Thursday, January 10, 2013

Supreme Court Affirms Dismissal of Already v. Nike, Finding Counterclaim Moot

The United States Supreme Court has affirmed the decision of the U.S. Court of Appeals for the Second Circuit, ruling that infringement plaintiff Nike's covenant not to enforce its registered Air Force 1 product configuration trademark against Already's existing footwear products and any future "colorable imitations" thereof rendered moot Already's counterclaim for a declaration of invalidity of the Nike trademark. Already, LLC d/b/a YUMS v. Nike, Inc., 105 U.S.P.Q.2d 1169 (2013).

Nike brought its trademark infringement suit in the Sourthern District of New York, alleging that Already's "Soulja Boys" and "Sugars" lines of shoes infringed and diluted the Nike's trademark, and demanding that Already terminate sale of those shoes. Already filed a counterclaim contending that Nike's trademark is invalid.

Eight months after Nike filed its complaint, and four months after the counterclaim, Nike issued a "Covenant Not to Sue," stating 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.” The covenant promised that Nike would not raise against Already or any affiliated entity any trademark or unfair competition claim based on any of 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 its claims with prejudice, and to dismiss Already’s counterclaim without prejudice on the ground that the covenant had extinguished the case or controversy. Already opposed, arguing that Nike had not established that its voluntary cessation had mooted the case.

The District Court dismissed Already’s counterclaim, concluding that there was no longer "a substantial controversy . . . of sufficient immediacy and reality to warrant the issuance of a declaratory judgment." The U.S. Court of Appeals for the Second Circuit affirmed.

The Supreme Court framed the issue as follows: "whether a covenant not to enforce a trademark against a competitor’s existing products and any future “colorable imitations” moots the competitor’s action to have the trademark declared invalid."

The Court observed that "a defendant cannot automatically moot a case simply by ending its unlawful conduct once sued."  It was Nike’s burden to show that it "could not reasonably be expected" to resume its enforcement efforts against Already.

The Court ruled that the breadth of Nike's covenant was sufficient to meet the burden imposed by the "voluntary cessation test."

The covenant is unconditional and irrevocable. Beyond simply prohibiting Nike from filing suit, it prohibits Nike from making any claim or any demand. It reaches beyond Already to protect Already’s distributors and customers. And it covers not just current or previous designs, but any colorable imitations.

The Court noted that, "when given the opportunity before the DistrictCourt, Already did not assert any intent to design or market a shoe that would expose it to any prospect of infringement liability."

Given the covenant’s broad language, and given that Already has asserted no concrete plans to engage in conduct not covered by the covenant, we can conclude the case is moot because the challenged conduct cannot reasonably be expected to recur.

And so the Court affirmed the ruling of the Second Circuit.

Post  your comment here:

TTABlog comment: For a recent discussion of the ramifications of a covenant not to sue, see Tal S. Benschar, David Kalow, and Milton Springut, "Covenant Not to Sue: A Super Sack or Just A Wet Paper Bag?", 102 Trademark Reporter 1213 (November-December 2012).

The amicus brief filed by INTA, urging affirmance of the Second Circuit's decision, may be found here.

Text Copyright John L. Welch 2013.


At 9:56 AM, Blogger Albert/GNd said...

If Already files a trademark application for their shoe design, would this not create new grounds for filing a cancellation proceeding against Nike's marks?

For example,if Nike's marks are cited against Already's during prosecution, would new grounds related to registration overcome the collateral estoppel and standing issues in a TTAB cancellation proceeding?

Or, if Already's marks register, would they not have new grounds under likelihood of confusion?

At 10:42 AM, Anonymous Daniel Kegan said...

Already v Nike-
I wonder if the Nike attorneys and management are now pleased or upset at the breadth of the granted consent, and will or will not be when/if Yums comes out with their new shoe line. Daniel Kegan, Chicago

At 10:55 AM, Blogger Valerie said...

What is nike transfers its rights in the trademark? Does the covenant cover future owners of the mark?

At 11:26 AM, Anonymous Terry Carroll said...

The Court's opinion is based on the wide breadth of Nike's covenant not to sue, to the extent that there does not appear to be any reasonable possibility that Yums could produce a shoe that would run afoul of the Nike trademark yet not be within the scope of the covenant.

Nonetheless, I predict that courts, attorneys and law instructors will transmute this into the oversimplified bright-line rule "any counterclaim to invalidate a trademark is mooted by a covenant not to sue on that trademark."

See also Campbell v. Acuff-Rose Music, where the court explicitly disavowed the position that parody is inherently a fair use under copyright law, thus spawning a generation of young attorneys who now "know" that it held that parody is a fair use.

At 12:20 PM, Blogger Albert Interian said...

Valerie, I had the same thought. If the covenant does not include a provision that requires Nike to incorporate the covenant into any transfer of rights, then I believe Already could initiate proceedings after that point.

Before the actual transfer of rights takes place, there could be an argument against Already's standing in that the issue is not yet ripe (as opposed to moot).

At 2:42 PM, Anonymous Anonymous said...

Can Already now ask for attorney's fees and costs? Unless something factually changed between Nike's pre-filing investigation and the issuing of the covenant, how can they maintain they conducted a reasonable pre-filing investigation or litigated in good faith. Similarly, can Already seek damages in a separate action for abuse of process or related tort claims?

At 2:50 PM, Anonymous Anonymous said...

I am surprised that the S.Ct. opinion does not discuss the impact of preamble of Nike's covenant which stated "Already's actions ... no longer infringe or dilute the NIKE Mark at a level sufficient to warrant the substantial time and expense of continued litigtion." This seems like a pretty express public statement by Nike that Already is an infringer (albeit de minimus). Under those circumstances, why doesn't Already have standing to challenge the TM and clear its name.

At 3:21 PM, Anonymous Orrin A. Falby said...

@Albert --The Nike mark should not be a bar to registration here in light of the estoppel effect of the dismissal with prejudice. I think that this could be reolved in the ex parte proceeding. Didn't an Examining Attorney use collateral estoppel as the basis to refuse a registration recently and the TTAB sustained the appeal?


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