Federal Circuit Says Lanham Act Applies to Crocs’ False Claims that ‘Croslite’ Was Patented

The U.S. Court of Appeals for the Federal Circuit (CAFC) ruled in a precedential opinion on Thursday, October 3, that Section 43(a)(1)(B) of the Lanham Act does apply to a party’s false claims that it holds a patent on a product feature coupled with related advertisements that cause consumers to be misled about the “nature, characteristics, or qualities of its product.” The opinion was authored by Judge Reyna and the panel included Judge Alan Albright of the U.S. District Court for the Western District of Texas, sitting by designation.

The case involves an appeal from a Colorado district court, which granted summary judgment to Crocs, Inc. against Double Diamond Distribution, Dawgs, Inc. and Mojave Desert Holdings, LLC (Dawgs) that Dawgs’ counterclaim in a patent infringement suit brought by Crocs failed as a matter of law. Dawgs had counterclaimed after being sued for patent infringement by Crocs, arguing that Crocs was liable for damages for false advertising in violation of Section 43(a) of the Lanham Act, which bars false or misleading descriptions of goods or services, including under paragraph B those who  “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.”

However, Crocs argued to the district court that “the circumstances in this case do not give rise to a Section 43(a) cause of action” because it was “legally barred” by the Supreme Court’s decision in Dastar Corp. v. Twentieth Century Fox Film Corp., 539 U.S. 23 (2003), as well as the CAFC’s decision in Baden Sports, Inc. v. Molten USA, Inc., 556 F.3d 1300 (Fed. Cir. 2009). According to today’s CAFC opinion, the district court’s reasoning was as follows:

“The district court concluded that the terms ‘patented,’ ‘proprietary,’ and ‘exclusive’ were claims of “inventorship.”… Applying Dastar and Baden to the SACC, the district court determined that Dawgs’ claims of inventorship were directed to a claim of false designation of authorship of the shoe products and not the nature, characteristics, or qualities of Crocs’ products.”

The specific language Dawgs objected to was on Crocs’ website, where it described the material its shoes are made from—“Croslite”—as “patented,” “proprietary,” and “exclusive.” Dawgs said that “by promoting Croslite as ‘patented,’ Crocs misled current and potential customers to believe that ‘Crocs’ molded footwear is made of a material that is different than any other footwear.” This also gave the impression that Crocs’ competitors’ products are “made of inferior material compared to Crocs’ molded footwear,” the CAFC opinion said. Crocs conceded at CAFC oral argument and in briefing that the statements about Croslite being patented were false.

Ultimately, the CAFC agreed with Dawgs and reversed the district court’s finding that Dastar and Baden precluded application of Section 43(a)(1)(B). “We agree with Dawgs that these allegations about Crocs’ advertisement statements are directed to the nature, characteristics, or qualities of Crocs’ shoes,” wrote the CAFC. “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 that product feature in a manner that causes consumers to be misled about the nature, characteristics, or qualities of its product.”

Unlike Dastar and Baden, here, “the false claim that a product is patented does not stand alone,” further explained the CAFC. “Dawgs presents allegations and evidence that the falsity of Crocs’ promotional statements is rooted in the nature, characteristics, or qualities of Crocs’ products.”

The CAFC thus held that the district court erred in granting summary judgment and reversed and remanded for further proceedings.

In a statement sent to IPWatchdog, CEO of Double Diamond Distribution (Dawgs) Steve Mann said the decision is “not just a win for us, but for fair competition and for the millions of people who have been harmed by Crocs’s fabricated claims and intentional false advertising.”

In reply, a Crocs spokesperson said they are aware of the decision and “strongly disagree with the same.  We are currently weighing our options as to next steps.”

This article was updated on October 3 at 7:19PM to add Dawgs’ and Crocs’ statements.

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