Crocs urges Supreme Court to address District Courts’ split on patent claims

Crocs urges Supreme Court to address District Courts’ split on patent claims

Justifies by citing that 4,500 suits are filed per year

Shoe brand Crocs, Inc has filed a petition for a writ of certiorari docketed recently, urging the U.S. Supreme Court to review a decision holding Section 43(a)(1)(B) of the Lanham Act. It asked if the Act applied to a party’s false claims holding a patent on a product feature coupled with related advertisements that misled consumers on the ‘nature, characteristics and qualities of the product.’

In October last, the U.S. Court of Appeals for the Federal Circuit (CAFC) issued the precedential opinion, reversing and remanding a Colorado district court’s finding for Crocs on summary judgment. It was against Double Diamond Distribution, Dawgs, Inc. and Mojave Desert Holdings, LLC that Dawgs’ counterclaim in a patent infringement suit by Crocs was not maintainable.

After being sued for patent infringement by Crocs, Dawgs made counterclaims. It stated that Crocs was liable for damages for false advertising in violation of Section 43(a) of the Lanham Act. It added that the Act barred false or misleading descriptions of goods or services, including under paragraph B ‘in commercial advertising or promotion, misrepresents the nature, characteristics, qualities, or geographic origin of his or her or another person’s goods, services, or commercial activities.’

Dawgs objected to the language on Crocs’ website, describing the material its shoes were made from ‘Croslite’ as ‘patented’, ‘proprietary’ and ‘exclusive’.

Dawgs submitted, “By promoting Croslite as ‘patented,’ Crocs misled current and potential customers to believe that its molded footwear was made of a material, different from other footwear.”

The district court agreed with Crocs that Dawgs’ counterclaim was ‘legally barred’.

It cited the decision of the apex court in the Dastar Corp. v. Twentieth Century Fox Film Corp., 539 U.S. 23 (2003) case, and the Federal Circuit’s decision in the Baden Sports, Inc. v. Molten USA, Inc., 556 F.3d 1300 (Fed. Cir. 2009) case.

However, on appeal, the CAFC agreed with Dawgs and reversed the district court’s finding that Dastar and Baden precluded application of Section 43(a)(1)(B).

The court stated, “We agree with Dawgs that these allegations about Crocs’ advertisement statements are directed to the nature, characteristics, or qualities of Crocs’ shoes. We hold that a cause of action arises from Section 43(a)(1)(B), where a party falsely claims that it possesses a patent on a product feature and advertises it in a manner that causes consumers to be misled about the nature, characteristics, or qualities of its product.”

The bench added that it represented a split with the Sixth and Ninth Circuits, which had held that “in absence of a false statement about geographic origin, a misrepresentation is actionable under § 1125(a)(1)(B) only if it misrepresents the ‘characteristics of the good itself’, such as its properties or capabilities. The statute does not encompass misrepresentation about the source of the ideas embodied in the object. The Second Circuit has taken a similar approach.”

At this, Crocs’ requested the court to address “whether the Lanham Act’s prohibition on ‘misrepresentations’ about ‘nature, characteristics, or qualities’ extends to misrepresentations about the product’s intangible properties, like its patent status.”

The ruling of the Federal Circuit is similar to the Fourth Circuit, which held that an intangible product attribute could fall under Section 43(a)(1)(B) claims.

In the Belmora LLC v. Bayer Consumer Care AG case, the Fourth Circuit ruled that passing off could support a false advertising claim.

However, Crocs warned that using the Lanham Act to police ‘generalized marketing language’ could result in an ‘unchecked litigation’.

It added, “Under the Federal Circuit’s rule, any statement that could potentially be construed as bearing on consumer perceptions of a product’s nature, characteristics, or qualities could give rise to Section 43(a)(1)(B) liability. For companies that make or license patented products, the Federal Circuit’s holding threatens to turn every expired patent, invalidated patent, and marking mistake into a potential weapon lying at hand for competitors and plaintiffs’ attorneys to wield against them.”

Meanwhile, the America Invents Act (AIA) put an end to ‘qui tam’ suits in which private citizens acted as whistle blowers by bringing false claims on the government’s behalf in exchange for sharing in any monetary reward recovered. It mandated plaintiffs to show competitive injury to file a suit and limited remedies to damages.

However, Crocs stated that plaintiffs could “circumvent those reforms by rebranding false marking claims as Lanham Act claims, reintroducing the very abusive suits Congress eliminated.” While urging the court to grant the petition, it justified that about 4,500 suits were filed per year under Section 43.