The key litigated issue before the US Court of Appeals for the Federal Circuit in Checkpoint Systems, Inc. v. All-Tag Security S.A., was whether the district court erred in awarding attorneys' fees to the defendant, All-Tag Security, based on the finding that Checkpoint's expert witness did not inspect the electronic anti-shoplifting tags it accused of infringement, despite having ample opportunity to do so.

The plaintiff Checkpoint Systems, Inc. and the defendant, All-Tag Security S.A., among other All-Tag entities, are competing anti-shoplifting electronic device manufacturers. Checkpoint and All-Tag make anti-shoplifting "resonance tags." These tags are attached to goods and, if not deactivated, will trigger an alarm when the tagged goods move past tag detectors when exiting a store. Checkpoint owns US Patent No. 4,876,555 (’555 patent), for a particular resonance tag that features a continuous hole, or throughhole, in one of its layers, permitting it to be deactivated at a lower current by the store's cashiers.

In 2001, Checkpoint sued All-Tag for allegedly infringing the '555 patent. The claimed infringement by All-Tag’s resonance tags turned on whether these tags featured a throughhole claimed by the '555 patent. During pre-trial procedures, Checkpoint asked All-Tag to admit that its resonance tags contained a throughhole. All-Tag responded that its tags were made “generally in accordance with” All-Tag’s patents, US Patent No. 5,187,466 (’466 patent) and No. 7,023,343 (’343 patent).

After a trial, the jury found the ’555 patent was not infringed, and was invalid and unenforceable. The district court entered judgment on the verdict, ruled the case "exceptional” under 35 U.S.C. Section 285, and awarded All-Tag approximately $6.6 million in attorneys' fees, costs, and interest. Checkpoint appealed.

In its March 25, 2013 decision, the Federal Circuit reversed the district court's award of attorneys' fees with costs and interest, and held that this was not an "exceptional" case because Section 285's requirements were not met.

Checkpoint argued that attorneys' fees were not justified in this case because it was not objectively baseless to bring or continue its suit. Checkpoint's expert, Dr. Zahn, based his infringement opinion on his examination of All-Tag tags and analysis of the two All-Tag patents. Dr. Zahn explained that All-Tag's patents described products with a hole as described by Checkpoint's '555 patent claims. Dr. Zahn concluded that tags produced in accordance with All-Tag process patents would infringe the Checkpoint ’555 patent.

Although All-Tag acknowledged in its pre-trial admissions that its tags were made “generally in accordance” with its process patents, it argued that Dr. Zahn did not know what “generally” meant and so could not definitively determine whether the All-Tag tags at issue were within the Checkpoint patent. All-Tag contended that “generally” did not mean “exactly,” and that Checkpoint should not have relied on the admission.

Rejecting this argument, the Federal Circuit citing Federal Rule of Civil Procedure 36(b), noted that a party may rely on an admission as conclusively established unless it is recanted. The Federal Circuit pointed out that All-Tag’s patents were specific to resonance tags having a throughhole and these patents described no embodiments without this hole, which was the critical feature of Checkpoint’s patented device.

Quoting its decision in Highmark, Inc. v. Allcare Health Management Systems, Inc., the Federal Circuit reasoned that:

(687 F.3d 1300, 1308-09 (Fed. Cir. 2012).)

The Federal Circuit concluded by holding that the district court's determination that this was an exceptional case under Section 285 was not supported by the record because:

This case is notable as it shows that a prevailing patent infringement defendant's burden of proof to establish an exceptional case entitling it to recovery of attorneys' fees remains high under Section 285 as construed by controlling Federal Circuit law.