Antitrust Law Daily Wrap Up, ANTITRUST NEWS: Crocs allegedly obtained fraudulent patents, pursued sham litigation to control clog shoe market, (Sep 11, 2014)

By Linda O’Brien, J.D., LL.M.

A leading shoe manufacturer has engaged in anticompetitive conduct by making false and misleading statements in its two patent applications in relation to its clog shoe design and pursuing sham patent infringement litigation to force competitors from the clog footwear market, according to a complaint filed in the federal district court of Las Vegas (U.S.A. Dawgs, Inc. v. Crocs, Inc., September 10, 2014).

Crocs have been engaged in the manufacturing of a wide variety of ethyl vinyl acetate (EVA) fully-molded ventilated clog casual shoes in the United States since 2001. U.S.A. Dawgs is a manufacturer and distributor specializing in value priced shoes, scandals, and boots.

The complaint alleges that, in 2001, Scott Seamans, the founder of Crocs, began to market a shoe that had been developed and distributed by another company as early as 1999. In 2006 the U.S. Patent and Trademark Office (USPTO) issued U.S. Patent No. 6,993,858 (the ‘858 patent) with Crocs as the assignee. The ‘858 patent application contained diagrams and descriptions of the original EVA clog designed and manufactured by the other company. Seamans claimed to have invented the entire shoe, even though every functional feature already existed in the original EVA clog, the complaint charged. Seamans also claimed in the patent application process to have invented the material components of the EVA foam shoe that had been previously created and trademarked by the other company. Crocs’ willful false statements and failure to disclose to the USPTO the prior existence of the original EVA clog and prior sales of the shoe embodying the ‘858 patent constituted fraud and served as grounds to invalidate the ‘858 patent, U.S.A. Dawgs charged.

The USPTO also issued U.S. Patent No. D 517,789 (the ‘789 patent), which allegedly contained diagrams of the base shoe that were substantially similar to diagrams for the original EVA clog. Seamans falsely claimed to be the sole inventor of the design reflected in the ‘789 patent, even though the shoe design was not new or invented by Seamans. Crocs’ willful false statements and failure to disclose the identity of the known inventor of the base shoe or the existence of the original EVA clog constituted fraud and served as grounds to invalidate the ‘789 patent, the plaintiff alleged.

According to the complaint, after the ‘789 patent was issued, Crocs filed suit against Double Diamond Distribution, Ltd. (DDD), manufacturer of EVA clogs and owned by U.S.A. Dawgs, Inc., and U.S.A. Dawgs, Inc. for patent infringement. U.S.A. Dawgs was forced to curtail its business activities as a result of the filing of this objectively baseless legal action. Even though the patents were obtained by intentionally concealing material information from the USPTO, many existing clog shoe competitors ceased doing business in the United States due to the undue cost of defending against Crocs’ baseless patent suits.

In 2012, DDD and U.S.A. Dawgs filed an application for inter partes reexamination with the USPTO against the ‘858 and ‘789 patent. Subsequently, Crocs filed another baseless lawsuit against CVS Pharmacy, a retailer of U.S.A. Dawgs brand EVA clogs and one of U.S.A. Dawgs largest customers, for the purpose of intentionally interfering with its business relationship with CVS and causing it to incur additional expenses in continuing complex litigation. In 2013, the USPTO issued a non-final Office Action rejecting the ‘789 patent as unpatentable. Despite the rejection, Crocs continued to prosecute its litigation against U.S.A. Dawgs. Crocs’ patent litigation is clearly a sham and continues to cause ongoing damage to U.S.A. Dawgs, the complaint charges.

Shortly after Crocs began its sham patent litigation in 2006 to intimidate its competitors into ceasing their businesses, sales of Crocs’ EVA clog increased dramatically. Crocs’ market share in the relevant product market exceeds 90 percent and annual sales in 2011 reached $1 billion. Due to Crocs’ actions and false statements in the prosecution of the ‘858 and ‘789 patents, U.S.A. Dawgs has been incorrectly stigmatized as a counterfeiter and provider of knock-off footwear. Consequently, U.S.A. Dawgs’ brands and reputation have been significantly tarnished and it has been unable to sell to major retailers and distributors.

The plaintiff asserts claims for monopolization, attempted monopolization, unlawful exclusionary arrangements, intentional interference with prospective economic and actual contractual relationships, unfair trade practices, and violations of Section 2 of the Sherman Act and the Nevada Unfair Trade Practices Act. The action seeks declaratory and injunctive relief, treble damages, costs of suit, attorneys’ fees, and any other just and proper relief.

The case is No. 2:14-cv-01461-RFB-PAL.

Attorneys: Brian J. Elliot, Corporate Counsel for U.S.A. Dawgs, Inc. and Maxwell M. Blecher, Donald R. Pepperman, and Jordan L. Ludwig (Blecher Collins Pepperman & Joye, P.C.) for U.S.A. Dawgs, Inc.

Companies: U.S.A. Dawgs, Inc.; Crocs, Inc.

News: Antitrust NevadaNews