Supreme Court Rejects Lawsuit Over Nike Trademarks
The U.S. Supreme Court today rejected an appeal by a small shoe manufacturer that argued it should be allowed to sue to invalidate Nike’s trademark on its Air Force 1 sneaker even after Nike dropped its own infringement suit and vowed never to resume it.
The court, in a unanimous opinion by Chief Justice John Roberts, used the case to reaffirm a core doctrine: Courts are for deciding real cases over real injuries, not hypothetical questions best left to the legislature. In a concurrence, however, Justice Anthony Kennedy, joined by Justices Samuel Alito, Clarence Thomas and Sonia Sotomayor warned that future cases may force the court to make a stricter definition of when companies can end all litigation by declaring they have dropped their claims.
“The very suit the trademark holder initiated and later seeks to declare moot may still cause disruption and costs to the competition,” Kennedy said.
Under Article III of the Constitution, federal courts have jurisdiction over a specified set of “cases and controversies.” The Supreme Court has repeatedly rejected lawsuits by environmentalists and others who seek to sue over policy differences, for example, or hypothetical injuries to the public at large.
“The fact that some individuals may base decisions on `conjectural or hypothetical speculation’ does not give rise to the sort of `concrete’ and `actual’ injury necessary to establish Article III standing,” Roberts wrote, citing the seminal environmental case Lujan vs. Defenders of Wildlife, which rejected a lawsuit by environmentalists who claimed their injury was the possibility of not being able to observe wildlife in the future.
In Already vs. Nike today, the court reaffirmed that idea, albeit with a hefty helping of warnings. Nike had sued Already for making alleged knockoffs of its Air Force 1 shoe with its Sugar and Soulja Boy sneakers, but Already countersued, seeking to have Nike’s trademark invalidated. Nike then dropped its suit and drew up a covenant never to sue Already or its customers over those shoes or any “colorable imitation” of them.
A lower court threw out Already’s countersuit as moot and Already appealed, saying investors shied away from the company because of the continued threat of trademark litigation with Nike. It also argued it was bad public policy to allow Nike to unilaterally end a lawsuit threatening to invalidate its trademarks, leaving it with the power to harass other competitors over the same claims.
The U.S. Solicitor General urged the court to remand the case for further proceedings on whether Nike’s covenant ended all threat of future litigation. But the Supreme Court rejected that argument, saying Nike’s lawyers had crafted an ironclad guarantee. Roberts dismissed Already’s claim that Nike could sue over a future shoe similar to the ones involved in this case.
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’swinged sandals.
Roberts also rejected the larger argument that Already should be allowed to sue to invalidate Nike’s trademark because it was a weapon the company was using against other competitors.
Taken to its logical conclusion, the theory seems to be that a market participant is injured for Article III purposes whenever a competitor benefits from something allegedly unlawful—whether a trademark, the awarding of a contract, a landlord/tenant arrangement, or so on. We have never accepted such a boundless theory of standing.
The court did establish firm rules for companies that wish to end litigation this way. It said Nike had to prove to a court’s satisfaction that it could not ever sue again over the trademarks in question. Covenants like this are risky, the court noted, since trademarks tend to be weakened whenever third parties are allowed to produce similar designs.
And Kennedy, in his concurrence, said this case was relatively easy to decide because Already failed to provide any evidence to support the idea it legitimately feared being sued by Nike again. Future cases might force courts to take a closer look at the strategy:
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 decision isn’t likely to change intellectual property law, said Jed Wakefield, a partner with Fenwick & West in San Francisco:
“The case is unlikely to have a major impact,” he said in an e-mail. “It provides clarity for trademark, patent, and other intellectual property owners as to what standard will apply if they want end a lawsuit, even where they started it, by providing the other side a `covenant not to sue’ – that is, a promise to leave them alone in the future.”