Checkpoint Systems v. All-Tag Security: Failing the Objectively Baseless Standard

By Jason Rantanen

Checkpoint Systems, Inc. v. All-Tag Security S.A. (Fed. Cir. 2013) Download 12-1085.Opinion.3-21-2013.1
Panel: Newman (author), Lourie, Schall

It's a general rule of commercial litigation in the United States that parties must bear their own legal costs.  One exception to this general rule arises when litigation is baseless.  Under 35 U.S.C. § 285, courts may award the prevailing party its legal costs "based on the baseless of the suit."  (There are other grounds for awarding legal fees, but those weren't at issue in this case).  Over the past few years, the Federal Circuit has made clear that there are two criteria that must be met for sanctions to be imposed based on the baselessness of the suit: "(1) the litigation is brought in subjective bad faith, and (2) the litigation is objectively baseless.” Highmark, Inc. v. Allcare Health Mgmt. Sys., Inc., 687 F.3d 1300, 1309-10 n.1 (Fed. Cir. 2012).  In Highmark, the Federal Circuit also held that it reviews the "objectively baseless" component de novo.  This mechanism effectively results in the Federal Circuit becoming the final arbiter of whether sanctions may be imposed under the baselessness approach.

Checkpoint v. Alltag illustrates how this mechanism works in practice and offers some notable holdings when it comes to attempts to wriggle out of an admission.  Checkpoint is the owner of Patent No. 4,876,555, which relates to an anti-shoplifting device consisting of three layers.  Checkpoint's advance was to place a hole in the middle layer, which allowed the tag to be deactivated "at a lower current and with greater reliability."  It sued All-Tag Security S.A. for infringing its patent, and at trial relied on two relevant pieces of evidence to demonstrate that All-Tag's accused tags infringed the '555 patent.  First, it offered testimony from its expert, who found holes in All-Tag tags made by All-Tag Security A.G. (a predecessor company) and whose manufacturing equipment was subsequently moved from Switzerland to Belgium to make the accused tags.  Second, it relied on two of All-Tag's patents and All-Tag's admission that the process it used in Belgium to produce the accused tags was "generally in accordance" with its patents.  Both of All-Tag's patents describe products having a hole in the middle layer and Checkpoint's expert testified that those products would infringe the '555 patent. 

At trial, the court denied All-Tag's motion for judgment as a matter of law on infringement but the jury returned a verdict in favor of All-Tag on infringement (and invalidity and unenforceability).  The district court subsequently granted All-Tag's motion for attorney's fees under Section 285, explaining that the case was exceptional "because Checkpoint through its expert witness did not inspect the tags it accused of infringement, despite having ample opportunity to do so."  Slip Op. at 7.

On appeal, the Federal Circuit reversed on the ground that the suit was not objectively baseless.  In reaching this conclusion, the CAFC discussed the Switzerland-to-Belgium transition (including the fact that production was restarted in Belgium within a week using the same equipment), but the interesting part of the court's opinion is its analysis of the reasonableness of Checkpoint's reliance on All-Tech's patents.  The CAFC first rejected the argument that Checkpont's reliance on its expert's testimony was unreasonable because All-Tag had used the qualifier "generally" in its pre-trial admission that its manufacturing process generally practiced the All-Tag patents.  "[A] party may rely on an admission as “conclusively established” unless the admission is recanted….All-Tag provided no evidence and presented no argument that its pre-trial admission was incorrect."  Slip Op. at 11.  In other words, All-Tag could not escape its admission simply because it had tried to be ambiguous in its wording. 

The Federal Circuit also rejected All-Tag's argument that the admission as to its patents was insufficient for purposes of relying on those patents as evidence of infringement:

All-Tag cites L & W, Inc. v. Shertech, Inc., 471 F.3d 1311 (Fed. Cir. 2006), where this court rejected the assessment 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 embodiments 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 feature of Checkpoint’s ’555 patent.

Slip Op. at 12. The result was that "All-Tag’s admission that its products are made “generally in accordance” with its patents could reasonably have been relied on by Checkpoint and its expert Dr. Zahn,"  id., and this reliance was not "objectively baseless." 

18 thoughts on “Checkpoint Systems v. All-Tag Security: Failing the Objectively Baseless Standard

  1. 18

    Ned Heller said: “Compare Diehr to Prometheus to Flook.”

    Hi Ned:

    I did and no where within the four corners of any of those cases did I find the exact quote of the Supreme Court saying,

    “The integration must modify the otherwise eligible process to produce a new result. If it does not, it is not integrated.”

    So I was wondering, can you please provide that exact quote from Court? Of course if you want to now admit the Court never said such and you are simply making it all up, and thus wrong, please kindly do so now, and we can all move on.

    Thank You,

    101 Integration Expert

  2. 15

    Ned said: “Off topic just a bit,…”

    Hi Ned:

    Please pardon the interruption and also bit off topic question. But I was wondering when you were going to post a link to the exact quote of the Supreme Court saying,

    “The integration must modify the otherwise eligible process to produce a new result. If it does not, it is not integrated.”

    Of course if you want to now admit the Court never said such and you are wrong please kindly do so now, and we can all move on.

    Thank You,

    101 Integration Expert

  3. 14

    They wouldn’t deny the request for admission, because they would then be liable for attorneys fees needed to prove it (see the FRCP governing requests for admissions). But they wouldn’t admit it either, because then they lose the case. Maybe the All-Tags attempt to wriggle out of making an admission was a brilliant masterstroke. No really, because it depended on an apparently glaring error on the part of Checkpoint: its failure to submit an actual accused device. Any theory as to why they avoided that obvious step? I am truly perplexed.

  4. 13

    One of the founding principles of this country was freedom from the use of government to impose the religious beliefs of one group on another. Social conservatives do not seem to understand this.

  5. 11

    One thing I don’t get is how the district court judge reconciles his apparent holding that there was sufficient evidence to get to a jury (by virtue of his refusal to grant JMOL for the defendant) with his ultimate holding that the evidence was insufficient to establish a reasonable basis for the suit in the first place.

    It is baffling to me as well.

  6. 10

    MM, if I ask you to admit that your process practices the steps of the claimed process and you do not deny it, what does that mean? I would suggest that that fact is established as a matter of law and does not have to be proved.

    Generally speaking, I agree. And I also agree that the defendant’s attempt to wriggle out of making such admissions was poorly executed. I wonder why they simply did not say “We have not analyzed our current product to determine if the product comprises this feature which is necessary for infringement”? That would not constitute an admission of the presence of the feature “as a matter of law” … would it?

    Note also that in this particular case the claims at issue were not process claims, but composition claims. One can easily follow a process claim written in comprising language (as nearly as such claims are) and wind up with a completely different product from any product described in the specification.

  7. 9

    Off topic just a bit, but I just ran into another “amateur” who, when asked why he was not asserting the broad claim 1, but instead was asserting one of its dependent claims, answered to the effect that claim 1 was not infringed.

  8. 8

    MM, if I ask you to admit that your process practices the steps of the claimed process and you do not deny it, what does that mean? I would suggest that that fact is established as a matter of law and does not have to be proved.

  9. 7

    Plaintiff’s never analyzed the accused product.

    That’s what the defendants kept saying, and they convinced the district court judge that this fact warranted a sanction. But as far as I know, there’s no legal requirement to “analyze the accused product” if by that you mean that an expert always has to take one apart. Yes, you have to prove infringement by a preponderance of the evidence, but there are lots of ways to establish what’s in or not in an accused product.

    Apparently it wasn’t persuasive to the jury, but it seems to me that Checkpoint’s evidence as to infringement was far better than needed to survive a finding of “baselessness,” and by itself sounds reasonably persuasive. The expert looked at Swiss tags, which had holes. There was (undisputed?) evidence that the same equipment and same process was used to make the accused (Belgian) tags. The defendants admitted that the tags were compliant with their own patents, which had a hole as an essential feature.

    One thing I don’t get is how the district court judge reconciles his apparent holding that there was sufficient evidence to get to a jury (by virtue of his refusal to grant JMOL for the defendant) with his ultimate holding that the evidence was insufficient to establish a reasonable basis for the suit in the first place.

  10. 4

    This whole case is written very strangely, as if it were up to the defendant to prove non-infringement. Plaintiff’s never analyzed the accused product. In a request for an admission about the structure of the product, defendants gave a non-answer that nevertheless appears to be accurate: the product was made by a process that was “generally” (but not expressly) disclosed in its own patents. As everyone knows, minor changes to a complicated sensitive process can result in substantially different structures.

    Oddly enough, the defendants appear to have pointed out the problem with plaintiff’s infringement theory prior to the trial, but the judge let the trial proceed anyway.

    I suppose All-Tag was burned on their attorney fees because they wished to keep their current manufacturing process undisclosed and felt that it wasn’t necessary for them to prove the plaintiff’s case for them. As far as I can tell, it’s still an open question whether the accused devices (not the devices examined by the patentee’s expert) actually infringe the claim! All we know is that plaintiff’s failed to prove infringement to the jury (or the judge).

  11. 3

    I think that’s the whole point of the case, DC. To prevail, Checkpoint needed to establish that the Belgian tags infringed. Checkpoint apparently had both Swiss and Belgian tags, at least at some point. Checkpoint’s expert testified regarding the details of the Swiss tags, and Checkpoint had All-Tag’s own admissions establishing that the Belgian tags and the Swiss tags were the same. It was probably not the best way to demonstrate infringement, but it was far from “baseless.”

    All-Tag didn’t attempt to prove that the Belgian tags actually lacked a hole (probably because they didn’t). Instead they attacked Checkpoint’s expert for analyzing the wrong tags, even though there was evidence that the tags were all the same.

  12. 2

    From the published opinion, it does not appear that Checkpoint submitted an actual accused device into evidence to prove infringement. How does that make sense? And All-Tag never submitted an actual device into evidence to prove non-infringement. How does that make sense? Were both parties merely relying on the admission, or negating the admission, to establish there case?
    If the device did not have a hole, and All-Tag produced an actual device in discovery, they may have been able to better demonstrate objective baselessness. If Checkpoint had shown the judge an actual accused device with a hole, they would have avoided the sanctions order in the first place (and maybe proven infringement on SJ). What was going on?

  13. 1

    The jury found the ’555 patent not infringed, invalid, and unenforceable.

    It seems odd that the invalidity and unenforceability of the patent are not discussed at all in the opinion, except for the above statement. What’s the take-home? Remember to assert a broad, invalid claim so the lawsuit won’t be found “baseless”?

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