Thursday, April 06, 2017

Lexmark injury requirement no bar to competitor's standing at pleading stage

Crocs, Inc. v. Effervescent, Inc., 2017 WL 1229707,  No. 06–cv–00605 (D. Colo. Mar. 31, 2017)

Crocs sued Effervescent for patent infringement; in 2006, defendants moved to stay the case pending ITC proceedings.  In 2015, defendant Dawgs moved to reopen the case and lift the stay, and filed counterclaims.

The parties compete in the market for molded clogs. Dawgs alleged that “[e]ach and every functional feature disclosed” in Crocs’ utility patent  application already existed in the market, and that its design patent was also substantially similar to existing designs. Crocs has allegedly been unable to secure patents similar to these patents outside the United States because of the “well-known existence of prior sales, the widely-recognized existence of invalidating prior art, and the established identity of the true and proper inventorship and origin of the shoe.”

Just after the utility patent issued, Crocs filed a complaint with the ITC a number of respondents, alleging infringement and seeking a General Exclusion Order to ban the importation of molded clogs that infringed on Crocs’ patents. The ITC initially found that the utility patent was invalid as obvious in view of prior art, but the Federal Circuit (of course) reversed and remanded, and the ITC then found that the respondents didn’t show unenforceability. Defendant Dawgs filed an application for inter partes reexamination of the design patent in 2012; the PTO found that it was unpatentable.

The court rejected most of Dawgs’ counterclaims (inequitable conduct in patenting, monopolization, attempted monopolization, conspiracy to restrain trade/exclusionary conduct, intentional interference with business advantage), but allowed a false advertising claim to proceed.  Crocs allegedly misled consumers by claiming that its footwear was “made of an exclusive and proprietary closed-cell resin that they call ‘Croslite.’ ” However, “Croslite” was in fact ethyl vinyl acetate, which is used by footwear companies around the world, including Dawgs. Crocs’ promotional materials refer to “our patented CrosliteTM material” and “our proprietary CrosliteTM material,” and claim that Croslite is a “revolutionary technology,” though “Crocs does not own any exclusive proprietary or patent rights to the material from which its footwear is made.” Thus, consumers were allegedly deceived into concluding that the products sold by Dawgs are “made of inferior material compared to Crocs’ molded footwear.” Crocs argued that Dawgs failed to allege standing under the Lanham Act or a cognizable injury that was proximately caused by the alleged Lanham Act violation, but Lexmark didn’t foreclose Dawgs’ claim at the pleading stage. Dawgs fit within the zone of interests of the Lanham Act because it was a direct competitor with Crocs who alleged an injury to reputation or sales, and alleged that Crocs’ purportedly false descriptions of Croslite had caused or would cause “a loss of consumer confidence, sales, profits, and goodwill.” These injuries “flow[ ] directly from the deception.” Though it would ultimately need to provide evidence of injury proximately caused by the alleged misrepresentations, Dawgs was “entitled to a chance to prove its case” under Lexmark.

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