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Crocs, Inc. v. Effervescent, Inc

United States District Court, D. Colorado

September 25, 2017

CROCS, INC., Plaintiff,
v.
EFFERVESCENT, INC., HOLEY SOLES HOLDINGS, LTD., DOUBLE DIAMOND DISTRIBUTION, LTD., and U.S.A. DAWGS, INC., Defendants. U.S.A. DAWGS, INC. and DOUBLE DIAMOND DISTRIBUTION, LTD., Plaintiffs,
v.
RONALD SNYDER, DANIEL HART, THOMAS J. SMACH, ANDREW REES, GREGG RIBATT, ANDREW REDDYHOFF, GEORGE B. BOEDECKER, JR., LYNDON HANSON, DONALD LOCOCO, RAYMOND CROGHAN, RONALD FRASCH, MICHAEL MARGOLIS, JEFFREY LASHER, MICHAEL E. MARKS, PRAKASH MELWANI, JOHN P. MCCARVEL, ERIK REBICH, SARA HOVERSTOCK, and JOHN AND JANE DOE DEFENDANTS 1-30, Defendants.

          ORDER

          PHILIP A. BRIMMER, UNITED STATES DISTRICT JUDGE

         This matter is before the Court on Defendants' Motion to Dismiss. Case No. 16-cv-02004, Docket No. 31. The Court has jurisdiction pursuant to 28 U.S.C. § 1331.

         I. BACKGROUND[1]

         A. Procedural Background

         Plaintiff Crocs, Inc. (“Crocs”) filed Case No. 06-cv-00605-PAB-KMT on April 3, 2006, alleging, inter alia, infringement of United States Patent Nos. 6, 993, 858 (the “'858 patent”) and D 517, 789 (the “'789 patent”). Docket No. 1.

         On May 12, 2006, defendants Effervescent, Inc., Holey Soles Holdings, Ltd., and former defendant Collective Licensing International, LLC moved to stay this case pending proceedings under Section 337 of the Tariff Act of 1930 before the International Trade Commission (“ITC”). Docket No. 26. The Court granted the motion on May 16, 2006 and administratively closed the case. Docket No. 31. In 2012, during a brief reopening of the case, Crocs added one of the Dawgs[2] entities as a named defendant and Dawgs asserted counterclaims, Docket No. 119, before the action was stayed pending a reexamination of the patents-in-suit. Docket No. 137. In February 2016, Dawgs filed motions to reopen the case and lift the stay, Docket Nos. 167, 168, which the Court granted. Docket No. 184. On May 31, 2016, Dawgs filed its first amended answer to the amended complaint and counterclaims against Crocs, Scott Seamans, and John and Jane Does 1 through 100.[3] Docket No. 209.

         On August 5, 2016, Dawgs filed its complaint in Case No. 16-cv-02004-PAB-KMT (“the 2016 lawsuit”). Case No. 16-cv-02004, Docket No. 1. The 2016 lawsuit named 18 individual defendants (“defendants”), all of whom were current or former employees of Crocs. Id. at 10-19, ¶¶ 9-14.

         B. Factual Allegations

         Crocs is the leading manufacturer of “molded clog-type footwear products.” Id. at 21-22, ¶ 20. Dawgs is a competitor of Crocs and sells a variety of footwear, including molded clogs. Id. at 24, ¶ 24. According to the complaint, Crocs had been manufacturing and selling clog-shaped shoes made from ethyl vinyl acetate (“EVA”) since 2002. Id. at 21-22, ¶ 20. At its inception, Crocs “decided to market the exact shoe that had already been developed and was already being manufactured and distributed by Foam Creations, Inc.” Id. That shoe, in turn, was made using molds designed by Ettore Battiston, an Italian inventor. Id. The “Battiston Molded Clog” was sold in the United States as the “AquaClog, ” “Explorer, ” and “Waldies, ” among other names. Id. In the early 2000s, other rubber clogs were available for sale in the United States. For example, BIHOS S.R.L. (“BIHOS”), an Italian shoe designer and manufacturer, distributed and sold molded clog footwear under the brand name Calzuro starting in the mid-1980s. Id. at 22, ¶ 21. By 2001, Calzuro was selling a molded clog that featured a “pivoting strap” in the United States. Id.

         On February 7, 2006, the U.S. Patent and Trademark Office (“PTO”) issued the '858 patent. Id. at 24-25, ¶ 25. Crocs' co-founder, Scott Seamans, was listed as the sole inventor. Id. Dawgs alleges that “[e]ach and every functional feature disclosed in the ['858] patent application, except the heel strap, already existed in the Battiston Molded Clog.” Id. at 25-26, ¶ 26. The '858 patent also contains diagrams and descriptions of the Battiston molded clog, with the addition of a pivoting strap. Id. According to Dawgs, “[s]traps have existed for many years on a wide variety of footwear.” Id. By 2001, Calzuro sold a molded clog with a pivoting strap attached by a rivet. Id. In addition, the features identified in the '858 patent “were disclosed and described in Italian (utility) Patent 00245068 filed in June 1998, published on December 22, 1999, and granted in March 2002” (“the BIHOS Patent”). Id.

         On March 28, 2006, the PTO issued the '789 design patent. Id. at 27, ¶ 28. Seamans was again listed as the sole inventor. Id. According to Dawgs, the '789 patent “contains diagrams of the base shoe that are substantially similar to the diagrams that were created by Ettore Battiston in 2000 and assigned from Battiston to [Foam Creations, Inc.], with a strap added that serves a functional purpose and such as had previously existed for many years on a wide variety of footwear, including clogs.”[4] Id. Accordingly, the shoe in the '789 patent is “not new and inventive nor invented and designed by Seamans or by Crocs.” Id.

         Crocs has been unable to secure patents similar to the '858 and '789 patents outside the United States because of the “well-known existence of prior sales, the widely-recognized existence of invalidating prior art, and the established identity of the true and proper inventorship and origin of the shoe.” Id. at 30, ¶ 34; see also Id. at 30-36, ¶¶ 35-49.

         On March 31, 2006, just after the '789 patent issued, Crocs filed a complaint with the ITC against Double Diamond Distribution, Ltd. (“Double Diamond”) and other respondents, alleging infringement and seeking a General Exclusion Order to ban the importation of molded clogs that infringed on Crocs' patents. Id. at 36, ¶ 50. The presiding Administrative Law Judge (“ALJ”) and the ITC initially found that Double Diamond did not infringe the '789 patent and that the '858 patent was invalid as obvious in view of prior art. Id. at 37, ¶¶ 52-53. However, the Federal Circuit reversed the determination that the '858 patent was obvious and remanded the case to the ITC for further consideration. Id. at 37-38, ¶ 54. The ALJ and the ITC then determined that Double Diamond and others had failed “to establish that the asserted patents were unenforceable.” Id. at 38, ¶¶ 55-56. According to Dawgs, Crocs acted in the ITC proceedings “knowing that these patents were invalid and unenforceable.” Id., ¶ 57.

         On April 3, 2006, Crocs filed a lawsuit alleging patent infringement even though Crocs “knew the patents identified incorrect inventorship and had been obtained by withholding material information from the patent examiner.” Id. at 36-37, ¶ 51. On August 6, 2012, Crocs filed its first amended complaint, adding U.S.A. Dawgs, Inc. (“U.S.A. Dawgs”) as a named defendant. Id. at 38-39, ¶ 58. Dawgs claims that this litigation is objectively baseless in light of the unenforceability of the patents and because, by the time Crocs filed the first amended complaint, it “knew or should have known” that the BIHOS patent “rendered the claims of at least the '858 patent” invalid. Id.

         On August 3, 2012, Double Diamond filed an application for inter partes reexamination of the '858 patent with the PTO. Id. at 40, ¶ 60. On August 8, 2012, as retaliation for the filing of the application for reexamination, Crocs initiated a lawsuit against CVS Pharmacy, a retailer who sold USA Dawgs products. Id. at 40-41, ¶¶ 61-62. On August 24, 2012, USA Dawgs filed an application for inter partes reexamination with the PTO of the '789 patent. Id. at 41, ¶ 63. On April 29, 2013, the PTO issued a non-final Office Action rejecting the single claim of the '789 patent. Id. at 41-42, ¶ 64. Crocs filed a response on July 29, 2013, which included a declaration from Scott Seamans stating that he is “the sole inventor” of the '789 patent. Id. at 42, ¶ 65. On February 11, 2016, the PTO once again rejected the sole claim of the '789 patent as unpatentable and closed the reexamination prosecution related to that patent. Id. at 42-43, ¶ 66.

         C. Dawgs' Complaint

         Dawgs claims that, as a result of the foregoing conduct, Crocs has secured its own success, obtaining a market share for “molded clog-type footwear” in excess of 90%, and negatively impacted Dawgs. Id. at 43-46, ¶¶ 68-74. According to Dawgs, defendants “directed, participated in, sanctioned, ratified, or acquiesced” in the decision to sue Dawgs and to continue the 2006 lawsuit through the present. Id. at 10-18, ¶¶ 9-13.

         Dawgs brings seven claims against defendants in Case No. 16-cv-02004: actual monopolization in violation of § 2 of the Sherman Act (first claim for relief); attempted monopolization in violation of § 2 of the Sherman Act (second claim for relief); conspiracy to restrain trade in violation of § 1 of the Sherman Act (third claim for relief); conspiracy to monopolize in violation of § 2 of the Sherman Act (fourth claim for relief); unlawful exclusionary arrangements, agreements and conduct in violation of § 3 of the Clayton Act and §§ 1 and 2 of the Sherman Act (fifth claim for relief); intentional interference with business advantage (sixth claim for relief); and violation of § 43(a) of the Lanham Act (seventh claim for relief). Id. at 61-107, ¶¶ 150-262.[5]

         Defendants have moved to dismiss Dawgs' claims for lack of personal jurisdiction and for failure to state a claim. Case No. 16-cv-02004, Docket No. 31.

         II. STANDARD OF REVIEW

         The purpose of a motion to dismiss under Rule 12(b)(2) is to determine whether the Court has personal jurisdiction. The plaintiff bears the burden of establishing personal jurisdiction over defendants. Rambo v. Am. S. Ins. Co., 839 F.2d 1415, 1417 (10th Cir. 1988). Where a district court considers a motion to dismiss for lack of personal jurisdiction and there has been no evidentiary hearing, the “plaintiff need only make a prima facie showing of personal jurisdiction to defeat the motion.” AST Sports Sci., Inc. v. CLF Distribution Ltd., 514 F.3d 1054, 1056-57 (10th Cir. 2008) (citations omitted). The Court will accept the well-pleaded allegations of the complaint as true to the extent they are uncontroverted by affidavits submitted by defendants. Wenz v. Memery Crystal, 55 F.3d 1503, 1505 (10th Cir. 1995) (citations omitted). “If the parties present conflicting affidavits, all factual disputes must be resolved in the plaintiff's favor, and the plaintiff's prima facie showing is sufficient notwithstanding the contrary presentation by the moving party.” Id. (quotation omitted).

         Dismissal of a claim under Rule 12(b)(6) is appropriate where a party fails to state a claim upon which relief can be granted. Fed.R.Civ.P. 12(b)(6). Rule 8 requires “a short and plain statement of the claim showing that the pleader is entitled to relief.” Fed.R.Civ.P. (8)(a)(2). Rule 8(a)'s “short and plain statement” mandate requires that a party allege enough factual matter that, taken as true, makes his “claim to relief . . . plausible on its face.” Bryson v. Gonzales, 534 F.3d 1282, 1286 (10th Cir. 2008) (citing Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)).

         “The court's function on a Rule 12(b)(6) motion is not to weigh potential evidence that the parties might present at trial, but to assess whether the plaintiff's complaint alone is legally sufficient to state a claim for which relief may be granted.” Dubbs v. Head Start, Inc., 336 F.3d 1194, 1201 (10th Cir. 2003). In doing so, the Court “must accept all the well-pleaded allegations of the complaint as true and must construe them in the light most favorable to the plaintiff.” Alvarado v. KOB-TV, L.L.C., 493 F.3d 1210, 1215 (10th Cir. 2007).

         Generally, “[s]pecific facts are not necessary; the statement need only ‘give the defendant fair notice of what the claim is and the grounds upon which it rests.'” Erickson v. Pardus, 551 U.S. 89, 93 (2007) (per curiam) (quoting Twombly, 550 U.S. at 555) (ellipses omitted). The “plausibility” standard requires that relief must plausibly follow from the facts alleged, not that the facts themselves be plausible. Bryson, 534 F.3d at 1286.

         However, “where the well-pleaded facts do not permit the court to infer more than the mere possibility of misconduct, the complaint has alleged - but it has not shown - that the pleader is entitled to relief.” Ashcroft v. Iqbal, 556 U.S. 662, 679 (2009) (internal quotation marks and alteration marks omitted). Thus, even though modern rules of pleading are somewhat forgiving, “a complaint still must contain either direct or inferential allegations respecting all the material elements necessary to sustain a recovery under some viable legal theory.” Bryson, 534 F.3d at 1286 (quotation marks and citation omitted).

         III. ANALYSIS

         A. Personal Jurisdiction

         Crocs argues that the Court lacks personal jurisdiction over defendants Raymond Croghan, Ronald Frasch, Prakash Melwani, Michael Marks, Thomas Smach, Andrew Rees, and Gregg Ribatt, all of whom reside outside the State of Colorado. Case No. 16-cv-02004, Docket No. 31 at 24 n.15. Dawgs argues that the Court has personal jurisdiction because the nonresident defendants purposefully directed their conduct at Colorado. Case No. 16-cv-02004, Docket No. 38 at 24.

         To assert personal jurisdiction over a defendant in a federal question case, the Court must determine: “(1) whether the applicable statute potentially confers jurisdiction by authorizing service of process on the defendant and (2) whether the exercise of jurisdiction comports with due process.” Peay v. BellSouth Med. Assistance Plan, 205 F.3d 1206, 1209 (10th Cir. 2000) (quotations omitted). Because the Patent Act does not authorize nationwide service of process, the Court considers whether the exercise of jurisdiction satisfies due process standards. See TechnoLines, LP v. GST AutoLeather, Inc., 799 F.Supp.2d 871, 874 (N.D. Ill. 2011). “The Colorado long arm statute, Colo. Rev. Stat. § 13-1-124, has been construed to extend jurisdiction to the full extent of the Constitution, so the jurisdictional analysis here reduces to a single inquiry of whether jurisdiction offends due process.”[6] Klein Frank, P.C. v. Girards, 932 F.Supp.2d 1203, 1209 (D. Colo. 2013) (citing Pro Axess, Inc. v. Orlux Distrib., Inc., 428 F.3d 1270, 1276 (10th Cir. 2005)); Classic Auto Sales, Inc. v. Schocket, 832 P.2d 233, 235 (Colo. 1992); Archangel Diamond Corp. v. Lukoil, 123 P.3d 1187, 1193 (Colo. 2005)).

         “Personal jurisdiction comports with due process where a defendant has minimum contacts with the forum state and where those contacts are such that jurisdiction does not offend ‘traditional notions of fair play and substantial justice.'” Interstate Restoration, LLC v. Wilson Assocs., No. 13-cv-03423-REB-MJW, 2014 WL 1395466, at *2 (D. Colo. Apr. 8, 2014) (quoting Int'l Shoe Co. v. Wash., 326 U.S. 310, 316 (1945)). Minimum contacts may be established under the doctrines of general jurisdiction or specific jurisdiction. Goodyear Dunlop Tires Operations, S.A. v. Brown, 564 U.S. 915, 918 (2011). Where general jurisdiction is asserted over a non-resident defendant who has not consented to suit in the forum, minimum contacts exist if the plaintiff demonstrates that the defendant's “affiliations with the State are so ‘continuous and systematic' as to render them essentially at home in the forum State.” Id. at 919. Specific jurisdiction, in contrast, is present only if the lawsuit “aris[es] out of or relat[es] to the defendant's contacts with the forum.” Bristol-Myers Squibb Co. v. Superior Court of California, San Francisco Cty., 137 S.Ct. 1773, 1780 (2017). Dawgs does not assert general jurisdiction; thus, the Court will analyze the relevant defendants' contacts with Colorado as they relate to specific jurisdiction.

         The specific jurisdiction analysis is two-fold. First, the Court must determine whether defendants have such minimum contacts with Colorado that defendants “should reasonably anticipate being haled into court” here. World-Wide Volkswagen Corp. v. Woodson, 444 U.S. 286, 297 (1980). Within this inquiry, the Court must determine whether defendants “purposefully directed [their] activities at residents of the forum, ” Burger King Corp. v. Rudzewicz, 471 U.S. 462, 472 (1985), and whether plaintiff's claims arise out of or result from “actions by . . . defendant . . . that create a substantial connection with the forum State.” Asahi Metal Indus. Co. v. Superior Court of Cal., 480 U.S. 102, 109 (1987) (internal quotations omitted). Second, if defendants' actions create sufficient minimum contacts, the Court must consider whether the exercise of personal jurisdiction over defendants offends “traditional notions of fair play and substantial justice.” Id. at 113. This latter inquiry requires a determination of whether the Court's exercise of personal jurisdiction over defendants is “reasonable” in light of the circumstances of the case. Id.

         Dawgs argues that the out-of-state defendants have minimum contacts with the state by virtue of their purported participation in sham patent litigation, intentional interference with business advantage, and false advertising, which was “expressly aimed to benefit Crocs - a business that is headquartered within this very District.” Case No. 16-cv-02004, Docket No. 38 at 25. The fact that Crocs is headquartered in Colorado and conducts business in the forum is not relevant to the minimum contacts analysis. Calder v. Jones, 465 U.S. ...


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