Already, LLC v. Nike, Inc.: Supreme Court Gives Shoe Trademark Lawsuit the Boot
Before a federal court can hear a case, the United States Constitution requires the parties to have standing by demonstrating that there is an actual case or controversy. To meet this requirement, the parties to a lawsuit must establish an actual or threatened injury that is capable of being remedied by court action. This requirement continues throughout the lawsuit, such that a party that had standing at the outset of a case could potentially lose it through changed circumstances as the case progresses. The question in this Supreme Court case was whether a plaintiff can eliminate a defendant’s standing to challenge the validity of a trademark by giving the defendant a permanent covenant not to sue – essentially eliminating the chance that the defendant could ever be harmed by the existence of a trademark.
First, a short description of the facts of this case. Nike’s iconic Air Force 1 shoe has inspired many imitators over the years. With Already’s “Soulja Boys” and “Sugars,” sold under Already’s YUMS brand, Nike initially sued Already for infringing and diluting Nike’s Air Force 1 trademark. Already denied the allegations, and filed a counterclaim seeking to invalidate Nike’s trademark. Four months later, Nike granted Already a “Covenant Not to Sue,” stating that Already’s actions no longer rose to a level sufficient to warrant litigation, and permanently and irrevocably promised not to sue Already or any affiliated entity for any trademark or unfair competition claim based on Already’s existing footwear designs or any future designs that were a “colorable imitation” of Already’s current products. Nike then moved to dismiss its claims with prejudice, and also moved to dismiss Already’s counterclaim on the ground that the covenant not to sue eliminated the case or controversy. Already consented to dismissal of Nike’s claims, but opposed dismissal of its own counterclaims, arguing that its investors and customers felt threatened by Nike’s Air Force 1 trademark even with the covenant not to sue, and wanted to proceed with the case and prove invalidity of the Air Force 1 mark.
The district court granted Nike’s motion, and dismissed the case entirely, finding that Nike’s broad and irrevocable covenant eliminated any chance that Already could be injured by the Air Force 1 trademark in the future. The Second Circuit Court of Appeals affirmed, holding that when evaluating the effect of a covenant not to sue on standing, the courts should look to the totality of the circumstances, including “(1) the language of the covenant, (2) whether the covenant covers future, as well as past activity, and (3) evidence of intention [by the defendant to engage in conduct beyond the scope of the covenant].” Because the covenant was irrevocable, and covered “both past and future sales of both existing products and colorable imitations[,]” Already had failed to show that it had any intention of marketing an infringing shoe not covered by the covenant. Already appealed to the Supreme Court.
The Supreme Court also affirmed dismissal of the claims. The Supreme Court stated that in cases such as these, it is up to Nike to prove, for standing purposes, “that it is absolutely clear that the allegedly wrongful behavior could not reasonably be expected to occur.” Here, the breadth of the covenant allowed Nike to meet this test. Not only did the covenant prevent Nike from filing a lawsuit, it also prevented it from making any claim or demand. It covered not only Already, but also Already’s distributors and customers. And it covered not just Already’s past and present shoes, but also all “colorable imitations” it might make in the future. The opinion states that the Supreme Court could not even imagine a shoe that would fall outside the covenant but be covered by the Air Force 1 trademark.
Why would a party issue a broad, irrevocable covenant not to sue? In some cases, the limited benefits of pursuing a case against an alleged infringer may not justify the cost of litigation and the risk that the alleged infringer could possibly prevail and invalidate a valuable trademark. In such an instance, it may be worth allowing a smaller competitor to infringe with permission, and preserve the trademark for potential use against a larger competitor. The Supreme Court cautions that this calculated retreat is not without serious risks. The owner of a trademark has an obligation to police infringing actions, and if an owner makes a habit of repeatedly declining to enforce its mark against all infringers, the trademark may lose its significance and be cancelled.
This case demonstrates how difficult it is for the owner of a trademark to unilaterally end a challenge to the validity of the mark. While the case can be settled at any time by agreement between the parties, it appears that the only way to stop a potential infringer determined to prove invalidity of a mark is to prevail at trial, or grant the opponent carte blanche to infringe the mark from now until eternity in an irrevocable covenant not to sue.
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