Thursday, January 10, 2013
U.S. High Court Upholds Dismissal of Claims Against Nike
By JACKIE FUCHS, Staff Writer
The U.S. Supreme Court yesterday upheld the dismissal of a challenge to the validity of Nike’s Air Force 1 trademark, saying Nike had issued a covenant not to sue which mooted the challenger’s claims.
In a unanimous decision, Chief Justice John Roberts said that the possibility of a scenario in which Nike’s trademark might be infringed and yet not fall under the covenant sat “on a shelf between Dorothy’s ruby slippers and Perseus’s winged sandals.”
Nike designs, manufactures, and sells athletic footwear, including a line of shoes marketed as Air Force 1s.
In 2009 Nike sued Already, LLC, claiming that the shoe lines known as “Sugars” and “Soulja Boys,” which Already marketed under the trade name “Yums,” infringed and diluted its Air Force 1 trademark.
Already denied the allegations and filed a counterclaim contesting the validity of the Air Force 1 mark.
Four months later, Nike issued a covenant not to sue, saying that “Already’s actions . . . no longer infringe or dilute the NIKE Mark at a level sufficient to warrant the substantial time and expense of continued litigation.”
Under the covenant, Nike agreed not to claim trademark infringement or unfair competition by Already or its customers or distributors based on any of Already’s existing footwear designs or any future designs that constituted a “colorable imitation” of such products.
Thereafter, Nike moved to dismiss its claims with prejudice, and to dismiss Already’s counterclaim without prejudice on the ground that the covenant had rendered the case moot.
Already opposed dismissal, arguing that Nike had not established that its voluntary cessation had mooted the case. In support of its position, Already submitted affidavits from potential investors saying they would not invest in Already until Nike’s trademark was invalidated, as well as an affidavit from an Already executive alleging that Nike had intimidated retailers into refusing to carry Already’s shoes.
The district court dismissed Already’s counterclaim, saying there was no evidence that Already sought to develop any shoes not covered by the covenant.
The Second Circuit U.S. Court of Appeals affirmed, finding it “hard to conceive of a shoe that would infringe the Air Force 1 trademark yet not fall within the covenant.”
The Supreme Court granted certiorari and Roberts, for a unanimous court, said that while an Article III case becomes moot “when the issues presented are no longer ‘live’ or the parties lack a legally cognizable interest in the outcome,” a defendant cannot automatically moot a case simply by ending its unlawful conduct once sued.
“Otherwise,” Roberts wrote, “a defendant could engage in unlawful conduct, stop when sued to have the case declared moot, then pick up where he left off, repeating this cycle until he achieves all his unlawful ends.”
Nike’s covenant, however, was exceptionally broad, as well as “unconditional and irrevocable.” It prohibited Nike from making “any claim or any demand” not just against Already, but against its distributors and customers, and covered both current and past products as well as future colorable imitations.
Roberts did not accept Already’s argument that Nike’s trademarks would hang over Already’s operations “like a Damoclean sword.”
“And even if Nike were engaging in harassment or unfair trade practices, Already has not explained how invalidating Nike’s trademark would do anything to stop it.”
Justice Anthony Kennedy wrote a concurring opinion, in which he emphasized that under the “voluntary cessation” doctrine, the burden was on Nike to show “that the
covenant not to sue is of sufficient breadth and force that Already can have no reasonable anticipation of a future trademark infringement claim from Nike.”
He said the District Court and the Court of Appeals issued their rulings on the erroneous premise that the burden was on Already to make the relevant showing.
He wrote “to underscore that covenants like the one Nike filed here ought not to be taken as an automatic means for the party who first charged a competitor with trademark infringement suddenly to abandon the suit without incurring the risk of an ensuing adverse adjudication,” he said.
Claims of trademark infringement can, Kennedy wrote, be disruptive to the relations between a manufacturer and its distributors, retailers, and investors.
“It would be most unfair to allow the party who commences the suit to use its delivery of a covenant not to sue as an opportunity to force a competitor to expose its future business plans…”
By insisting on the proper allocation of the “formidable burden on the party asserting mootness,” courts can ensure that covenants not to sue are not automatic mechanisms for trademark holders to use courts to intimidate competitors without assuming the risk that their trademarks will be found invalid and unenforceable.
Justice Clarence Thomas, Justice Samuel Alito and Justice Sonia Sotomayor concurred in Kennedy’s opinion.
The case is Already, LLC v. Nike, Inc.; No. 11–982.
Copyright 2013, Metropolitan News Company