Manufacturer Must Pay Up for Bogus Patent Suit

PHILADELPHIA (CN) - A company that makes theft-deterring electronic tags for retailers must pay more than $6.5 million in legal fees for bringing a frivolous patent lawsuit against a small competitor, a federal judge ruled.

Checkpoint Systems failed to convince a jury in 2007 that All-Tag Security and Sensormatic Electronics infringed on its patent for disposable resonance labels that retailers can use to deter theft. Two years later, the court determined that Checkpoint had to pay costs because it brought the lawsuit in bad faith.

"Here, Checkpoint is an $834 million dollar company listed on the NYSE, and its only major competitor in the United States is All-Tag, an approximately $15 million company," U.S. District Judge Petrese Tucker wrote in a footnote.

The decision explains that Checkpoint's infringement expert, Dr. Markus Zahn, had not tested an All-Tag product to support the patent allegations. He merely examined tags from Switzerland, though the lawsuit implicated a product from All-Tag's division in Belgium.

After All-Tag and Sensormatic submitted their bills of costs and attorneys' fees, Checkpoint objected to the court's earlier finding of bad faith.

Tucker rejected the objection, which he called "a thinly veiled and untimely attempt" to challenge an already established finding.

After upholding the defendants' figures, the judge did find that Sensormatic had tried, unreasonably, to award its attorneys at Pepper Hamilton a $50,000 "litigation bonus."

"Here, the litigation success bonus was not billed to Sensormatic as a product of actual work completed by Pepper Hamilton," Tucker wrote. "Rather, it was tied to the overall outcome of the litigation. For this reason, the court finds the bonus represents a form of duplication of the amounts already paid to compensate Pepper Hamilton counsel for work performed in defending the lawsuit. Furthermore, requiring plaintiff to pay the litigation bonus does not align with the purpose of the exceptional case finding, which is designed to compensate a party for money it was required to spend to litigate the case. The bonus here was not a requirement of defending the lawsuit. Rather, the bonus was merely an additional financial incentive, an amount paid on top of the already accounted for attorneys' fees, to achieve a desirable result."

Tucker also tossed about $1.5 million in expenses incurred by a third party, Kobe Properties.

Checkpoint must pay $2.4 million to All-Tag and $4.1 million to Sensormatic, which already reduced its demand by $91,200 that Checkpoint paid to date.

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