Patent infringementTwo competitors in the “resonance tags” manufacturing business are involved in a recent patent infringement litigation.  Resonance tags are electronic anti-shoplifting devices that are attached to merchandise so if the tag is not deactivated by a cashier at check-out, the tag triggers an alarm when those goods move past detectors at the store’s exit.

In litigation over the design of these electronic anti-shoplifting devices, a jury found the defendant company did not infringe on the plaintiff’s patent.  The U.S. District Court for the Eastern District of Pennsylvania also found case “exceptional” as to 35 U.S.C. § 285 and awarded the defendant roughly $6.6 million in attorney fees, costs, and interest.  The plaintiff company appealed that award.

The infringement was focused on whether the defendant’s resonance tags had a “throughhole” in the dielectric layer.  The attorney fee award was based on plaintiff’s expert analysis of the defendant’s products—the district court found that the resonance tags examined by the plaintiff’s expert were not the accused tags manufactured by the defendant’s factory in Belgium, but earlier tags manufactured by a factory in Switzerland.

The plaintiff company’s expert was Dr. Z, a professor of electrical engineering at MIT.  The plaintiff gave their patent infringement expert witness a roll of defendants’ resonance tags to test for the infringing throughhole.  He found that they had a throughhole in the dielectric layer, and his expert report, deposition, and testimony at trial described his procedures and results.  When reviewing Dr. Z’s deposition exhibits before trial, the defendant’s CEO said that Dr. Z had tested tags that were not the current accused products.  The tags that were tested were made by his company in Switzerland and were not the current tags which were being made in Belgium.  The record stated that the roll of tested tags was acquired from a customer “in the marketplace.”  Dr. Z testified that the serial number of the tags he tested was listed on the defendant’s website at the time of trial.

Dr. Z testified that the defendant’s resonance tags contained a throughhole, and met all the terms of the asserted claims of the plaintiff’s patent.  The expert based his infringement opinion on his examination of the defendant’s tags, and on two patents.  Dr. Z concluded that tags produced in accordance with the process in the defendant’s patents would infringe the plaintiff’s patent.

At the close of the patent infringement case, the defendant moved for judgment as a matter of law, on the ground that Dr. Z ‘s testimony was unreliable because he did not know the defendant’s exact process and did not test of the company’s present products. The court denied the motion, stating that “[t]he testimony is sufficient at this point for us to continue this matter.” The defendant presented no contradictory evidence.  Defendant’s expert witness, Dr. CR, testified that he had not examined the tags involved.  Dr. CR did not state that the accused tags did not contain a hole as described in the defendant’s patents, and no other defense witnesses testified on this point, nor did the company’s attorneys further discuss the issue.

Although the defendant acknowledged that its tags were made in “generally in accordance” with its patents, it argued to the jury that Dr. Z  did not know what “generally” meant.  As a result, the expert could not definitively determine whether the defendant’s tags were within the plaintiff’s patent.  The jury agreed and returned a verdict in favor of the defendant.

The defendant moved for attorney fees, and the district court granted them.  The case was exceptional, the trial court said, because the plaintiff through its expert witness did not inspect the tags it accused of infringement.  The district court stated, “that [Plaintiff] never looked at the accused products in relation to the ′555 [Plaintiff’s] patent … alone warrants an exceptional case finding.”  The district court further found “that Plaintiff’s claim was brought in bad faith, the basis for its finding of an ‘exceptional’ case.”  The district court faulted the plaintiff for only examining the tags made by the defendant company in Switzerland, rather than the Actual Accused Product made by the location in Belgium, and that it had adequate time to do so.

On appeal, the plaintiff argued that it was not objectively baseless to bring or continue the lawsuit based on the tags tested by Dr. Z , even if those tags were made in Switzerland before the move to Belgium. Plaintiff pointed out that when the defendant moved its equipment from Switzerland to Belgium, the Belgian operation resumed operations within one week on the same equipment.  The defandant did not show at trial that its Switzerland tags differed from its Belgium tags in any respect material to infringement of the plaitniff’s patent.  In the same light, the defense’ witnesses also testified that it was continually making manufacturing improvements.

Circuit Judge Pauline Newman, who wrote the opinion, agreed with the plaintiff’s argument.   There was no evidence provided that the defendant’s equipment produced tags with throughholes in Switzerland but without throughholes in Belgium.  As support, she quoted the plaintiff’s counsel’s pre-trial motion for summary judgment, which said that “it is undisputed that [Plaintiff’s] purchased equipment and other assets from [Defendant], and continued to manufacture the same resonant tags which were previously manufactured by [Defendant]”

Dr. Z  referred to the description of the defendant’s products in the patents, for the defendant company stated that it was practicing the process in these patents, and its CEO testified that the its patents detailed all that was needed for them to manufacture its resonance tags.

In addition, the defendant argued that Dr. Z’s reliance on the its patents was unreasonable because of the qualifier “generally” in the defendant’s pre-trial admission that its manufacturing process practiced the patents.  The defendant stated that “generally” does not mean “exactly.” Plaintiff should not have relied on the admission.  However, Circuit Judge Newman held that a party may rely on an admission as “conclusively established” unless the admission is recanted. The defendant provided no evidence and presented no argument that its pre-trial admission was incorrect, wrote Judge Newman. The defense expert witness Dr. CR testified that he did not examine the accused tags, although Dr. CR conceded that the defendant would infringe if the “physical reality” matched the description in their patents.

Judge Newman explained that the defendant’s patents were specific to resonance tags having a hole in the dielectric, and that the defendant’s patents did not describe embodiments without the hole, the critical feature of the plaintiff’s patent.  Plaintiff’s admission that its products were made “generally in accordance” with its patents could reasonably have been relied on by the plaintiff and its expert Dr. Z .

The Court of Appeals held that infringement claim was not made in bad faith or objectively baseless, and as a result was not “exceptional,” as to merit the award of attorney’s fees.  The trial court’s ruling was reversed.

Case:  2013 WL 1188940 (C.A.Fed. (Pa.) March 25, 2013)

By: Kurt Mattson, J.D., LLM