Nike's Trademark Infringement Case Turns on Covenant Not to Sue
"If such a shoe exists, the parties have not pointed to it, there is no evidence that Already has dreamt of it, and we cannot conceive of it. It sits, as far as we can tell, on a shelf between Dorothy's ruby slippers and Perseus' winged sandals."
So wrote Chief Justice Roberts in the case, Nike Inc. v. Already, LLC, decided on January 9, 2013. In the Supreme Court's unanimous opinion, the court found for Nike in the trademark dispute case, holding that Already, maker of athletic shoes Sugars and Soulja Boys, could not pursue its trademark claim against Nike Inc., because Nike had issued a Covenant Not to Sue, and therefore, the case was moot. The ruling prevented Already from pursuing its claim that Nike's trademark for its Air Force 1 shoes was not valid.
Nike had originally filed the lawsuit, alleging that two of Already's shoes violated Nike's Airforce 1 trademark. Already denied those claims, and filed a counterclaim challenging the validity of Nike's trademark.
During the suit, Nike issued a Covenant Not to Sue, promising not to raise any trademark or unfair competition claims against Already or any affiliated entity based on Already's existing footwear designs, or any future Already designs that constituted a "colorable imitation" of Already's current products.
Nike then moved to dismiss the case, arguing that there was no longer a case or controversy, in light of the Covenant. Already opposed the motion, arguing that Nike had not met its burden in showing that the case was moot.
The district court dismissed the case, and the Second Circuit Court of Appeals affirmed that decision, holding that in determining whether a covenant not to sue "eliminates a justiciable case or controversy," courts should look to the totality of the circumstances, and three factors would be instructive: "(1) the language of the covenant, (2) whether the covenant covers future, as well as past, activity and products, and (3) evidence of intention . . . on the part of the party asserting jurisdiction" to engage in conduct not covered by the covenant.
Article III, Mootness and the Voluntary Cessation Doctrine
The Court began its analysis with a refresher on the doctrine of mootness. "A case becomes moot -- and therefore no longer a 'Case' or 'Controversy' for purposes of Article III -- when the issues presented are no longer 'live' or the parties lack a legally cognizable interest in the outcome."
However, the Court recognized an important corollary to this maxim. A defendant cannot simply stop its conduct once it is sued, and expect the case to be rendered moot. "A defendant claiming that its voluntary compliance moots a case bears the formidable burden of showing that it is absolutely clear the allegedly wrongful behavior could not reasonably be expected to recur."
Thus, Nike had the burden to demonstrate that it “could not reasonably be expected" to resume its enforcement efforts against Already.
Terms of Nike's "Covenant Not to Sue"
As cited in the Court's opinion, the terms of the Covenant were as follows:
"[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 trade¬mark 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."
Nike Met Its Burden
The Court found that the terms of the Covenant met Nike's burden under the voluntary cessation test, because the terms were so broad that it prevented Nike from making any claim or demand, it protected Already's distributors and customers, and covered any current designs or colorable imitation. The Covenant was also unconditional and irrevocable.
Moreover, as the opening quote by Justice Roberts demonstrates, the Court could not conceive of a shoe that would not be covered by this Covenant. For its part, Already was unable to demonstrate that it intended to design or market a shoe that would expose it to liability. As such, the Court had little difficulty in concluding that the case was moot, because there was "no reasonable risk that Already would be sued again."
Will the Nike Holding Allow Big Companies to Intimidate Smaller Competitors?
Already argued that allowing Nike to unilaterally moot the case, was essentially giving them a pass 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."
Finding that "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," the Court concluded this was too broad a basis to find standing.
Justice Roberts wrote, "lowering the gates for one party lowers the gates for all." If they accepted Already's approach, it would only "further encourage parties to employ litigation as a weapon against their competitors rather than as a last resort for settling disputes."
However, counsel should note that a covenant like Nike's may not result in a similar outcome for all companies. Justice Kennedy warned in his concurring opinion that companies will not always be able to end a trademark lawsuit against a competitor by using a covenant like the one used by Nike here. "[C]ovenants 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," wrote Kennedy. Justices Thomas, Alito and Sotomayor joined in Justice Kennedy's concurrence.
Anne O'Donnell is a recovering litigator who is now currently a Senior Writer for legal professional content at Findlaw.com. She practiced for 10 years in civil litigation in San Francisco.