoint had sufficient evidence of infringement to survive summary judgment motions and a Daubert challenge, and to proceed to a jury trial. It noted that “[a]bsent 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 resolution at trial.”
Finally, the Federal Circuit addressed the district court’s argument that Checkpoint’s expert’s reliance on two of All-Tag’s manufacturing process patents, the ’466 and ’343 patents, was insufficient. The district court stated that there was evidence that All-Tag’s manufacturing processes were not the same as those disclosed in the ’466 and ’343 patents, which made comparisons of the patents, instead of the actual products, insufficient. The Federal Circuit rejected the district court’s reasoning. It explained that there was no representation by All-Tag that the accused products were different from the tested products, and that the district court did not find them to be different. There was no allegation of falsity, fraud or bad faith. Additionally, All-Tag’s witness testified that the All-Tag patents explained how All-Tag manufactured its tags and that it was “enough just to read the patent.” As a result, the Federal Circuit found that the district court erred in its award of attorney fees and reversed its decision.
Reliance on a mistaken sample for infringement testing was not abusive or in bad faith, particularly when there was evidence the sample could still be considered representative. Although “improper motivation” for bringing suit may factor into whether a case is “exceptional” under § 285, it is not improper to assert patents to thwart competition, rather it is a statutory right to do so. Thus, a fee award should not be used as a penalty for failure to win a patent infringement suit. Instead, § 285 should be implemented only to prevent a “gross injustice.” The case must stand out from others with respect to the substantive strength of a party’s litigating position or the unreasonable manner in which the case was litigated.