When The Product Is The Brand: IP Due Diligence Lessons From Crocs’ EU Design Defeat

Some businesses are built around iconic products that are the brand: Crocs, Dr Martens, and UGGs. For buyers, private equity houses, and investors, these “product-as-brand” businesses present a distinctive challenge: the value of the business may hinge on intellectual property rights that are more vulnerable to attack and more time-sensitive than a standard trade mark portfolio.

A recent EU General Court decision offers a cautionary tale.

The Crocs decision: commercial success is no defence

In Crocs Inc v EUIPO, the General Court upheld a declaration that Crocs’ iconic clog design was invalid for lack of individual character. 

Crocs had registered its classic clog design (featuring holes and a heel strap) in the EU on 22 November 2004, claiming a priority date of 28 May 2004. However, in October 2022, Gor Factory filed an invalidity application, arguing that the design was essentially identical to the earlier “Holey Soles” clog (a clog with holes but without a heel strap), which had been made available to the public in April 2003, over a year before Crocs’ priority date.

The central question was whether Crocs’ heel strap was sufficient to produce a different overall impression on the informed user. The Court found that it was not: both designs shared the same shape, thick sole, rounded toe cap, and identical arrangement of holes and trapezoidal cutouts. The heel strap, while noticeable, was merely an “incidental” feature. 

The Court also rejected Crocs’ argument that the shoes had cultural significance (including their appearance in the Design Museum’s Fifty Shoes that Changed the World). Commercial success is not a relevant criterion when assessing individual character.

Why product-as-brand businesses need a different IP strategy

Businesses where the product itself is the brand cannot rely on a single layer of IP protection. The optimal IP strategy for these businesses is not simply about maximising parallel protection across different rights, but about adopting a staged, long-term protection and enforcement strategythat evolves as the product matures into a brand.

At launch, registered design rights offer an early advantage: they reward visual novelty and individual character and can be secured before consumers know the product. But design rights are finite (typically up to 25 years in the UK and EU) and they do not protect brand recognition as such. 

Over time, as the product becomes famous and consumers learn to associate its shape with a particular source, trade mark protection becomes increasingly important. However, trade mark registration for a product shape comes with its own challenges. The shape must function as a badge of origin (not just an attractive product), and it must not fall within the shape exclusions for functionality or substantial value. Passing off and copyright can provide a backstop, but as unregistered rights they are generally harder to prove and harder to enforce.

The M&A and investment angle: what to look for in due diligence

For deal parties, the Crocs decision underscores the importance of targeted IP due diligence when acquiring or investing in a product-as-brand business. The key questions are as follows.

• Is there a staged IP strategy in place? Has the target secured registered design protection at launch and built towards trade mark protection as the product became famous? Or has it relied on a single layer of protection that may now be expiring or vulnerable?
• How robust are the design registrations? Validity can be verified on the register, but that is only half the picture. Equally important is how well the business monitors the competitive landscape and how prepared it is to defend its rights. Buyers should assess whether management has effective watch services in place, whether there is a track record of successfully fending off challenges, and how exposed the registrations may be to invalidity proceedings based on prior art.
• Is trade mark protection in place or achievable? Product shape trade marks are difficult to secure. Has the target built the evidence needed to show that the shape functions as a badge of origin? Does the shape fall within the functionality or substantial value exclusions?
• What happens when design rights expire? Design rights are finite. If the product’s visual identity is the brand, what protects it once the design registrations lapse? A target without a credible long-term IP strategy may be less valuable than it appears.

Conclusion

The Crocs decision is a reminder for deal parties that product-as-brand businesses require bespoke IP scrutiny. Commercial success and cultural recognition do not make a design registration immune from attack. The optimal IP strategy for these businesses is not just about stacking rights, but about building a staged, evolving portfolio that anticipates the product’s lifecycle as reputation and goodwill accumulate. Buyers and investors who fail to ask these questions risk overpaying for IP assets that may not withstand challenge. 

Macfarlanes is a pre-eminent law firm advising a global client base across Private Capital, Private Wealth, M&A and Disputes.

Visit our website to learn more about our services and how we can assist.