Already v. Nike “Air Force 1” Dispute Grounded

Already v. Nike “Air Force 1” Dispute Grounded

Last November, the INTA Bulletin reported that INTA had filed an amicus brief in the U.S. Supreme Court in support of trademark owners’ right to obtain dismissal of counterclaims for trademark cancellation if they had permanently withdrawn their claims for infringement. In its amicus brief, INTA urged the Supreme Court to affirm the judgment of the Court of Appeals for the Second Circuit recognizing this right in Already, LLC dba Yums v. Nike, Inc. On January 9, 2013, the Supreme Court issued a unanimous ruling in which it held, consistent with INTA’s position, that Already’s counterclaims for cancellation were moot because Nike had rendered Already a broad unconditional and irrevocable covenant not to sue. Case No. 11-982.

The appeal arose out of a suit Nike filed in federal court in New York against Already, LLC (“Already”), which does business under the trade name Yums, for infringement of Nike’s federally registered trade dress for its Air Force 1 shoe. Already responded with counterclaims asking the court to declare that Already did not infringe and that the Nike trade dress was invalid, and for cancellation of Nike’s registration.

Nike stated that it later determined from discovery that Already’s conduct was not harmful enough to warrant further litigation. Thus, to put an end to the litigation, Nike dismissed its claims and provided Already with a broad covenant not to sue. In the covenant, Nike promised that it would not file any claim for infringement, dilution or unfair competition “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 [was] produced, distributed, offered for sale, advertised, sold, or otherwise used in commerce before or after the Effective Date” of the covenant. The covenant also covered Already’s distributors and customers.

In light of the covenant, the court dismissed Nike’s infringement claims against Already. Thereafter, Nike sought dismissal of Already’s counterclaims for cancellation. Already resisted, arguing that it had the right to continue to seek cancellation of Nike’s trademark registration notwithstanding the dismissal of Nike’s infringement claims.

The district court granted Nike’s motion to dismiss. It held that Nike’s broad covenant not to sue removed any “case or controversy” between the parties, such that the court no longer had subject matter jurisdiction over the matter. The court noted that if Already wanted to pursue cancellation of Nike’s registration, it could still do so in the Patent & Trademark Office. The Second Circuit upheld the dismissal on appeal.

On further appeal, the Supreme Court held that, in order to obtain dismissal of Already’s counterclaims, Nike had to meet the formidable burden under the doctrine of voluntary cessation. This doctrine required Nike to show that it “could not reasonably be expected” to resume its enforcement efforts against Already. The Supreme Court agreed with the position stated in INTA’s amicus brief that the breadth and scope of Nike’s unconditional and irrevocable covenant not to sue, which extended to the Air Force 1 trademark at issue and any “colorable imitations thereof,” satisfied the voluntary cessation doctrine and rendered Already’s counterclaims moot.

One cautionary note was sounded in a concurring opinion by Justice Kennedy, joined by three other Justices. Trademark owners were warned that covenants not to sue should not routinely be used in an effort to moot litigation that a rights holder initiated. Not only might such covenants undermine the trademark at issue, but furthermore, the potential harm to a competitor caused by such litigation might make it difficult for the trademark owner to meet the formidable showing required under the voluntary cessation doctrine. Nevertheless, Justice Kennedy recognized, the covenant in this case was sufficiently broad, and any potential harm to Already sufficiently speculative, that it did meet the requirements of the voluntary cessation doctrine.

INTA thanks David H. Bernstein (Debevoise & Plimpton LLP), Marc Lieberstein (Kilpatrick Townsend LLP), Claudia Ray (Kirkland & Ellis LLP) and Vijay K. Toke (Hiaring + Smith LLP), along with all the members of the U.S. Subcommittee of the International Amicus Committee, for drafting INTA’s amicus brief.

For a detailed analysis of covenants not to sue (published inThe Trademark Reporter before the Supreme Court’s decision), see Tal S. Benschar, David Kalow & Milton Springut, Covenant Not to Sue: A Super Sack or Just A Wet Paper Bag?, 102 TMR 1213 (2012).

Although every effort has been made to verify the accuracy of items in the INTA Bulletin, readers are urged to check independently on matters of specific concern or interest.

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