Court: District Court, D. Colorado; March 31, 2017; Federal District Court
Crocs, Inc. filed a lawsuit on April 3, 2006, alleging infringement of U.S. Patent Nos. 6,993,858 and D 517,789. Defendants Effervescent, Inc., Holey Soles Holdings, Ltd., and former defendant Collective Licensing International, LLC successfully moved to stay the case pending ITC proceedings on May 16, 2006. The case remained closed until 2012, when Crocs added a Dawgs entity as a defendant, leading to counterclaims from Dawgs before the case was again stayed for patent reexamination. In February 2016, Dawgs sought to reopen the case, which the Court granted. On May 31, 2016, Dawgs filed an amended answer and counterclaims against Crocs, Scott Seamans, and unidentified defendants. Crocs and Seamans subsequently moved to dismiss these counterclaims. A second amended complaint was filed by Crocs on February 24, 2017, adding a claim for infringement of U.S. Patent No. D632,465. Dawgs then filed a second amended answer and counterclaims on March 10, 2017, including additional claims for declaratory judgment related to the '465 Patent. The Court noted that despite modifications in Dawgs' counterclaims, the changes did not affect its analysis regarding the motions to dismiss. The Court decided to consider the motions, applying its findings to the equivalent counterclaims in the second amended filings. Notably, Crocs is identified as a leading manufacturer of molded clogs, while Dawgs competes in the same market, with allegations claiming that Crocs marketed footwear similar to that developed by Foam Creations, Inc., using molds designed by Ettore Battiston.
On February 7, 2006, the U.S. Patent and Trademark Office granted the ’858 patent, with Scott Seamans as the sole inventor. Dawgs contends that all functional features of the patent, except for the heel strap, were already present in the Battiston Molded Clog, which the patent application describes, along with its pivoting strap. Dawgs argues that straps have long been used in various footwear, including Calzuro's molded clog with a pivoting strap sold in 2001. Furthermore, they assert that the features in the ’858 patent were previously disclosed in the Italian Patent 00245068, filed in 1998 and granted in 2002 (the BIHOS Patent).
On March 28, 2006, the PTO issued the ’789 design patent, also with Seamans as the sole inventor. Dawgs claims that its diagrams closely resemble those created by Ettore Battiston in 2000, with the addition of a functional strap that has existed in footwear for years. Dawgs asserts that neither the ’858 nor the ’789 patent is novel or inventive and that Crocs has struggled to secure similar patents internationally due to prior art and issues regarding inventorship.
Following the issuance of the ’789 patent, Crocs filed a complaint with the ITC against Double Diamond and others for patent infringement, seeking to prevent the importation of infringing molded clogs. The ITC initially ruled that Double Diamond did not infringe the ’789 patent and declared the ’858 patent invalid due to obviousness from prior art. However, the Federal Circuit reversed the obviousness ruling and sent the case back for further review, eventually concluding that Double Diamond failed to prove the asserted patents were unenforceable. Dawgs argues that Crocs knowingly participated in the ITC proceedings despite the patents' invalidity.
On April 3, 2006, Crocs filed a patent infringement lawsuit despite knowing about incorrect inventorship and material omissions during the patent examination process. An amended complaint on August 6, 2012, added U.S.A. Dawgs as a defendant. Dawgs claims that Crocs’ litigation is baseless given the unenforceability of the patents, especially since Crocs was aware of the BIHOS patent's relevance to the ’858 patent's invalidity by then. Subsequently, Double Diamond sought inter partes reexamination of the ’858 patent on August 3, 2012, and in response, Crocs initiated a lawsuit against CVS Pharmacy on August 8, 2012, for selling U.S.A. Dawgs products. On August 24, 2012, U.S.A. Dawgs also filed for inter partes reexamination of the ’789 patent.
On April 29, 2013, the PTO issued a non-final Office Action rejecting the sole claim of the ’789 patent. Crocs responded on July 29, 2013, submitting a declaration from inventor Scott Seamans affirming his sole authorship of the patent. On February 11, 2016, the PTO rejected the claim again, declaring it unpatentable and closing the reexamination. In response, Dawgs alleges that Crocs has leveraged this process to dominate the molded clog-type footwear market with over 90% market share, adversely affecting Dawgs.
Dawgs has filed twelve counterclaims against Crocs, Scott Seamans, and unnamed defendants, seeking various forms of declaratory relief, including judgments of non-infringement and invalidity of the ’858 and ’789 patents, as well as claims of inequitable conduct rendering the patents unenforceable. Additionally, Dawgs alleges anticompetitive conduct under various sections of the Sherman and Clayton Acts, including claims of monopolization and unfair business practices, alongside a violation of the Lanham Act.
Crocs has moved to dismiss counterclaims five through twelve, while Scott Seamans has sought dismissal of counterclaims six through nine. The legal standard for dismissal under Rule 12(b)(6) requires a claim to be plausible based on the allegations, which must be accepted as true and viewed favorably towards the plaintiff. The court assesses the legal sufficiency of the complaint without evaluating evidence that might be presented at trial.
The "plausibility" standard mandates that relief should be reasonably inferred from the facts alleged, rather than the facts themselves needing to be plausible. If well-pleaded facts only suggest a mere possibility of misconduct, the complaint fails to demonstrate entitlement to relief. A complaint must contain sufficient direct or inferential allegations about all material elements necessary for recovery under a viable legal theory.
In the context of inequitable conduct, Dawgs asserts that the ’789 and ’858 patents are unenforceable due to false statements regarding inventorship and a lack of disclosure of material information by Crocs. The elements required to prove inequitable conduct include an affirmative misrepresentation or failure to disclose material facts by someone involved in the patent application process, done with intent to deceive the PTO. A heightened pleading standard necessitates that the claimant specifies the details of the misrepresentation or omission.
Dawgs claims that misrepresentations made by Scott Seamans and Crocs in the patent applications render the ’858 and ’789 patents unenforceable. Specifically, Dawgs references U.S. Application No. 10/603,126 (the "126 application"), filed on June 23, 2003, which ultimately led to the issuance of the ’858 patent. The application included a declaration from Seamans affirming his belief in being the original inventor and acknowledging the duty to disclose all material information relevant to patentability. The declaration emphasized the truthfulness of statements made and the legal repercussions of willfully false statements.
Dawgs contends that the Seamans declaration is false, asserting that Seamans was not the original inventor of the subject matter claimed in the relevant patent applications. Instead of naming a specific alternative inventor, Dawgs' fifth counterclaim states that the independent claims of the ’126 application pertain to the molded clog and work-shoe designed by Ettore Battiston. Dawgs alleges that both Seamans and Crocs were aware of Battiston's designs at the time the ’126 application was filed. In its response to a motion to dismiss, Dawgs emphasizes that the claims of the ’858 patent also relate to Battiston’s inventions and maintains that Seamans was not the inventor. Dawgs argues that the misrepresentation of inventorship is crucial to the patentability of the ’126 application. Additionally, Dawgs asserts that the subsequent ’427 application, which claims priority from the ’126 application, is tainted by the false declaration made by Seamans during the prosecution of the ’858 patent. Dawgs highlights a specific statement by Seamans claiming sole inventorship of the footwear invention, which Dawgs disputes as false. During the reexamination of the ’789 patent, Seamans and Crocs reiterated that Seamans is the sole inventor, a claim that Dawgs also contests. Crocs counters that Dawgs has not provided sufficient facts to prove that Battiston is a joint inventor with Seamans, thus claiming Seamans' declarations cannot be deemed false. Dawgs asserts that since Battiston’s molded clog and work-shoe are prior art, Seamans cannot be the sole inventor of the related patents. However, legal precedent indicates that mere contributions to prior art do not establish joint inventorship if they do not contribute to the conception of the invention. Consequently, Dawgs fails to adequately allege that Seamans was not the inventor or sole inventor of the implicated patents.
Dawgs cannot establish that Battiston and Seamans are joint inventors of the relevant patents, as the fifth counterclaim fails to demonstrate any collaboration between them in conceiving the invention, citing legal precedents. The counterclaim also inadequately alleges inequitable conduct based on Seamans' purportedly false declarations regarding inventorship, resulting in its dismissal. Furthermore, Dawgs accuses Crocs of failing to disclose critical information during the prosecution of the ’858 and ’789 patents, including details about Battiston, correct inventorship, prior sales, and relevant prior art. While inequitable conduct is broader than fraud, it must be pled with particularity under Rule 9(b), which Dawgs has not satisfied. Crocs argues that Dawgs' claims of intentional concealment contradict ITC findings and notes that these findings do not hold preclusive effect in subsequent federal court proceedings. The court agrees, stating that ITC decisions should not influence the claims and finds no grounds to dismiss the counterclaim based on these inconsistencies. Additionally, Dawgs failed to meet the heightened standard for pleading inequitable conduct, lacking specific details about the material misrepresentations or omissions. The court emphasizes that to establish materiality, Dawgs must identify how the withheld information would have impacted the patentability assessment, a requirement it has not fulfilled.
Dawgs’ fifth counterclaim is deemed deficient due to inadequate allegations regarding the materiality of withheld references to patentability, as required by Rule 9(b). Crocs argues that Dawgs has not sufficiently pleaded scienter, which necessitates factual basis from which a court can infer intent to deceive. The standard mandates that the intent to deceive must be the most plausible explanation for non-disclosure, supported by specific facts, including patterns of behavior indicating deceptive intent. Dawgs points to several factors suggesting deceptive intent, such as Crocs’ withholding of references, sales of infringing products, and failure to disclose a copyright agreement. However, simply stating non-disclosures does not establish specific intent to deceive without linking them to deceptive intent or explaining their materiality to patentability. Furthermore, Dawgs fails to provide factual allegations connecting any specific individual’s knowledge to the alleged omissions. Consequently, the court will dismiss this portion of Dawgs’ counterclaim.
In relation to Dawgs' sixth, seventh, and ninth claims under the Sherman Act, these claims allege monopolization by Crocs and related parties. To succeed, Dawgs must demonstrate two elements: possession of monopoly power in a relevant market and willful acquisition or maintenance of that power, necessitating allegations of both market power and anticompetitive conduct.
Crocs and Seamans present similar defenses against Dawgs' monopoly claims, specifically the sixth, seventh, and ninth claims for relief. The court addresses these claims collectively. The alleged anticompetitive conduct involves accusations of sham litigation and the enforcement of fraudulently obtained patents. The Noerr-Pennington doctrine provides immunity from antitrust liability for those petitioning the government, even if the motives are anti-competitive. This protection extends to judicial actions and requires Dawgs to demonstrate that the doctrine does not apply. Two exceptions to this immunity exist: the Walker Process exception, which applies when a patent is fraudulently procured, and situations where petitioning is merely a cover for interfering with competitors. To succeed on a Walker Process claim, Dawgs must prove the patent was obtained through knowing fraud and that it was enforced with awareness of this fraud. Dawgs cites allegations of Crocs and others failing to disclose proper inventorship and prior art as a basis for its claims. However, Crocs contends Dawgs has not sufficiently alleged fraud necessary for a Walker Process claim. Dawgs' reference to its inequitable conduct claim does not remedy this deficiency, as the court has previously rejected that claim. Ultimately, the court finds Dawgs' allegations of anticompetitive conduct insufficient and lacking the required intent to support a Walker Process claim.
Dawgs has failed to demonstrate that Crocs' actions fall under the Walker Process exception to Noerr-Pennington immunity. The court assesses whether Dawgs has sufficiently alleged a pattern of sham litigation, which comprises two criteria: the lawsuit must be objectively baseless, meaning no reasonable litigant would expect success, and it must subjectively aim to interfere with a competitor's business relationships. An example of sham litigation is filing frivolous objections to a competitor's license application to impose costs and delays. Generally, assertions of patent infringement are presumed to be made in good faith. Crocs argues its patent lawsuits cannot be deemed objectively baseless since it has previously prevailed against Dawgs in court. The court concurs, noting that a successful lawsuit is inherently a legitimate effort for redress and not sham litigation.
The Federal Circuit has dismissed claims regarding the obviousness of Crocs' patent, indicating that there were compelling reasons at the time of invention that would discourage an ordinary artisan from pursuing the claimed invention. Dawgs contends that Crocs' pattern of litigation does not negate the possibility of sham litigation; however, the lawsuits primarily concern the enforcement of the same patents, and Crocs' success suggests these lawsuits possess potential merit. Dawgs has not sufficiently countered the presumption of good faith in Crocs' patent claims or provided adequate evidence of fraud against the PTO or sham litigation. Consequently, the court finds Crocs immune from antitrust liability concerning the sixth counterclaim, which will be dismissed.
Regarding attempted monopolization and conspiracy to monopolize, a claim requires proof of predatory conduct, specific intent to monopolize, and a dangerous probability of achieving monopoly power. For conspiracy, Dawgs must establish conspiracy, specific intent, and overt acts supporting the conspiracy. Specific intent claims depend on demonstrating predatory conduct that either violates antitrust laws or lacks legitimate business justification, aimed solely at harming competition.
To establish a claim for attempted monopolization or conspiracy to monopolize, Dawgs must demonstrate predatory conduct, which is not applicable in this case because Crocs is shielded from litigation for pursuing its patents under the Noerr-Pennington doctrine. Consequently, Dawgs’ seventh and ninth counterclaims will be dismissed since the conduct referenced is protected.
In the eighth claim, Dawgs alleges that Crocs and Seamans conspired to restrain trade in violation of § 1 of the Sherman Act. To succeed, Dawgs must prove an agreement aimed at achieving an unlawful goal. Crocs and Seamans contend that Dawgs’ claim should be dismissed as the underlying conduct—asserting patent infringement—is not anticompetitive. Dawgs claims that Crocs and Seamans conspired to enforce invalid patents against several entities, but this conduct is also protected from antitrust liability. Therefore, the eighth claim for relief will be dismissed.
For the tenth claim, Dawgs accuses Crocs and others of engaging in unlawful exclusionary agreements that violate the Sherman Act and Clayton Act. Exclusive arrangements are not illegal unless they have anticompetitive effects. To substantiate this claim, Dawgs must show that Crocs’ actions significantly foreclosed competition in the molded clog-type footwear market. However, the tenth counterclaim lacks factual support indicating that Crocs’ conduct materially restricted competition or affected Dawgs’ ability to compete. Thus, the claims for relief are insufficiently substantiated.
Crocs and John and Jane Does 1 through 100, Subset E are accused of engaging in anti-competitive conduct against Counterclaim Plaintiffs by threatening and coercing both actual and potential buyers of their footwear products to refrain from engaging with the Plaintiffs. This group allegedly organized a refusal to deal among distributors, such as Academy Sports, to prevent the distribution or purchase of the Plaintiffs' products. Furthermore, they conditioned discounts and rebates for Crocs' products on agreements not to deal with the Plaintiff's competitive products. They are also alleged to have created exclusive dealing arrangements with customers and enforced agreements that restrict their customers from selling products similar to Crocs.
However, the tenth counterclaim lacks specificity regarding any exclusive dealing agreements between Crocs and distributors, as no details are provided about the nature of these arrangements or their terms. Additionally, there are no factual allegations demonstrating the volume of commerce affected by these agreements, failing to establish a substantial impact on the market for molded clog-type footwear. As a result, the tenth claim is deemed deficient and will be dismissed.
The eleventh claim for relief, concerning intentional interference with business advantage under Colorado law, asserts that Crocs and the aforementioned subset improperly interfered with the Plaintiffs' prospective contractual relations, causing them financial harm. Under Colorado law, liability arises when one intentionally interferes with another's contractual relations, either by dissuading third parties from entering into those relations or obstructing the other party from maintaining them.
A reasonable likelihood or probability of a contract's occurrence must be established, moving beyond mere hope (Klein v. Grynberg). The amended counterclaims detail various alleged interfering actions by Crocs and associated parties, including:
a) Threatening and coercing actual and potential buyers to avoid purchasing from the Counterclaim Plaintiffs.
b) Inducing a refusal to deal among distributors like Academy Sports regarding the Counterclaim Plaintiffs' products.
c) Conditioning discounts on agreements not to purchase competitors' products.
d) Engaging in exclusive dealing arrangements with customers.
e) Implementing agreements that prevent customers from selling products similar to Crocs.
Dawgs fails to demonstrate a plausible likelihood of contracting with specific third parties, as highlighted in Savant Homes, Inc. v. Collins, where the lack of evidence in contracting processes led to summary judgment. Consequently, Dawgs' claim for intentional interference with business advantage is deemed deficient and will be dismissed.
Dawgs’ twelfth claim, under Section 43(a) of the Lanham Act (15 U.S.C. 1125(a)), alleges that Crocs misrepresents its footwear by claiming it is made of an exclusive material called "Croslite," which is actually ethyl vinyl acetate, commonly used by various footwear companies. Dawgs asserts that Crocs inaccurately promotes "Croslite" as a proprietary and revolutionary technology without exclusive rights to the material.
Dawgs alleges that Crocs' descriptions of the material "Croslite" mislead consumers into believing that Crocs uses a superior material, which damages Dawgs' reputation and sales by creating a perception that Dawgs' products are inferior. Dawgs claims that without an injunction and retraction from Crocs, it will suffer significant losses in consumer confidence, sales, profits, and goodwill. In response, Crocs argues that Dawgs lacks standing under the Lanham Act, asserting that Dawgs has not demonstrated a cognizable injury caused by Crocs' alleged violations. Crocs cites the case Lexmark Int'l, Inc. v. Static Control Components, Inc., which establishes a two-step test for standing under the Lanham Act, requiring that a plaintiff fall within the protected zone of interests and show that the injury was proximately caused by the defendant's actions. The Supreme Court clarified that this zone includes plaintiffs experiencing injury to commercial interests in reputation or sales.
Dawgs is deemed to fit within this zone as a direct competitor, alleging reputational harm due to Crocs’ misleading claims. It asserts that the injuries claimed are directly caused by Crocs' deceptive advertising. Although Crocs references Critical Nurse Staffing, Inc. v. Four Corners Health Care Corp. to argue that Dawgs' claims are insufficient, the court found that Dawgs has provided adequate factual support for its claims regarding Crocs’ false advertising. Consequently, Dawgs' twelfth claim for relief is deemed sufficient at this stage. The court partially granted and denied Crocs' motion to dismiss, dismissing several of Dawgs' claims with prejudice and removing certain defendants from the lawsuit.
The Court refers to Double Diamond Distribution, Ltd. and U.S.A. Dawgs, Inc. collectively as "Dawgs," noting Foam Creations, Inc. as a related entity to Crocs. In their second amended answer and counterclaims, Dawgs presents counterclaims seven and nine through fifteen, with specific references to document numbers for detailed claims. The seventh counterclaim alleges that Seamans is not the inventor of certain patents due to reliance on Battiston’s prior art, although it acknowledges a meeting between Seamans and Battiston prior to June 23, 2003, without alleging collaboration. Dawgs asserts that prior sales were well known within Crocs, suggesting that Crocs would have been unable to obtain the '789 patent had those sales been presented to the Patent Office, which has rejected the patent during reexamination based on Crocs’ promotional materials. The Court finds that the counterclaim lacks sufficient detail to suggest intent to deceive, focusing instead on knowledge and materiality. Dawgs also mentions the Calzuro molded clog as being made of rubber, which Crocs argues falls outside its patent scope. Dawgs requests judicial notice of materials from Crocs’ website and SEC filings related to market descriptions but the Court denies this as moot due to Crocs' immunity under Noerr-Pennington. The Court dismisses Dawgs’ claims with prejudice due to inadequate amendments and clear deficiencies. Dawgs does not respond to arguments regarding the intra-corporate conspiracy doctrine, which the Court does not consider since it was not raised by Crocs or Seamans in their motions. Lastly, the Court notes that patent misuse is not necessarily exempt from Sherman Act protections.
Patentees, like Crocs, are limited in how they can control licensees and must not misuse their patents to extend their scope unlawfully. The first amended counterclaims reference "patent misuse," but lack factual allegations showing Crocs has exceeded its patent rights. Instead, the claims focus on invalidity and enforceability rather than the patent's scope. The thirteenth counterclaim in the second amended answer details how exclusivity agreements may have impacted distributors’ decisions to avoid Dawgs’ products, asserting that Crocs' practices have harmed competition. However, the counterclaim is insufficient as it does not provide details on the arrangements or the affected commerce volume. While a declaration from William H. Billings, Jr. indicates that exclusivity contracts led his company to cease selling competing products, it does not demonstrate how these practices have significantly foreclosed competition. Furthermore, there are no new facts regarding potential contractual relationships with additional buyers and distributors. Although Dawgs has presented a basis for a claim under 15 U.S.C. § 1125(a), it requires proof of injury directly caused by Crocs’ alleged misrepresentations to obtain relief. Dawgs is allowed to attempt to prove its case, but the claims in the second amended counterclaims mirror those previously discussed and must meet the required legal standards.
