WASHINGTON, D.C. - (Mealey's) The Second
Circuit U.S. Court of Appeals properly rejected trademark counterclaims levied
against Nike Inc. where a covenant not to sue entered into by the counterclaimant
extinguished any justiciable controversy between the two, the U.S. Supreme
Court held today (Already LLC d/b/a YUMS v. Nike Inc., No. 11-982, U.S.
Sup.; See 11/19/12, Page 5).
(Decision available. Document #16-130122-006Z.)
In a unanimous ruling
authored by Chief Justice John Roberts, the court rejected plaintiff Already
LLC, d/b/a YUMS (Already)'s claim that dismissing the case allows Nike to
"bully small innovators lawfully operating in the public domain."
cannot compel us to adopt Already's broad theory of standing," the Supreme
"Already's only legally
cognizable injury - the fact that Nike took steps to enforce its trademark - is
now gone and, given the breadth of the covenant, cannot reasonably be expected
to recur. There being no other basis on which to find a live controversy, the
case is clearly moot," the Supreme Court added.
Already markets and sells
sneakers. In 2009, Nike sued Already in the U.S. District Court for the
Southern District of New York, alleging willful trademark infringement and
dilution in connection with Already's "Soulja Boy" sneaker. According to Nike,
the Already shoe infringed upon Nike's "Air Force 1" sneaker design, for which
Nike had obtained federal trademark protection.Nike sought an injunction and an
order directing the destruction of all infringing sneakers and advertising
materials related to the shoes. Furthermore, because Nike said that because
Already's infringement was willful and Already had acted in bad faith, Nike
sought an award of enhanced profits and damages, punitive damages, costs and
attorney fees.Already counterclaimed, seeking a declaration that the sneaker
design depicted in Nike's registration was not a valid trademark under federal
or New York state law and that Already had not infringed. Already also sought
an order canceling Nike's registration pursuant to 15 U.S. Code
In March 2010, Nike sent
Already a covenant not to sue, reasserting its ownership of the relevant
registration and its allegations that Already was an infringer of the same but
stating that Nike "unconditionally and irrevocably covenants to refrain from
making any claim(s) or demand(s)" against Already. Nike then moved to dismiss
its complaint and to dismiss ALC's counterclaims for lack of subject matter
jurisdiction. Already agreed to the dismissal of Nike's claims with prejudice
but opposed dismissal of its counterclaim, asserting that it had standing under
Article III of the U.S. Constitution to challenge the validity of Nike's mark
because "the mere existence of a trademark registration certificate can cause
injury to a person's business or property."
Nike prevailed, with the
District Court dismissing [enhanced version available to lexis.com subscribers] Nike's claims with prejudice and Already's
counterclaims for lack of subject matter jurisdiction under Article III and
denying ALC's motion for attorney fees. Already appealed to the Second Circuit
U.S. Court of Appeals, which affirmed [enhanced version available to lexis.com subscribers] in November 2011 after applying the
"totality of the circumstances" test set forth by the Supreme Court in MedImmune
Inc. v. Genentech Inc.(549 U.S. 118 ; See 1/22/07, Page 5) [enhanced version available to lexis.com subscribers]. The
Second Circuit said no case or controversy exists between the parties as a
result of Nike's promise not to assert its trademark rights against Already and
rejected Already's assertion that Nike's litigation continued to have an
"injurious" effect in that Already would be harmed by a potential loss of
investors fearing future lawsuits.
In February 2012, Already
filed a petition for certiorari with the Supreme Court, which granted
the request in June. Oral arguments were held in November.
Affirming, the Supreme Court
applied the voluntary cessation doctrine to the covenant not to sue and deemed
the document sufficient. "The covenant is unconditional and irrevocable,"
Justice Roberts noted, adding that "beyond simply prohibiting Nike from filing
suit, it prohibits Nike from making any claim or any demand."
Furthermore, the covenant "reaches beyond Already to protect Already's
distributors and customers" and "covers not just current or previous designs,
but any colorable imitations," the Supreme Court held.
"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. It sits, as far as we can tell,
on a shelf between Dorothy's ruby slippers and Perseus's winged sandals," the
"alternative" theories of Article III injury - including that Nike remains free
to assert its trademark, thereby weakening Already's position with potential
investors, and that as a direct competitor Already has "inherent" standing to
challenge Nike's intellectual property - the Supreme Court was not
persuaded. "The problem for Already is that none of these injuries
suffices to support Article III standing," it held, for "although the voluntary
cessation standard requires the defendant to show that the challenged behavior
cannot reasonably be expected to recur, we have never held that the doctrine .
. . allows the plaintiff to rely on theories of Article III injury that would
fail to establish standing in the first place."
'Basic Policy Objection'
The Supreme Court later
addressed Already's "basic policy objection" that endorsement of the Second
Circuit's holding would serve only to strengthen Nike's position in the
marketplace. Disagreeing, the high court found that the granting of
covenants not to sue is actually a "risky long-term strategy for a trademark
holder." In addition, "the Lanham Act provides some check on abusive litigation
practices by providing for an award of attorney's fees in 'exceptional case,'"
the court noted.
"Accepting Already's theory
may benefit the small competitor in this case. But lowering the gates for one
party lowers the gates for all. As a result, larger companies with more resources
will have standing to challenge the intellectual property portfolios of their
more humble rivals - not because they are threatened by any particular patent
or trademark, but simply because they are competitors in the same market. This
would further encourage parties to employ litigation as a weapon against their
competitors rather than as a last resort for settling disputes," the Supreme
Finally, the Supreme Court
rejected the solicitor general's call for the case to be remanded for further
proceedings. "Such a remand would serve no purpose," the court said,
because "the scope of the covenant is clear."
Justice Anthony Kennedy wrote
a concurrence, which was joined by Justices Clarence Thomas, Samuel Alito and Sonia
Already is represented by
James W. Dabney, Victoria J.B. Doyle, Randy C. Eisensmith and Stephen S.
Rabinowitz of Fried, Frank, Harris, Shriver & Jacobson in New York and John
F. Duffy of the firm's Washington office. Thomas C. Goldstein, Kevin K. Russell
and Amy Howe of Goldstein & Russell in Washington and Christopher J. Renk,
Erik S. Maurer and Audra C. Eidem Heinze of Banner & Witcoff in Chicago represent Nike.
Ginger D. Anders of the U.S. Department of Justice in Washington represents the government.
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