When “Patented” is False Advertising

Case Information:

CROCS, INC. v. EFFERVESCENT, INC.

Judges: Federal Circuit Judges Reyna (author) and Cunningham, District Judge Albright

Issues: False Advertising, Lanham Act, Patent Marking/Advertising

Overview:

In the mid 00’s, Crocs, Inc. (“Crocs”) started a campaign of suing competitors over for patent infringement. In 2006, Crocs sued Effervescent, Inc., Holey Soles Holdings, Ltd., Double Diamond Distribution, Ltd., and (eventually) U.S.A. Dawgs, Inc. (collectively “Dawgs”) for infringement of U.S. Patent Nos. 6,993,858 and D517,789. Below are example images from each of these patents.             

What followed was a complex history of litigation that resulted in an appellate decision about an issue different from patent infringement in 2024. A simplified timeline:

• April 3, 2006: Cros sues Dawgs (without U.S.A. Dawgs)  for patent infringement

• March 31, 2006: Crocs files a complaint in the International Trade Commission ("ITC"). Patent infringement case is stayed pending resolution of ITC complaint. 

• 2012: U.S.A. Dawgs is added as a defendant

• 2012-2016: Case is stayed pending inter partes review

• May 31, 2016: Dawgs files the pending counter-claim against Crocs

• January 31, 2018: U.S.A. Dawgs files for Chapter 11 bankruptcy

• August  15,  2018, Dawgs assigns all rights, including explicitly the claims asserted by U.S.A. Dawgs, to Mojave Desert Holdings LLC.

• October 23, 2018, U.S.A. Dawgs is dissolved, but continues for the limited purpose of, among other things, prosecuting  and  defending  suits

• 2018-2020: Case is stayed pending the bankruptcy proceeding

In Dawgs’ 2016 counterclaim, Dawgs alleged that Crocs had engaged in a “campaign to mislead its customers” about the characteristics of “Croslite,” the primary material Crocs uses to make its footwear products. Allegedly, Crocs’ website falsely described Croslite as “patented,” “proprietary,” and “exclusive” (collectively, “patented”). Dawgs alleged that this misled customers to believe that “Crocs’ molded footwear is made of a material that is different than any other footwear” and that its competitors’ molded footwear products are “made of inferior material compared to Crocs’ molded footwear.” 

The District Court granted Crocs’ motion for summary judgment on the grounds that the terms “patented,” “proprietary,” and “exclusive” were claims of “inventorship” and that Dawgs’ claims were directed to a claim of false designation of authorship of the shoe products rather than the nature, characteristics, or qualities of Crocs’ products. Thus, Dawgs’ counterclaim failed.

Dawgs appealed.

Discussion

Section 43(a)(1) of The Lanham Act establishes a federal cause of action for unfair competition to protect people and companies that are engaged in commerce. Section 43(a)(1)(B) creates a cause of action for a person damaged by false or misleading commercial advertising or promotions that mislead consumers about the nature, characteristics, or qualities of goods or services: 

Any person who, on or in connection with any goods or services, or any container for goods, uses in commerce any word, term, name, symbol, or device, or any combination thereof, or any false designation of origin, false or misleading description of fact, or false or misleading representation of fact, which… 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… shall be liable in a civil action by any person who believes that he or she is or is likely to be damaged by such act.

Crocs conceded that its statements that a Croslite was “patented” were false. The issue in the case was whether such false advertising using the term “patented” was a form of unfair competition, actionable under Section 43(a)(1)(B) of the Lanham Act.

Dawgs had an uphill battle because the district court relied on two previous cases that seemingly precluded such a claim.  In Dastar Corp. v. Twentieth Century Fox Film Corp., the Supreme Court Court held that the term “origin” in Section 43(a)(1)(A) of the Lanham Act means “the producer of the tangible goods that are offered for sale, and not . . . the author of any idea, concept, or communication embodied in those goods.” In the case, Crusade in Europe, a television program based on the same-titled book written by General Dwight D. Eisenhower. The copyright over the series expired in the 70s. Through a complicated path, Twentieth Century Fox acquired exclusive rights to distribute the series on video in the late 1980s, notably after the copyright had expired. In the 90s, Dastar edited and released a version of the series with no reference to the original series. Twentieth Century Fox claimed that not acknowledging the source of the original series was a misrepresentation and that Dastar was effectively holding forth that it was the origin of the intellectual property. However, the Court found the Lanham Act claim failed because Dastar was the originator of the products it sold, despite not being the originator of the original series.  A Lanham Act claim does not arise for merely claiming that a party is the producer of the video.

In Baden Sports, Inc. v. Molten USA, Inc., the Ninth Circuit Court of Appeals held that Baden had no claim under Section 43(a)(1)(B) because Baden based its false advertising claims on allegations that Molten was improperly asserting itself as the innovator of the technology-at-issue. Both Baden Sports and Molten USA are manufacturers of sporting equipment, such as basketballs. Molten had advertised that its basketballs had a “dual-cushion technology”  and that such basketballs were “innovative.” Baden accused Molten of deceiving consumers into believing that Molten was the originator of dual-cushion technology. However, Baden had a patent covering dual-cushion technology and had successfully previously sued Molten USA over it. However, because this was a claim about the “originator” of dual-cushion technology, the Court held that because the claim did not go to the nature, characteristics, or qualities of the goods, Baden could not recover under Section 43(a)(1)(B).

However, the Federal Circuit distinguished Dawgs’ claim from those found in Dastar and Baden. The Court held that “[a] claim that a product is constructed of ‘patented’ material is not solely an expression of innovation and, hence, authorship.” Unlike Baden, Dawgs’ alleged false advertisements about claims to a product’s tangible nature, characteristics, or qualities. Dawgs showed that Crocs advertised that Croslite has numerous tangible benefits found in all of Crocs’ shoe products. Specifically, Dawgs alleged that (a) Crocs’ statements referring to the Croslite  as exclusive, proprietary, and/or patented caused customers to believe that “Crocs’ molded footwear is made of a material that is different than any other footwear,”  and (b) Crocs’ promotional materials “deceive consumers and potential consumers into believing that all other molded footwear . . . is made of inferior material compared to Crocs’ molded footwear.”  The Federal Circuit then remanded for further proceedings to decide whether Crocs’ advertisements arose to unfair competition.

Thoughts

A company should be very careful when claiming that a product is patented. If a physical product is covered by a patent, it should be marked as such (this is called “Patent Marking” and should be discussed with your patent attorney when you receive a patent grant) or consumers should be given reasonable notice. However, you should not advertise your product as “patented” unless it is covered by a valid U.S. Patent if that claim is related to the tangible nature, characteristics, or qualities of the product.