Takeaways
- The Federal Circuit determined that if a company misleads consumers about the nature of a product by making false patent marking claims, it can be held liable under the Lanham Act.
- False marking claims under the Lanham Act have different elements and wider array of damages for the same claims asserted under the Patent Act, which may give rise to an increase in such claims.
- Companies that obtain patents will need to pay close attention to their marketing and promotional materials.
On October 3, 2024, the Federal Circuit issued a decision in Crocs, Inc. v. Effervescent, Inc. holding that a cause of action arises under Section 43(a)(1)(B) of the Lanham Act “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.”
The facts of the case are similar to a standard false patent marking case brought under the Patent Act. But in an unusual approach, the claim was framed as false advertising under the Lanham Act. Crocs sued a number of companies for patent infringement for selling certain shoes. In response, one of the defendants, Dawgs, counterclaimed under Section 43 of the Lanham Act, alleging that Crocs engaged in false advertising by promoting the “Croslite” material used in Crocs shoes as patented. There was no dispute that the Croslite material was not patented—so that statement was indeed false. To make out a Lanham Act claim for false advertising, Dawgs alleged that the false statement made by Crocs that the Croslite material was patented also misled customers to believe that “Crocs’ molded footwear is made of a material that is different than any other footwear” and that its competitors’ molded footwear products are “made of inferior material compared to Crocs’ molded footwear.”
The district court granted summary judgment, finding that the counterclaim failed to state a claim under the Lanham Act because it was directed to a claim of inventorship, rather than the nature, characteristics or qualities of Crocs products. The district court relied on the Supreme Court’s Dastar decision. In Dastar, the Court denied a Lanham Act claim brought against Dastar alleging that it repackaged an older, public domain video series about World War II and sold the repackaged version as its own work without crediting the author of the original series. The Supreme Court said that was not a false designation of origin, because Dastar was in fact the source of origin for the product at issue. That is, the Court interpreted the “origin” to mean the producer of the goods at issue as opposed to the authorship of any “idea, concept, or communication embodied in those goods.”
The Federal Circuit reversed and remanded the case. It distinguished Crocs from Dastar by pointing out that “a claim that a product is constructed of ‘patented’ material is not solely an expression of innovation and, hence, authorship.” The Court pointed out that “Dawgs submitted webpage printouts that purported to show promotional statements by Crocs that a patent covers Croslite” (which was admittedly false). It also relied on Dawg’s allegations that falsely promoting the Croslite material as patented would lead customers to believe that Crocs shoes use a “material that is different than any other footwear” and that its competitors’ shoes were “made of inferior material.” The Court thus found that “these allegations about Crocs’ advertisement statements are directed to the nature, characteristics, or qualities of Crocs’ shoes.”
For anyone managing patent portfolios that recalls the landslide of false patent marking claims before the America Invents Act (AIA) was passed in 2011, this decision may bring back some bad memories. Prior to the AIA, a number of cases were filed bringing qui tam claims (i.e., on behalf of the government) seeking a share of the up to $500 per product penalty for false patent marking under the patent statute. Because a plaintiff was not required to prove any harm, anyone could bring such a case if they could identify a product with an incorrect patent number (or even with an expired one)—and they filed lots of them.
But Congress addressed this issue in the AIA by requiring a private plaintiff to establish that it “suffered a competitive injury” to bring a false patent marking claim under the patent statute. Moreover, Congress limited the private plaintiff’s remedy available to “damages adequate to compensate for the injury,” as opposed to an award of up to $500 per article. Those changes, along with the prohibition against claims for expired patents, largely stemmed the tide of false marking claims, especially from plaintiffs that were not competitors.
So what does the holding of Crocs mean for false patent marking claims? First, the good news. Consumers still do not have standing to bring causes of action according to the Supreme Court’s 2014 decision in Lexmark, Int’l v. Static Control Components, Inc. 572 U.S. 118 (2014), so the gates to non-competitor plaintiffs claiming to be hoodwinked by a false statement of patent coverage should remain closed.
Next, the mixed news. The Court relied on the fact that Crocs advertising “further included statements that Croslite has numerous tangible benefits found in all of Crocs’ shoe products,” and that “the falsehood that Croslite is patented was used by Crocs to ascribe characteristics that go to the nature and qualities of Croslite.” Thus, the Court implied that Crocs did more than just say the Croslite material was patent protected. Indeed, the Court noted that “here, the false claim that a product is patented does not stand alone.”
However, the holding is not terribly clear. The Court’s statement was simply, “[w]e 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.” The trouble with this holding was that the only false statement involved in the case was the misrepresentation that Croslite was patented.
Specifically, the Court cited two separate exhibits of online promotional material. These were not included in the opinion but were in the parties’ appendix. One stated: “The Crocs @Work™ collection is built with the patented Croslite™ material to provide all-day, on-the-job comfort. In addition, several styles come with Crocs Lock™ technology that increases slip-resistance. These work shoes are also odor-resistant and easy to clean with soap and water for even the messiest of jobs.” The other did not mention the patent coverage, but instead touted the Croslite material as “proprietary, revolutionary technology, that gives each pair of shoes the soft, comfortable, lightweight, non-marking and odor-resistant qualities that Crocs fans know and love.”
There was no suggestion in the Court’s opinion that the physical benefits of Croslite itself (e.g., comfort) were falsely advertised in any way. However, the inferences relied upon by the Court, namely that saying Croslite was “patented” means it is “different” and that other materials are “inferior,” are ones that could arguably be drawn any time a feature is promoted as protected by a patent. Indeed, differentiating from other products is a main reason companies promote patented features. Beyond making that point about such inferences, the Court’s opinion offered no clear guidance on what more is needed to cross the line from where the false claim that a product is patented “stand[s] alone,” to one that also causes consumers to be misled “about the nature, characteristics, or qualities” of the product, which triggers the Lanham Act.
The other piece of mixed news is that the Federal Circuit does not have exclusive jurisdiction over false advertising claims. Here, the case came to the Federal Circuit only because the false advertising claim was a counterclaim in response to a complaint that alleged patent infringement. As such, the opinion is not binding precedent in any other circuit because the Court was merely predicting how it believed the Tenth Circuit (as the case originated in Colorado) would have ruled on the issue. However, notwithstanding that fact, the Federal Circuit designated its opinion as precedential, and other circuits may give it added credibility because of the involvement of a patent (and patent law is the Federal Circuit’s exclusive subject matter).
Now to the bad news. A false advertising claim under Section 43(a)(1)(B) of the Lanham Act does not require intent. In contrast, a false patent marking claim under patent statute does because it requires a showing that the false patent marking was done “for the purpose of deceiving the public.” Thus, under Crocs, a party may be able to succeed on a false patent marking fact pattern by framing it as a false advertising claim under the Lanham Act, even if it could not have succeeded under the patent statute’s provision for lack of intent to deceive. In other words, Crocs makes a false patent marking claim potentially viable even where it happens innocently.
The other piece of bad news lies in the difference in remedies. Under the patent statute’s false patent marking provision, the party asserting the claim can only obtain compensatory damages, i.e., “damages adequate to compensate for the injury.” This, along with the need to prove intent to deceive, made false patent marking claims less attractive because the remedy was more limited, and typically challenging to prove. But the Lanham Act includes a wider array of remedies, including “subject to the principles of equity … (1) defendant’s profits, (2) any damages sustained by the plaintiff, and (3) the costs of the action.” Thus, costs are expressly included, and disgorgement (“defendant’s profits”) is an additional option as well. Moreover, with the disgorgement remedy, the plaintiff bringing the false advertising claim need only “prove defendant’s sales” and the burden is on the accused party to “prove all elements of cost or deduction claimed.” In other words, the defendant has to do the bulk of the work on establishing the proper measure of disgorgement. That is dramatically different from the compensatory damages available under the patent statute for similar conduct.
One might ask: Shouldn’t the availability of the false marking claim under the patent statute have had an impact on the Federal Circuit’s Crocs decision? More specifically, why allow a Lanham Act claim for false patent marking to go forward when such a cause of action already exists under the patent statute, particularly when Congress specifically changed the patent statute to include a higher standard requiring proof of intent to deceive, and more limited remedies to address concerns with false marking claims? There isn’t an answer because the Court didn’t mention that at all, although it would have been helpful for the Court to clarify the interplay and differences between the two. But for now, we seemingly have two different statutes with different elements of proof and different remedies directed at the same general conduct.
In view of Crocs, companies that obtain patents should pay closer attention to their marketing and promotional materials. A mistaken claim that a feature is “patented” can happen, often quite innocently—but a lack of intent that could avoid a false marking claim under the patent statute won’t necessarily avoid a Lanham Act claim. Indeed, it is not uncommon for a marketing department to mistakenly tout a feature as patented when in fact it is just patent pending. Communication between marketing and legal departments is important to avoid such mistakes. Likewise, startups that lack sophistication often misunderstand the difference between patented and patent-pending, and often tout patented technology as a differentiator. Counsel advising startups should educate their clients to be accurate with their statements to avoid claims that could be expensive to defend. The risk of the wider array of damages available for a Lanham Act claim gives companies all the more reason to make sure any marketing statements about the existence of patent protection is truthful and accurate.
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