Crocs, Inc. v. Effervescent, Inc.

119 F.4th 1

• Court: Court of Appeals for the Federal Circuit
• Decided: October 3, 2024
• Docket: 22-2160
• Status: Published

Opinion

Case: 22-2160 Document: 62 Page: 1 Filed: 10/03/2024

United States Court of Appeals for the Federal Circuit ______________________

CROCS, INC., Plaintiff-Appellee

v.

EFFERVESCENT, INC., HOLEY SOLES HOLDINGS, LTD., Defendants

DOUBLE DIAMOND DISTRIBUTION, LTD., U.S.A. DAWGS, INC., MOJAVE DESERT HOLDINGS, LLC, Defendants-Appellants ______________________

2022-2160 ______________________

Appeal from the United States District Court for the District of Colorado in No. 1:06-cv-00605-PAB-MDB, Judge Philip A. Brimmer. ______________________

Decided: October 3, 2024 ______________________

MICHAEL BERTA, Arnold & Porter Kaye Scholer LLP, San Francisco, CA, argued for plaintiff-appellee. Also rep- resented by SEAN MICHAEL CALLAGY, ISAAC RAMSEY; ANDREW TUTT, Washington, DC.

MATT BERKOWITZ, Reichman Jorgensen Lehman & Case: 22-2160 Document: 62 Page: 2 Filed: 10/03/2024

Feldberg LLP, Redwood Shores, CA, argued for defend- ants-appellants. Also represented by NAVID CYRUS BAYAR. ______________________

Before REYNA, CUNNINGHAM, Circuit Judges, and ALBRIGHT, District Judge 1. REYNA, Circuit Judge. Appellants Double Diamond Distribution, Ltd.; U.S.A. Dawgs, Inc.; and Mojave Desert Holdings, LLC (collec- tively, “Dawgs”) appeal from a decision of the United States District Court for the District of Colorado granting sum- mary judgment in favor of Appellee Crocs, Inc. (“Crocs”). Crocs sued Dawgs for patent infringement. Dawgs counterclaimed, alleging that Crocs was liable for damages for false advertising in violation of Section 43(a) of the Lan- ham Act. Crocs moved for summary judgment on grounds that Dawgs’ counterclaim failed as a matter of law. Crocs argued that the circumstances in this case do not give rise to a Section 43(a) cause of action. The district court agreed and entered summary judgment in Crocs’ favor. 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 prod- uct feature and advertises that product feature in a man- ner that causes consumers to be misled about the nature, characteristics, or qualities of its product. We reverse and remand. BACKGROUND The pertinent history of this appeal begins in 2006 when Crocs sued Double Diamond Distribution, Ltd. and several other competitor shoe distributors for patent

1 Honorable Alan D Albright, District Judge, United States District Court for the Western District of Texas, sit- ting by designation. Case: 22-2160 Document: 62 Page: 3 Filed: 10/03/2024

CROCS, INC. v. EFFERVESCENT, INC. 3

infringement. 2 See Crocs’ Complaint for Patent Infringe- ment, Crocs, Inc. v. Effervescent, Inc., No. 06-cv-00605- PAB-KMT (D. Colo. Apr. 3, 2006), ECF No. 1; see also In the Matter of Certain Foam Footwear, 71 Fed. Reg. 27514-01 (May 11, 2006). In May 2016, Dawgs filed a counterclaim against Crocs alleging false advertising violations of Section 43(a) of the Lanham Act, 15 U.S.C. § 1125(a). In March 2017, Dawgs filed its operative pleading in the case, its Second Amended Answer and Counterclaims (“SACC”). See J.A. 469–580. The counterclaim alleges Dawgs was damaged by Crocs’ false advertisements and commercial misrepresentations. See, e.g., J.A. 576, ¶ 345. Dawgs alleges that Crocs had

2 This appeal rises from a group of cases spanning multiple forums that have a long and complex history of litigation involving Crocs and its competitors. The district court case against Double Diamond Distribution, Ltd. was stayed for almost five years pending a contemporaneously- filed Section 337 action before the International Trade Commission, which proceeded to an appeal before this court and a remand. See Crocs, Inc. v. Int’l Trade Comm’n, 598 F.3d 1294 (Fed. Cir. 2010). U.S.A. Dawgs was added as a defendant in the district court litigation after it re- sumed in 2012. The district court case was stayed again from 2012 to 2016 pending inter partes review proceedings. It was also stayed from 2018 to 2020 while U.S.A. Dawgs was engaged in bankruptcy proceedings, during which time Mojave Desert Holdings, LLC became involved in the liti- gation. Between these two stays, in 2016, Dawgs sued eighteen current and former Crocs officers and directors, alleging the same counterclaims against them as Crocs. The district court consolidated the cases and the individual defendants were later dismissed from the action. The facts and circumstances of the consolidated case are not at issue in this appeal. Case: 22-2160 Document: 62 Page: 4 Filed: 10/03/2024

engaged in a “campaign to mislead its customers” about the characteristics of the primary material Crocs uses to make its footwear products, a material it promoted as “Croslite.” J.A. 495, ¶ 51; J.A. 481, ¶ 7. According to Dawgs, Crocs’ website falsely described Croslite as “patented,” “proprie- tary,” and “exclusive” (collectively, “patented”). J.A. 575, ¶ 342; see also J.A. 603 (Ex. 21 to SACC); J.A. 608 (Ex. 23 to SACC). Dawgs alleges that by promoting Croslite as “pa- tented,” Crocs misled current and potential customers to believe that “Crocs’ molded footwear is made of a material that is different than any other footwear.” J.A. 575, ¶ 342. Dawgs alleges that Crocs’ statements deceived consumers into believing that its competitors’ molded footwear prod- ucts are “made of inferior material compared to Crocs’ molded footwear.” J.A. 576, ¶ 345. During discovery, Crocs moved for summary judgment on grounds that Dawgs’ counterclaim was “legally barred” by the Supreme Court’s decision in Dastar Corp. v. Twen- tieth Century Fox Film Corp., 539 U.S. 23 (2003), and this court’s decision in Baden Sports, Inc. v. Molten USA, Inc., 556 F.3d 1300 (Fed. Cir. 2009). J.A. 1398–99; see generally J.A. 1393–99. The district court agreed with Crocs and granted sum- mary judgement in its favor. Crocs, Inc. v. Effervescent, Inc., No. 06-cv-00605-PAB-KMT, 2021 WL 4170997, at *9 (D. Colo. Sept. 14, 2021) (“Decision”). The district court de- cided that in view of Dastar and Baden, Dawgs failed as a matter of law to state a cause of action under Section 43(a) of the Lanham Act. Id. at *7. The district court concluded that the terms “patented,” “proprietary,” and “exclusive” were claims of “inventorship.” Id. at *6; see also J.A. 1977. Applying Dastar and Baden to the SACC, the district court determined that Dawgs’ claims of inventorship were di- rected to a claim of false designation of authorship of the shoe products and not the nature, characteristics, or qual- ities of Crocs’ products. Decision, 2021 WL 4170997, at *7; see also J.A. 1969 (quoting 15 U.S.C. § 1125 (a)(1)(B)). Case: 22-2160 Document: 62 Page: 5 Filed: 10/03/2024

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Dawgs moved for reconsideration, which the district court denied. J.A. 1966; J.A. 1981. Dawgs appeals. We have jurisdiction under 28 U.S.C. § 1295(a)(1). STANDARD OF REVIEW We review appeals involving interpretation of the Lan- ham Act de novo, applying the law of the regional circuit in which the relevant district court sits, in this case the Tenth Circuit. Baden, 556 F.3d at 1304; Strauss v. Angie’s List, Inc., 951 F.3d 1263, 1267 (10th Cir. 2020). Since the Tenth Circuit has not spoken on the legal issue, we must “predict how that regional circuit would have decided the issue in light of the decisions of that circuit’s various district courts, public policy, etc.” Panduit Corp. v. All States Plastic Mfg. Co., 744 F.2d 1564, 1575 (Fed. Cir. 1984). Similarly, we review appeals of summary judgment un- der the law of the regional circuit. Baden, 556 F.3d at 1304. The Tenth Circuit reviews a district court’s grant of sum- mary judgment de novo, applying the same legal standard as the district court. Faustin v. City & Cnty. of Denver, Colo., 423 F.3d 1192, 1195 (10th Cir. 2005); Hull v. IRS, 656 F.3d 1174, 1177 (10th Cir. 2011). In determining whether to grant a motion for summary judgment, the dis- trict court considers whether the moving party is entitled to judgment as a matter of law. Faustin, 423 F.3d at 1198. DISCUSSION Dawgs raises a single issue on appeal: whether the dis- trict court erred in granting summary judgment against Dawgs’ counterclaim for failure to state a cause of action under Section 43(a)(1)(B) of the Lanham Act. Appellant Br. 6. We first address the Lanham Act. The Lanham Act was enacted to “protect persons en- gaged in . . . commerce against unfair competition.” 15 U.S.C. § 1127. Section 43(a)(1) of the Lanham Act estab- lishes a federal cause of action for unfair competition. Dastar, 539 U.S. at 29. Case: 22-2160 Document: 62 Page: 6 Filed: 10/03/2024

Section 43(a)(1) of the Lanham Act states, Any person who, on or in connection with any goods or services, or any container for goods, uses in com- merce 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— (A) is likely to cause confusion, or to cause mistake, or to deceive as to the affiliation, connection, or as- sociation of such person with another person, or as to the origin, sponsorship, or approval of his or her goods, services, or commercial activities by an- other person, or (B) in commercial advertising or promotion, mis- represents 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. 15 U.S.C. § 1125(a)(1) (emphasis added). The district court found no genuine issue of material fact in dispute supporting a cause of action under Sec- tion 43(a)(1)(A). Decision, 2021 WL 4170997, at *4. Dawgs does not appeal this ruling. Instead, Dawgs only chal- lenges the district court’s decision on whether its counter- claim allegations sufficiently raise a cause of action under Section 43(a)(1)(B) of the Lanham Act. 3 We therefore do not separately address Section 43(a)(1)(A).

3 Various courts have taken the approach that “na- ture, characteristics, [or] qualities” in Section 43(a)(1)(B) Case: 22-2160 Document: 62 Page: 7 Filed: 10/03/2024

CROCS, INC. v. EFFERVESCENT, INC. 7

In addition, as a threshold matter, the key question of whether Crocs’ representation that Croslite is patented is in fact false is not in dispute. Section 43(a)(1)(B) creates a cause of action for a person damaged by false or misleading commercial advertising or promotions that mislead con- sumers about the nature, characteristics, or qualities of goods or services. See 15 U.S.C. § 1125(a)(1)(B). Crocs con- ceded in its briefing, and at oral argument before this court, that its statements that Croslite was covered by a patent are false. See Appellee Br. 70–71; Oral Arg. Tr. 16:22–16:33. Stated differently, Crocs admits that it was never granted a patent for Croslite. Oral Arg. Tr. 16:22–16:33. Dawgs’ appeal focuses on Section 43(a)(1)(B). Dawgs argues that when commercial misrepresentations that a product is “patented,” “proprietary,” and “exclusive” are linked to the nature, characteristics, or qualities of the product, those misrepresentations are actionable under Section 43(a)(1)(B) of the Lanham Act. See, e.g., Appellant Br. 23. Dawgs asserts that the district court’s conclusion that Dastar and Baden are dispositive in this case is erroneous.

relate to “the characteristics of the good itself,” not intan- gibles involving the source of ideas embodied in a product, like product authorship. Baden, 556 F.3d at 1307 (quoting Sybersound Recs., Inc. v. UAV Corp., 517 F.3d 1137, 1144 (9th Cir. 2008)); see also Kehoe Component Sales Inc. v. Best Lighting Prod., Inc., 796 F.3d 576, 590 (6th Cir. 2015). At least one circuit court has suggested in passing that there is an “open . . . possibility that some false authorship claims could be vindicated under the auspices of § 43(a)(1)(B)’s prohibition on false advertising.” Zyla v. Wadsworth, Div. of Thomson Corp., 360 F.3d 243, 252 n.8 (1st Cir. 2004); see also Baden, 556 F.3d at 1308 n.1. Case: 22-2160 Document: 62 Page: 8 Filed: 10/03/2024

Appellant Br. 36; see Decision, 2021 WL 4170997, at *6–7. First, Dawgs argues that those cases were based on circum- stances different from the circumstances in this appeal. Appellant Br. 28–33, 36. Second, Dawgs argues that its counterclaims adequately allege that Crocs used the terms “patented,” “proprietary,” and “exclusive” in its advertise- ments in a manner that misled consumers about the na- ture, characteristics, or qualities of its own products and the products of its competitors. Id. at 46–51. As such, Dawgs argues that it has sufficiently alleged a cause of ac- tion under Section 43(a)(1)(B) and therefore the district court should not have granted summary judgment. Id. at 6. Dastar and Baden The district court concluded that based on binding precedent established in Dastar and Baden, Crocs’ false claims to have “patented” Croslite are not actionable under Section 43(a)(1)(B). Decision, 2021 WL 4170997, at *6. The district court likened falsely claiming to have “patented” something as similar “to plagiarizing or reverse passing off, which Dastar held not . . . covered by the Lanham Act’s false advertising prohibition.” Id. (footnote omitted). The district court similarly concluded that this court in Baden found non-actionable “terms that the court likened to claims of inventorship” and that in this case, “[f]alsely claiming to have ‘patented’ something is akin to claiming to have ‘invented’ it.” Id. The district court determined that Dawgs’ counterclaim could not stand because any claim that a product was patented was directed to inven- torship, and thus the counterclaim was precluded by Dastar and Baden. Id. We disagree. In Dastar, the Supreme Court considered the scope of unfair competition that is actionable under Sec- tion 43(a)(1)(A) of the Lanham Act, which relates to mis- representations about the “origin, sponsorship, or approval” of goods or services. Dastar, 539 U.S. at 31. Case: 22-2160 Document: 62 Page: 9 Filed: 10/03/2024

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Dastar involved a World War II television series first broadcast in 1949. Id. at 26. Although the copyright on the television series expired in the 1970s, the respondents acquired exclusive rights to distribute the series on video in the late 1980s. Id. In 1995, petitioner Dastar purchased tapes of the original 1949 series, copied them, and edited them with minor changes. Id. at 26–27. It then sold the video set as its own product, with no reference to the origi- nal series. Id. at 27. Respondents brought an action against Dastar under Section 43(a)(1)(A) of the Lanham Act for false designation of origin. Id. at 27, 31. The Court found that “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.” Id. at 37. The Court concluded that this section of the Lanham Act was not intended to protect originality or creativity, and that “[t]o hold otherwise would be akin to finding that § 43(a) created a species of perpetual patent and copyright, which Congress may not do.” Id. Because Dastar was the originator of the products it sold, the Court found the Lan- ham Act claim failed. Id. at 38. The Court concluded that parties in respondents’ shoes might still have other forms of relief for conduct like Dastar’s. Id. If, for example, a party substantially copied a series but suggested in adver- tising that the work was “quite different” from the earlier series, they might be entitled to relief under Sec- tion 43(a)(1)(B). Id. The Court observed that a Lanham Act cause of action does not arise for merely claiming that a party is the producer of the video. Id. In Baden, this court considered the effect of Dastar in a Section 43(a)(1)(B) action brought in the Ninth Circuit. Baden, 556 F.3d at 1304–08. In a suit between two com- peting basketball manufacturers, Baden argued that its competitor Molten’s advertising violated the Lanham Act. Id. at 1302. Molten promoted its basketballs as having a “dual-cushion technology” that its advertisements Case: 22-2160 Document: 62 Page: 10 Filed: 10/03/2024

described as “innovative.” Id. at 1302–03. Baden argued that by advertising its basketballs as “innovative,” Molten deceived consumers into believing that it was the origina- tor of the dual-cushion technology. Id. at 1303. At trial, the jury issued a verdict in favor of Baden. Id. at 1304. We reversed. We explained that in the Ninth Circuit, a claim based on false designation of authorship is not actionable under Section 43(a)(1)(A) or Section 43(a)(1)(B). Id. at 1307. Ba- den had argued that Molten’s advertisements were false “precisely because Molten was not the source of the inno- vation,” i.e., not the author. Id. We held that “authorship, like licensing status, is not a nature, characteristic, or qual- ity, as those terms are used in Section 43(a)(1)(B) of the Lanham Act.” Id.; see Sybersound, 517 F.3d at 1144. Be- cause Baden based its false advertising claims on allega- tions that Molten was improperly asserting itself as the innovator, i.e., the author, of the technology, Baden had no claim under Section 43(a)(1)(B). Id. Although Dastar and Baden are based on different cir- cumstances, the analysis used by the Supreme Court and this court in those cases is informative in this appeal. Dastar cautions that a false claim of origin, and nothing more, is a claim of authorship and does not give rise to a cause of action under Section 43(a)(1)(A) or (B). But, here, the false claim that a product is patented does not stand alone. Dawgs presents allegations and evidence that the falsity of Crocs’ promotional statements is rooted in the na- ture, characteristics, or qualities of Crocs’ products. Both the district court and Crocs quote Baden to sug- gest that permitting a Section 43(a)(1)(B) claim based on linking “patented” with a product characteristic would con- travene Dastar by allowing reframing of a claim that is based on false attribution of authorship. Baden, 556 F.3d at 1307; see Decision, 2021 WL 4170997, at *7; Appellee Br. 59. We disagree. A claim that a product is constructed Case: 22-2160 Document: 62 Page: 11 Filed: 10/03/2024

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of “patented” material is not solely an expression of inno- vation and, hence, authorship. Again, Baden did not in- volve false advertisements linking such claims to a product’s tangible nature, characteristics, or qualities. In this case, for example, Dawgs submitted webpage printouts that purported to show promotional statements by Crocs that a patent covers Croslite. See, e.g., J.A. 603 (Ex. 21 to SACC), J.A. 608 (Ex. 23 to SACC). Those promotional ma- terials further included statements that Croslite has nu- merous tangible benefits found in all of Crocs’ shoe products. J.A. 603 (Ex. 21 to SACC), J.A. 608 (Ex. 23 to SACC). Dawgs argues it has stated a cause of action because the falsehood that Croslite is patented was used by Crocs to ascribe characteristics that go to the nature and quali- ties of Croslite. Dawgs alleges that “Crocs’ statements re- ferring to the closed-cell resin that [it] call[s] ‘Croslite’ as ‘exclusive,’ ‘proprietary,’ and/or ‘patented’” causes custom- ers to believe that “Crocs’ molded footwear is made of a ma- terial that is different than any other footwear.” J.A. 575, ¶ 342. Dawgs further alleges that Crocs’ promotional ma- terials “deceive consumers and potential consumers into believing that all other molded footwear . . . is made of in- ferior material compared to Crocs’ molded footwear.” J.A. 576, ¶ 345. We agree with Dawgs that these allegations about Crocs’ advertisement statements are directed to the na- ture, 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 prod- uct feature and advertises that product feature in a man- ner that causes consumers to be misled about the nature, characteristics, or qualities of its product. CONCLUSION We have considered Crocs’ remaining arguments and find them unpersuasive. Because Dawgs timely presented Case: 22-2160 Document: 62 Page: 12 Filed: 10/03/2024

a theory under Section 43(a)(1)(B) of the Lanham Act link- ing Crocs’ alleged misrepresentations in commercial adver- tisements to the nature, characteristics, or qualities of Crocs’ shoes, the district court erred in granting summary judgment on Dawgs’ Lanham Act counterclaim. We ac- cordingly reverse and remand for further proceedings. REVERSED AND REMANDED COSTS Costs against Crocs.