Crocs Urges SCOTUS Justices to Address 3-2 Circuit Split on False Claims About Intangible Properties

Image taken from petition.

Shoe brand Crocs, Inc. filed a petition for a writ of certiorari that was docketed this week asking the U.S. Supreme Court to review a decision holding 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 U.S. Court of Appeals for the Federal Circuit (CAFC) issued the precedential opinion last October, reversing and remanding a Colorado district court’s finding for Crocs on summary judgment. The district court granted summary judgment to Crocs 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.”

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.” But the district court ultimately agreed with Crocs that Dawgs’ counterclaim was “legally barred” by the Supreme Court’s decision in Dastar Corp. v. Twentieth Century Fox Film Corp., 539 U.S. 23 (2003), and the Federal Circuit’s decision in Baden Sports, Inc. v. Molten USA, Inc., 556 F.3d 1300 (Fed. Cir. 2009).

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). “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.”

This represents a split with the Sixth and Ninth Circuits, which have held that “[a]bsent 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”; “[t]he statute does not encompass misrepresentation about the source of the ideas embodied in the object.” The Second Circuit has taken a similar approach.

Crocs’ petition asked the court to address “Whether the Lanham Act’s prohibition on ‘misrepresent[ations]’ as to ‘nature, characteristics, [or] qualities’ extends to misrepresentations about the product’s intangible properties, like its patent status.”

The Federal Circuit’s ruling joins the Fourth Circuit view that intangible product attributes can give rise to a Section 43(a)(1)(B) claim, said the petition. In Belmora LLC v. Bayer Consumer Care AG, the Fourth Circuit held that passing off can support a false advertising claim under Section 43(a)(1)(B). Crocs warned that using the Lanham Act to police “generalized marketing language” could result in “unchecked litigation”. Further, the decision chills speech, said the petition:

“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….

And 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.”

The America Invents Act (AIA) put an end to “qui tam” suits in which private citizens acted as whistle blowers by bringing false claims suits on the government’s behalf in exchange for sharing in any monetary reward recovered. The AIA required plaintiffs to show competitive injury to bring a suit and limited remedies to actual damages. But now, explained Crocs’ petition, plaintiffs can “circumvent those reforms entirely by rebranding false marking claims as Lanham Act claims, reintroducing the very abusive suits Congress eliminated.”

Because suits filed under Section 43 of the Lanham Act are quite numerous already (about 4,500 per year) and the question is squarely presented, Crocs urged the Court to grant the petition.