Fanciful Footwear Won’t Help Nike Competitor

     WASHINGTON (CN) – A shoemaker cannot try to invalidate a Nike trademark with a phantom shoe not subject to a noninfringement agreement, the U.S. Supreme Court ruled Wednesday.
     Already LLC dba Yums hoped to cancel Nike’s trademark with counterclaims four months after Nike filed suit for infringement in July 2009.
     Nike’s complaint took issue with two examples of Yums footwear, known as Sugar and Soulja Boy, claiming that the shoes copied its 1982 design for the Air Force 1 shoe.
     Consumers buy millions of Air Force 1 shoes every year in more than 1,700 color combinations.
     In March 2010, four months after receiving the Yums counterclaims, Nike issued a covenant not to sue, saying that Yums’ actions “no longer infringe” sufficiently to warrant litigation. The document obligated Nike to refrain from prosecuting Yums over the initial claims.
     A federal judge in Manhattan then dismissed Nike’s claims with prejudice, and dismissed Yums’ counterclaims without prejudice. The court ruled that Yums’ claims no longer met the standard in light of the covenant.
     The 2nd Circuit affirmed in November 2011, and the Supreme Court sided with Nike as well on Wednesday.
     “Nike’s cov­enant now allows Already to produce all of its existing footwear designs – including the Sugar and Soulja Boy – and any ‘colorable imitation’ of those designs,” Chief Justice John Roberts wrote for the unanimous court. “We agree with the Court of Appeals that ‘it is hard to imagine a scenario that would potentially infringe [Nike’s trade­mark] and yet not fall under the covenant.” Nike, having taken the position in court that there is no prospect of such a shoe, would be hard pressed to assert the contrary down the road.”
     “If 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,” Roberts added. “It sits, as far as we can tell, on a shelf between Dorothy’s ruby slippers and Perseus’s winged sandals.”
     The case is moot because Yums has not shown plans to engage in activity not covered by the covenant, according to the ruling.
     Yums failed to show that it has standing because Nike trademarks make its prospective investors apprehensive, or that “Nike’s trademarks will now hang over Already’s operations like a Damoclean sword,” the court added.
     “Given our conclusion that Nike has met its burden of demonstrating there is no reasonable risk that Already will be sued again, there is no reason forAlready to be so shy,” Roberts wrote. “It is the only one of Nike’s competitors with a judicially enforceable covenant protecting it from litigation relating to the Air Force 1 trademark. Insofar as the injury is a threat of Air Force 1 trademark litigation, Already is Nike’s least injured competitor.”
     In a concurring opinion, Justice Anthony Kennedy expanded upon the burden of proof in this case.
     “This brief, separate concurrence is written to underscore that covenants like the one Nike filed here ought not to be taken as an automatic means for the party who first charged a competitor with trademark infringement sud­denly to abandon the suit without incurring the risk of an ensuing adverse adjudication,” Kennedy wrote, joined by Justices Clarence Thomas, Samuel Alito and Sonia Sotomayor.
     He added later: “In later cases careful consideration must be given to the consequences of using a covenant not to sue as the basis for a motion to dismiss as moot. If the holder of an alleged trademark can commence suit against a competitor; in midcourse file a covenant not to sue; and then require the competitor and its business network to engage in costly, satellite proceedings to demonstrate that future produc­tion or sales might still be compromised, it would seem that the trademark holder’s burden to show the case is moot may fall well short of being formidable. The very suit the trademark holder initiated and later seeks to de­clare moot may still cause disruption and costs to the competition. The formidable burden to show the case is moot ought to require the trademark holder, at the outset, to make a substantial showing that the business of the competitor and its supply network will not be disrupted or weakened by satellite litigation over mootness or by any threat latent in the terms of the covenant itself. It would be most unfair to allow the party who commences the suit to use its delivery of a covenant not to sue as an op­portunity to force a competitor to expose its future business plans or to otherwise disadvantage the competitor and its business network, all in aid of deeming moot a suit the trademark holder itself chose to initiate.”

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