Already, LLC v. Nike and its Impact on Trademark Protection

By, Kevin Kehrli

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On January 9th, 2013, the Supreme Court decided a trademark matter that may have implications that go far beyond the parties involved.  Already v. Nike involved one of Nike’s most popular line of shoes, Air Force 1s, and its trademark.  Nike sued Already L.L.C., alleging that two lines of the company’s shoes, “Soulja Boys” and “Sugars,” infringed and diluted the Air Force 1 trademark.  Already denied the infringement, and counterclaimed that the Air Force 1 trademark is invalid.  Four months after the counterclaim, likely worried about the prospect of losing its trademark in its Air Force 1 line, Nike’s attorneys 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 also contained provisions in which Nike promised that it “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.” SC Slip Op p. 2.  Nike then moved to dismiss its own claims with prejudice and Already’s claims without prejudice, claiming that the covenant had extinguished the case or controversy.

Already sought to pursue the claim based on three arguments.  First, Already offered evidence that it planned on introducing new versions of its shoe line into the market.  Next, it presented affidavits showing that potential investors would not consider investment unless Nike’s trademark is invalidated.  Finally, it claimed that “Nike had intimidated retailers into refusing to carry Already’s shoes.” SC Slip Op. 2.  The District Court dismissed Already’s counterclaim, finding that the covenant was written broadly enough to protect the new versions as “colorable imitations” and that Already did not produce evidence to show that they planned to develop any shoes that would not be covered by the covenant.  Therefore, it “held there was no longer ‘a substantial controversy . . . of sufficient immediacy and reality to warrant the issuance of a declaratory judgment’.” Slip op p. 3. (quoting Med-Immune, Inc. v. Genentech, Inc., 549 U.S. 118, 127 (2007)).  The Second Circuit affirmed, but added factors to guide courts in their assessment of whether or not a covenant “eliminates a justiciable case or controversy.” Slip op 3.  While ultimately it is a “totality of the circumstances” determination, the Second Circuit stated that courts should look to “the language of the covenant, whether the covenant covers future, as well as past, activity and products, and evidence of intention . . . on the part of the party asserting jurisdiction to engage in conduct not covered by the covenant.”

In its opinion, the Supreme Court applied the “voluntary cessation doctrine,” which imposes a “formidable burden of showing that it is absolutely clear the alleged wrongful behavior could not be expected to recur.” Slip Op. 4 (quoting Friends of the Earth, Inc. v. Laidlaw Environment Services (TOC), Inc., 455 U.S. 283, 289 (1982)).

In finding that the covenant meets this formidable burden, the Supreme Court listed several factors as influential.  First, it is “unconditional and irrevocable.”  Next, it extends beyond legal protection and “prohibits Nike from making any claim or any demand.”  It also grants protection to Already’s distributors and customers. And finally, it covers any colorable imitations, protecting previous, present, and future designs.

The first notable point from this case is the long-term risk involved when a party issues a covenant that meets this formidable burden.  While Nike likely granted this covenant because it was worried about preserving the validity of the Air Force 1 trademark, the company is now at risk of serious trademark dilution.  Because of the extreme breadth required for such a covenant to moot litigation, Already and its distributors essentially have free reign to develop products similar to Air Force 1s without the worry of Nike taking any action against them.  Even worse for Nike, the covenant is irrevocable and indefinite.  It remains to be seen whether Already will push the limits of this covenant, but if they do, it will be interesting to see how both Nike and the courts approach the situation.

This holding also represents a major victory for trademark holders.  If the Supreme Court had held that such a covenant did not moot the counterclaim for trademark validity, trademark holders would have to take into account that when filing an infringement suit, they would face the risk of having the status of their trademark questioned with no means to dismiss it.

Further, the Court’s reasoning and Justice Kennedy’s concurrence will have strategic implications for parties defending against trademark infringement claims.  Because the burden of showing that the covenant was broad enough fell upon Nike, as emphasized by Justice Kennedy, Already’s answer and counterclaim should have focused on showing that they were developing products that would fall in “the grey area” outside the scope of such a covenant, but within the scope of non-infringement.  Obviously, Already did not expect Nike to make the strategic move of granting the covenant, but it is now essential for those who plan to defend an infringement claim with a counterclaim for invalidity to take this into account.  More specifically, a party should attempt to show that they plan to develop products that would fall into a grey area of coverage if such a covenant is granted.  Doing so could be beneficial in two ways.  First, it would make the original claimant’s burden more difficult, thus increasing the likelihood that the court would find that a justiciable case or controversy remains.  Alternatively, the original claimant who meets this burden would have to create an even broader covenant than it would have done if the answer and counterclaims did not include such information.

Finally, the Court’s broad language in its opinion leaves open the possibility that the logic applied here may extend beyond trademark litigation.  Particularly, the Court stated that “allowing Nike to unilaterally moot the case “subverts” the important role federal courts play in the administration of federal patent and trademark law.” Slip op. p. 12.  It follows, then, that if a patent holder files an infringement suit, which is countered by a challenge to the patent in question, a patent-holder looking to moot the case, should keep this substantial burden placed on Nike in mind if issuing a covenant not to sue.

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