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Joyce Groote, of Holeys.
Joyce Groote, of Holeys.

Report on Small Business magazine

Can this woman beat Crocs? Add to ...

“Big smiles all around. He [Snyder]didn't say anything.” (Crocs didn't reply to repeated requests for interviews.) Thus began an epic, multipronged legal battle that continues to this day. Holeys' lawyers persuaded authorities in the U.S., Canada and Europe to prevent or invalidate Crocs' patents, in part by proving prior existence of the foam clogs. Crocs appealed the rulings and lost, but is continuing to fight. Meanwhile, Crocs took Holeys and 10 other manufacturers before the International Trade Commission in the U.S., claiming patent infringement. Having lost that case too, it's now appealing to the U.S. Federal Circuit. “It's a litigious company,” says Groote. “It's part of its DNA. The point isn't about winning; it's about sapping [competitors']resources and diverting focus. I was determined not to let that happen.”

The legal war has cost Holeys a million dollars to date. Robert Storey, an intellectual property lawyer with Bereskin & Parr in Toronto, is skeptical about the merits of Crocs' case. He compares it to Lego's battle with Montreal's Mega Brands, maker of Mega Bloks: Lego argued that aspects of its brick had become so distinctive, they functioned as a trademark. In more than a dozen court cases, judges disagreed. At the same time, Storey sees the foam-clog wars as an example of how a simple product can create a complex IP case, because it crosses various categories of rights, from patents and trademarks to copyright and industrial design registrations. “The lesson is, if you're in a fashion business, you should have a strategy to file [applications to protect your IP]on a timely basis,” he says.

Crocs' rivals can take consolation in that company's disastrous recent fortunes. In November, 2007, its shares shed half their value after quarterly results warned of slowing sales. The company, worth $6-billion (U.S.) at its stock's peak, had expanded manufacturing in anticipation of more good times ahead. Amid rising inventory levels, mounting debt obligations and allegations of insider trading, the shares slid as low as 79 cents (U.S.), and the company flirted with bankruptcy. All clog makers have seen sales drop, but Crocs had made the biggest investment, had reaped the biggest profits, and now faced the biggest disaster as people decided they'd had enough of foam clogs.

Holeys' foam shoes.

Not much time for navel-gazing

A small office near the warehouse in Holeys' 85,000-square-foot complex in Richmond is a three-dimensional chronicle of the company's quest for the next big thing. The so-called development room is packed to the ceiling with all types of experiments: foam sneakers, boots imprinted with ladybugs and paw prints, shoes with leather patches and laces, inserts and linings. There are also bags and kneepads, coasters and hats. Most are prototypes and test runs, and will never leave this room. Groote points to a pair of sandals, one of the company's early misfires. She's still not sure why they failed. “There's not been a lot of time for navel-gazing,” she says.

Every product here is made out of SmartCel, Holeys' version of the foam (a trade secret, like Coca-Cola's recipe). It looks and feels the same as any other foam product, but Groote says it's more durable and doesn't crinkle like other varieties after repeated bending. She points to another Holeys innovation: a slip-resistant sole tread, now applied to all of the company's footwear. “It has to be glued in, but one of the things about SmartCel is, nothing sticks to it,” Groote explains, twirling a hot-pink kid's clog over her hand like an old-time cobbler. “We had to fuse the rubber sole to the SmartCel,” a process that's also a trade secret.

Groote leads the way to another room that displays the Critters children's line. When Holeys started making kids' shoes in late 2006, each size was given a bug's name. A graphic designer on staff turned them into characters with personalities: Buzz, the chubby beetle; Flash, the firefly whose butt lights up when she's embarrassed. (“I have a funny feeling one of these characters may be me,” says Groote.) The company started embossing the characters on shoes, then added colouring books and crayons. Now, it's expanded to hats and knapsacks.

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