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| Holey Soles is a true Canadian success story. Holey Soles: in the beginning Just as the United States has the saga of Steve Jobs starting the now-famous Apple company in his friend’s garage, Canada’s Holey Soles had a similar unpretentious start. A Vancouver psychologist, in late 2002, used her garage to begin a business distributing and selling a comfy-but-ugly neon-bright foam clog. By the end of 2006, Holey Soles had gross sales of close to $10 million, with no end in sight. Holey Soles first sourced its products from Quebec manufacturer Finproject (later to become Foam Creations Inc). The Quebec company had been selling its injection-molded foam clog since 2001 to businesses in Canada and the United States. Among these were the Canadian company Holey Soles, and Western Brands LLC (later to become Crocs Inc) from Colorado, USA. Holey Soles, located in Vancouver, was a small home business with a Canadian sensibility. The company’s early efforts were focussed on good service to retail outlets in British Columbia. The highly adaptable shoe gained traction among boaters and gardeners. Demand was fuelled by the clog’s appeal to anyone wanting comfortable and fun footwear. The competitors Of the companies selling the Foam Creations clog, the U.S.-based Western Brands LLC soon gained profile. They added a pivoting strap to the Foam Creations clog, christened it “crocs” and sold it in fall-winter 2002. The American company sensed a business opportunity, and moved aggressively to secure its supply by purchasing the Canadian manufacturer Foam Creations Inc. in 2004. Improved design and new directions at Holey Soles The foam clogs being sold in the US and Canada had been identical to this point aside from the addition of a pivoting strap for the U.S. shoes sold by Western Brands. The shoe that the US company called ‘crocs’, Holey Soles called their ‘Holey Soles’ model. However, Western Brands was crowding out Holey Soles on the Foam Creations supply chain. By Spring 2004, Holey Soles had found new suppliers in China and developed a series of new styles to meet consumer demands. Holey Soles redesigned its styles in response to customer feedback. The improved designs featured a better-fitting toe box, more arch support and more pronounced massaging nubs. Holey Soles then set out to diversify its market offerings to produce innovative lifestyle products, adding lines of accessories, bags, hats and specialty children’s footwear. New leadership for growth and social responsibility In 2005, Holey Soles recruited a dynamic new CEO, Joyce Groote, to grow the fledgling Canadian company to compete in an era of global eco-consciousness and social responsibility. Ms Groote had proven her vision and leadership skills by establishing Biotech Canada, and founding a venture capital corporation, Life Sciences Angel (investor) Network. Under her direction, Holey Soles was named as the fastest growing entrepreneurial company in Canada in the 2006 Hot Profit 50 rankings by Profit magazine. In addition to attaining growth and profitability at an astonishing pace, Ms Groote has positioned Holey Soles as a global-citizen with generous donations to Hurricane Katrina victims, Canuck Place and to Souls4Soles, for African relief. The gathering legal storm clouds Both Holey Soles and Western Brands had originally been selling essentially the same shoe manufactured by FinProject. However, Western Brands reorganized in January 2005 to become Crocs Inc and adopted an ambitious growth strategy. It called for aggressive initiation of legal actions against competitors, even where the merits of the case were dubious. Weak and struggling companies could be expected to fold under the pressure and costs of litigation. Holey Soles, in particular, was in Croc’s crosshairs. Crocs Inc filed a lawsuit in 2005 against Holey Soles in the Federal Court of Canada. None of their other Canadian competitors were similarly targeted. Why was Crocs’ legal claim based on a foam clog that had been widely available and was being sold by a number of companies since 2001 (long before Crocs existed or filed its patent application). A cynical observer might wonder, too, how Crocs was able to file for patent protection on a clog style that was already in the public domain. Lawsuits and business tactics Holey Soles views Crocs’ legal actions as a business tactic. After all, both companies, among others, had the right to sell the same shoe from the beginning. Defending itself in a legal battle, even one of questionable merit, was the only option. Otherwise, Holey Soles would be conceding the business to Crocs. In a pre-emptive strike to prevent further litigation, Holey Soles asked in a New York court, in August 2005, for a declaratory judgment that it does not infringe Crocs’ intellectual property. The issue is “on hold” pending findings of the International Trade Commission (ITC) on a separate legal action launched by Crocs. The Administrative Law Judge in the action initially ruled in Holey Soles’ favour in November 2006, on the Crocs design patent claims, but the ITC decided that the judge’s ruling should not come until after a full evidentiary hearing. That hearing was subsequently held September 7th through September 14th 2007. Crocs has also conceded that the shoes Holey Soles has distributed since the utility patent was issued, which include large washers at the strap connection, do not infringe Croc’s utility patent even if that patent is valid. The final ITC decision will not be available until 2008. One competitor in the ITC claims, Australia Unlimited, settled with Crocs Inc in order to get back to business. Australia Unlimited introduced a new, different shoe for sale in the United States, believing this complied with their agreement. However, Crocs Inc thought otherwise. In January 2007, Crocs filed another lawsuit against Australia Unlimited claiming breach. Crocs obtained a temporary restraining order to prevent the sale of the new shoe at an important trade show but the Court refused Crocs attempt to prevent sale of these disputed shoes pending trial. Australia Unlimited is contesting the Crocs claim, also alleging that Crocs is in breach. Australia Unlimited is asking for money damages as compensation for losses under the restraining order. Crocs Inc filed other complaints in April and May 2006, in the US District Court in Colorado. Again Crocs alleged patent and trade dress infringements against their 11 competitors, again including Holey Soles. This matter is on hold pending the ITC decision. For all its litigiousness, Crocs Inc seems to have gained very little legal ground. There are victims, to be sure, as some competitors were forced to default their legal defence due to the crippling costs. However, there appear to be few legal victories in Crocs’ campaign. Getting on with business While defending its legal ground, Holey Soles has stepped up its focus on sound business initiatives. It is expanding its international business markets. The Canadian company is strongly committed to a service-oriented culture. The objective is to win over its customer base, rather than destroy the competition. Holey Soles plans to introduce more innovations to their lifestyle product line. The Holey Soles clogs continue to undergo design improvements. Customer feedback about the quality of these changes has been overwhelmingly positive. The real measure of success Holey Soles believes the real measure of success is the response of retailers and customers to their innovative lifestyle products, and to their service. The hallmarks of this successful company are Holey Soles’ culture of respect, its exploding worldwide sales, its reputation as a company that retailers and customers like to deal with, outstanding customer feedback, and a solid track record as a socially-minded global citizen. Holey Soles is a true Canadian success story. And nice too, eh. - By Sherry Wiebe
Soles4Souls: Record-Breaking Donation
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