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Supreme Court Upholds Nike’s Promise to “Break the Wrist, and Walk Away”

Posted in Articles, Infringement, Law Suits, Trademarks

Not every day does the United States Supreme Court weigh in on a topic impacting the trademark world, but it did so yesterday in Already, LLC v. Nike, Inc., a case illustrating what can happen when a trademark plaintiff wants to pull the plug and end the lawsuit it started in a walkaway (or as martial arts instructor Rex in Napoleon Dynamite might say, “break the wrist, walk away“).

Eight months into Nike’s trademark infringement lawsuit against Already (a footwear competitor and maker of “Sugars” and “Soulja Boys” shoes), Nike wanted out — this was also four months after Already counterclaimed against Nike, asking the court to invalidate the non-traditional trademark rights claimed by Nike in the appearance and design of the Nike Air Force 1 shoe.

To remove itself from the lawsuit, Nike voluntarily dismissed with prejudice its asserted trademark claims against Already. And, in an attempt to moot the counterclaim and prevent the court from ruling on Already’s trademark validity challenge, Nike issued the following expansive promise and covenant not to sue:

“[Nike] unconditionally and irrevocably covenants to refrain from making any claim(s) or demand(s) . . . against Already or any of its . . . related business entities . . . [including] distributors . . . and employees of such entities and all customers . . . on account of any possible cause of action based on or involving trademark infringement, unfair competition, or dilution, under state or federal law . . . relating to the NIKE Mark based on the appearance of any of Already’s current and/or previous footwear product designs, and any colorable imitations thereof, regardless of whether that footwear is produced . . . or otherwise used in commerce before or after the Effective Date of this Covenant.”

Already was content to have Nike pull the plug on its trademark infringement claims against Already, but being “once bitten, twice shy,” Already nevertheless wanted to continue with its claim to invalidate the trade dress for Nike’s Air Force 1 shoe. To justify continuing with a one-way fight, Already expressed concern about investors who testified they would not invest in Already until Nike’s Air Force 1 design trademark was struck down. In fact, Already took its penchant to continue the fight to invalidate Nike’s trade dress all the way to the Supreme Court, being told by both the District Court and the Court of Appeals along the way, that the counterclaim could not go forward since there was no longer a justiciable case or controversy.

Chief Justice Roberts writing for the Supreme Court affirmed the Court of Appeals decision, agreeing that there was no longer an actual controversy between Nike and Already to justify further court involvement:

“Given our conclusion that Nike has met its burden of demonstrating there is no reasonable risk that Already will be sued again, there is no reason for Already to be so shy. It is the only one of Nike’s competitors with a judicially enforceable covenant protecting it from litigation relating to the Air Force 1 trademark. Insofar as the injury is a threat of Air Force 1 trademark litigation, Already is Nike’s least injured competitor.”

Already even attempted to play the “trademark bully” card in justifying a continued one way fight over the validity of Nike’s Air Force 1 trade dress registration:

“According to Already, allowing Nike to unilaterally moot the case ‘subverts’ the important role federal courts play in the administration of federal patent and trademark law. It allows companies like Nike to register and brandish invalid trademarks to intimidate smaller competitors, avoiding judicial review by issuing covenants in the rare case where the little guy fights back. Already and its amici thus contend that Already, ‘[a]s a company engaged in the business of designing and marketing athletic shoes,’ has standing to challenge Nike’s trademark.”

But the Court was not moved with the “trademark bully” concern or alleged justification:

“Already’s arguments boil down to a basic policy objection that dismissing this case allows Nike to bully small innovators lawfully operating in the public domain. This concern cannot compel us to adopt Already’s broad theory of standing.”

“First of all, granting covenants not to sue may be a risky long-term strategy for a trademark holder. See, e.g., 3 J. McCarthy, Trademarks & Unfair Competition §18:48, p. 18–112 (4th ed. 2012) (“[U]ncontrolled and ‘naked’ licensing can result in such a loss of significance of a trademark that a federal registration should be cancelled”); Sun Banks of Fla., Inc. v. Sun Fed. Sav. & Loan Assn., 651 F. 2d 311, 316 (CA5 1981) (finding that “extensive third-party use of the [mark was] impressive evidence that there would be no likelihood of confusion”). In addition, the Lanham Act provides some check on abusive litigation practices by providing for an award of attorney’s fees in “exceptional cases.” 15 U. S. C. §1117(a); cf., e.g., Gwaltney of Smithfield, Ltd. v. Chesapeake Bay Foundation, Inc., 484 U. S. 49, 67, n. 6 (1987) (explaining that an award of litigation costs can protect “from the suddenly repentant defendant”).”

“Accepting Already’s theory may benefit the small competitor in this case. But lowering the gates for one party lowers the gates for all. As a result, larger companies with more resources will have standing to challenge the intellectual property portfolios of their more humble rivals—not because they are threatened by any particular patent or trademark, but simply because they are competitors in the same market. This would further encourage parties to employ litigation as a weapon against their competitors rather than as a last resort for settling disputes.”

“Already’s only legally cognizable injury—the fact that Nike took steps to enforce its trademark—is now gone and, given the breadth of the covenant, cannot reasonably be expected to recur. There being no other basis on which to find a live controversy, the case is clearly moot.”

So, it appears the Court agrees Nike has promised to “walk away” — I suppose it remains to be seen whether any wrists actually have been broken in the process.

For your further reading enjoyment, Marty Schwimmer’s Trademark Blog covered the original filing of Nike’s case back in July 2009, and more recently the SCOTUSblog did a nice write up on the case just prior to the oral arguments before the Supreme Court.

So, how do you think this decision will impact the ongoing trademark bullying discussion?