A $6.6 million award of attorney fees in the Eastern District of Pennsylvania was reversed by the U.S. Court of Appeals for the Federal Circuit because the underlying patent-infringement case didn’t rise to the level of being "exceptional."

U.S. District Judge Petrese B. Tucker of the Eastern District of Pennsylvania had awarded attorney fees to the defendant in a case between manufacturers of electronic anti-shoplifting devices after the plaintiff’s expert examined the wrong devices — ones that weren’t specifically at issue in the suit.

"The court explained 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," wrote Judge Pauline Newman of the Federal Circuit on behalf of the three-judge panel in Checkpoint Systems v. All-Tag Security.

Under Section 285 of Title 35 of the U.S. Code, Tucker had decided that the case satisfied the standard for sanctions since Checkpoint had brought the suit in bad faith and the litigation was objectively baseless.

The Federal Circuit disagreed.

Reviewing whether the case was objectively baseless under the stringent de novo standard, which was heightened in the court’s split decision in Highmark v. Allcare Health Management Systems last year, the Federal Circuit considered the merits of the litigation. The appeals court weighed whether the case was brought in bad faith under the more deferential standard of clear error.

The expert witness that Checkpoint presented to the district court, Massachusetts Institute of Technology professor Markus Zahn, had examined a batch of electronic tags provided to him by the company that turned out to be different from the tags accused of infringing on its patented "throughhole."

The tags he analyzed were made in Switzerland, where All-Tag had manufactured its devices until 1994, and the tags named in the suit were made in Belgium, where All-Tag moved its production equipment to. Checkpoint filed its suit in 2001.

The fact that Checkpoint didn’t present a witness who had studied the item actually alleged to be infringing on its patent persuaded Tucker that the case met the requirements for being "exceptional" under Section 285.

However, on appeal, the Federal Circuit held otherwise.

"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," Newman said. "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."

No evidence was offered at trial to suggest that the tags made in Belgium didn’t have "throughholes" while those made in Switzerland did, Newman said.

According to Zahn, the tags that he analyzed had "throughholes."

In reaching the conclusion that the All-Tag devices infringed on Checkpoint’s patent, the company relied on a pretrial admission from All-Tag that its manufacturing process generally follows its own patents. Two of those patents include a plan with a hole in the tag’s dielectric, similar to Checkpoint’s "throughhole."

"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," Newman said. "Such reliance was not ‘objectively baseless.’"

The Federal Circuit held also that Checkpoint’s claim wasn’t made in bad faith and that the record didn’t support the district court’s finding that it is an "exceptional" case worthy of sanctions. It reversed the $6.6 million in attorney fees that Tucker had awarded to All-Tag.

Judge Alan Lourie and Senior Judge Alvin Schall of the Federal Circuit were on the panel with Newman.

Robert Palmersheim of Schopf & Weiss in Chicago represented Checkpoint and declined to comment.

Theodore Breiner of Breiner & Breiner in Alexandria, Va., argued on behalf of All-Tag and couldn’t be reached for comment.

Saranac Hale Spencer can be contacted at 215-557-2449 or sspencer@alm.com. Follow her on Twitter @SSpencerTLI.

(Copies of the 12-page opinion in Checkpoint Systems v. All-Tag Security, PICS No. 13-0717, are available from The Legal Intelligencer. Please call the Pennsylvania Instant Case Service at 800-276-PICS to order or for information.) •