Supreme Court Sides With Nike in Trademark Case

In a unanimous decision authored by Chief Justice Roberts, the U.S. Supreme Court in Already, LLC v. Nike, Inc., 105 U.S.P.Q.2d 1169 (U.S. 2013) affirmed the Second Circuit’s decision in holding that 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 itself declared invalid.

In the case, Nike brought a trademark infringement suit against Already in the Southern District of New York, alleging that its “Soulja Boys” and “Sugars” shoes infringed on Nike’s trademark of its immensely popular Air Force 1 sneakers. After Already filed a counterclaim to have Nike’s trademark declared invalid, Nike dropped its own claims with prejudice and issued a broad covenant not to sue. The covenant was unconditional and irrevocable, it protected Already’s distributors and customers, and it covered any “colorable imitations” in addition to Already’s existing designs.  Nike then sought to have Already’s counterclaim dismissed as moot, arguing its covenant not to sue extinguished any “case or controversy” under Article III of the Constitution.  (Without an actual case or controversy, the Federal court would lack Article III jurisdiction to decide the case, as hypothetical cases and controversies are not within the federal courts’ judicial power.)  Already argued that allowing Nike to voluntarily exit a dispute it started, notwithstanding a counterclaim, would allow trademark holders and particularly large companies such as Nike, to engage in overzealous enforcement of their trademarks.  The Court found that giving standing to sue when not faced with a “case or controversy,” however, would allow larger companies to challenge the trademark rights of smaller competitors, not because they are threatened, but simply because they have the resources to do so.  Also of great significance to the Court was that Already never indicated any plans to make a shoe that would fall outside Nike’s covenant not to sue but could still be infringing Nike’s trademark. Had Already shown that such a shoe design was in its future plans, it’s much less likely the Court would have dismissed the case as moot.

As a result, trademark holders can continue to utilize unilateral covenants to end litigation. Such covenants must be broadly drafted, however, because the Court found there is a heavy burden on the party who initiated the suit before seeking dismissal to demonstrate mootness. The covenant must show that the wrongful behavior could not reasonably be expected to recur. Nike’s covenant met this formidable burden by being unconditional and irrevocable, prohibiting Nike from making any claim or any demand against Already, extending beyond Already to protect its distributors and customers, and also covering any “colorable imitations.”

Read more about the case here.