Monday, October 02, 2017

Are Crocs' uniqueness claims a crock?

Crocs, Inc. v. Effervescent, Inc., No. 06-cv-00605, 2017 WL 4286148 (D. Colo. Sept. 25, 2017)

Crocs makes molded clogs, and Dawgs is a competitor. Allegedly, “[e]ach and every functional feature disclosed in the [’858] patent application, except the heel strap, already existed in the Battiston Molded Clog,” while pivoting heel straps also existed and were sold attached to molded clogs, and these features were also disclosed in an Italian patent granted in 2002.  Nonetheless, in 2006, the PTO also issued a design patent, which “contains diagrams of the base shoe that are substantially similar to the diagrams that were created by Ettore Battiston in 2000 and assigned from Battiston to [Foam Creations, Inc.], with a strap added that serves a functional purpose and such as had previously existed for many years on a wide variety of footwear, including clogs.”  Thus the patent allegedly lacked both novelty and appropriate inventorship. Crocs allegedly failed to get patents similar to the ’858 and ‘789 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.”

After the ‘789 patent issued, Crocs filed a complaint with the ITC against various respondents, alleging infringement. While ITC initially found no infringement of the ‘789 patent and that the ’858 patent was invalid as obvious in view of prior art, the Federal Circuit reversed on the latter issue and remanded. Crocs allegedly acted in the ITC proceedings “knowing that these patents were invalid and unenforceable,” and also filed a 2006 lawsuit alleging patent infringement.  Dawgs was added to the case in 2012, and argued that the litigation was objectively baseless in light of the unenforceability of the patents and because, by the time Crocs filed its amended complaint adding Dawgs, it “knew or should have known” that the Battiston patent “rendered the claims of at least the ’858 patent” invalid.

In 2012, another Crocs opponent filed an application for inter partes reexamination of the ’858 patent, and, allegedly in retaliation, Crocs sued CVS, which sold Dawgs products. Dawgs filed an application for inter partes reexamination with the PTO of the ‘789 patent. In 2016, the PTO rejected the sole claim of the ‘789 patent as unpatentable and closed the reexamination prosecution related to that patent.

Dawgs argued that Crocs’ acts violated antitrust law and that Crocs engaged in false advertising. The individual named defendants allegedly “directed, participated in, sanctioned, ratified, or acquiesced” in the decision to sue Dawgs and to continue the 2006 lawsuit through the present.

The court found that the court had personal jurisdiction over the individual defendants, though they reside outside Colorado.  The fact that Crocs was headquartered in Colorado and conducts business in the forum wasn’t relevant to the minimum contacts analysis, since “each defendant’s contacts with the forum State must be assessed individually.” However, “the act of authorizing and directing a lawsuit [may] be enough to establish jurisdiction over officers of a corporation.” As the Tenth Circuit has noted, “[i]t is scarcely unfair to make those who have initiated a lawsuit in a particular state undergo suit in that state to determine whether the lawsuit was tortious.”

The antitrust claims failed.   Defendants were immune from suit for seeking and enforcing Crocs’ patents. The other antitrust claims failed because it’s basically impossible to plead successful antitrust claims.  So too with intentional interference with business advantage. 

False advertising claims, however, survived.  These were based on claims that Crocs misled the public and consumers by claiming that Crocs were made of” an exclusive and proprietary closed-cell resin that they call ‘Croslite.’”  “Croslite” is in fact ethyl vinyl acetate, 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.” These claims allegedly misled consumers into believing that Crocs uses a different material from competitors and that Crocs owns the rights to such material, so that consumers mistakenly believe that Dawgs are “made of inferior material.”

Defendants argued that Dawgs didn’t allege that each individual defendant made a false statement of fact.  “The statute itself does not insulate individuals from liability who authorize the use of false statements in commerce, and defendants cite no authority barring Lanham Act liability where a defendant approves promotional statements that he or she knows are false.”  Also, Dawgs properly alleged standing as a competitor under Lexmark. Its alleged injuries “flow[ ] directly from the deception” caused by Crocs’ advertising. 

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