By William Winter and Ryan Rodenberg
Background
Nike developed its seminal Air Force 1 basketball sneaker in 1982. The shoe generates millions in revenue annually and has proven cross-over appeal in pop culture. Due to its global appeal and relatively simple (yet novel) design, the Air Force 1 has proven ripe for trademark infringement. As a result, Nike has a history of moving to defend its valuable trademark. To that end, in 2008, Nike developed an internal “top ten list of infringers” which flagged certain entities that the company identified as selling sneakers potentially related to the Air Force 1 design (Opinion, p. 20). One company on the list was Already, LLC, a comparatively small-time player known for their YUMS sneakers. Nike moved to file a trademark infringement claim. Already responded with a counterclaim challenging the validity of the Air Force 1 trademark.
For reasons that are not explicitly clear, Nike experienced a change of heart eight months after filing its complaint, and declared that “Already’s actions… no longer infringe or dilute the [Air Force 1 trademark] at a level sufficient to warrant the substantial time and expense of continued litigation” (Opinion, p. 5). Subsequently, Nike issued a legal promise, known as a covenant not to sue, that unequivocally pledged not to raise any trademark or unfair competition claims against any of Already’s then-existing products. Nike then moved to dismiss both its infringement claim and Already’s counterclaim, arguing that the covenant not to sue rendered the case moot. However, Already refused to dismiss its trademark challenge, claiming that Nike’s original lawsuit was nothing more than a bullying tactic. The Second Circuit sided with Nike and dismissed the case, including Already’s counterclaim, after concluding that there was no longer a justiciable controversy. Already appealed and the U.S. Supreme Court agreed to hear the case.
Majority Opinion
The Supreme Court unanimously affirmed the decision of the Second Circuit on January 9, 2013 and dismissed Already’s counterclaim as moot. Chief Justice Roberts authored the majority opinion. Article III of the U.S. Constitution grants the judicial branch the authority to adjudicate cases only as long as an “actual controversy” exists throughout the litigation.
Nike contended that the “controversy” at issue extinguished the moment it issued the covenant not to sue. Supreme Court precedent states that a party can moot a case through its own voluntary compliance, provided there is no reasonable chance the offending behavior would reoccur. The covenant, as Chief Justice Roberts repeatedly emphasized, was quite broad, “unconditionally and irrevocably” promising not to institute any litigation regarding any possible trademark claims relating to any of Already’s footwear designs against any of Already’s business entities, including all distributors, employees and customers. (Opinion, p. 9). Although admitting that it is normally difficult for a party to summarily conclude litigation by invoking voluntary cessation, the Court found that the breadth, unconditional nature, and irrevocability of the covenant sufficed. To bolster the point, the majority opinion continually pointed to the fact that Already was completely unable, despite numerous requests at different stages of the litigation, to propose a hypothetical shoe design that could potentially infringe on Nike’s trademark and simultaneously fall outside the scope of the covenant not to sue. As Chief Justice Roberts colorfully stated, “[i]f such a shoe exists, the parties have not pointed to it, there is no evidence that Already has dreamt of it, and we cannot conceive of it. It sits… on a shelf between Dorothy’s ruby slippers and Perseus’s winged sandals.” (Opinion, p. 10).
Already advanced three major arguments while contending that it should be allowed to continue its counterclaim seeking to declare Nike’s Air Force 1 trademark invalid. The first was the notion that potential investors would be apprehensive about financially backing Already so long as Nike remained free to assert its trademark. Chief Justice Roberts dismissed this concern as speculative. Second, Already expressed its fear that Nike’s trademark remained a viable threat and would continue to hang over its operations “like a Damoclean sword.” (Opinion, p. 12). At oral argument, Already’s counsel stated that his client was “once bitten, twice shy” regarding future litigation. (Opinion, p. 14). Chief Justice Roberts attempted to mollify these concerns by reminding Already that they were actually in the unique position of being “the only one of Nike’s competitors with a judicially enforceable covenant protecting it from litigation…” (Opinion, pg. 14). Thus, in the majority’s view, the covenant put Already in a position of advantage as “Nike’s least injured competitor.” (Opinion, p. 14).
Lastly, the smaller company asserted that it possessed standing to challenge Nike’s intellectual property due to Already’s position as a competitor in the show market. According to Already, allowing Nike to unilaterally moot the case would set a dangerous precedent — large companies could register invalid trademarks to intimidate smaller competitors, meanwhile avoiding judicial scrutiny by issuing covenants in the rare case “where the little guy fights back.” (Opinion, p. 15). Chief Justice Roberts dismissed this notion as overly broad. As the Court opined, standing must be based on an injury more particularized and more concrete than the mere assertion that something unlawful benefited the plaintiff’s competitor.
In sum, the majority concluded that Already’s only legally cognizable injury — the fact that Nike took steps to enforce its trademark — was extinguished by the covenant not to sue. Likewise, given the covenant’s breadth, subsequent litigation on the same fact pattern could not reasonably be expected to recur. Finding no other basis on which to find a live controversy, the case was rendered moot and dismissed.
Concurrence
The concurrence, authored by Justice Kennedy and joined by Justices Thomas, Alito and Sotomayor, mostly reflected the reasoning advanced by the majority. However, Justice Kennedy found it necessary to emphasize that covenants such the one filed by Nike should not be taken as an automatic means for the party who first charged a competitor with trademark infringement to suddenly abandon the suit without incurring the risk of an ensuing adverse adjudication. As stated by the concurring justices, the “mere pendency of litigation can mean that other actors in the marketplace may be reluctant to have future dealings with the alleged infringer.” (Opinion, p. 20). The concurrence ultimately agreed that Nike sufficed to meet their burden in this case.
Discussion and Implications
The case is important for trademark holders and challengers. Its implications will mold company’s enforcement strategies. For large companies that routinely bring trademark infringement claims against smaller market competitors, one of the long-standing risks is the potential for the defendant to file a counterclaim seeking an invalidation of the very trademark that the plaintiff is attempting to protect. The majority’s decision opens the door for a plaintiff to successfully dismiss such a counterclaim by issuing a broad and unequivocal covenant not to sue. However, before issuing a broad covenant not to sue in order to obtain dismissal of a trademark invalidity counterclaim, a company must properly balance the associated risks. For example, such a covenant could adversely impact the future enforceability of the trademark.
William Winter is a graduate student at Florida State University. He is a graduate of Florida State University College of Law and the University of Texas. Ryan Rodenberg is an assistant professor of sports law analytics at Florida State University.
