On January 9, 2013, the U.S. Supreme Court in Already v. Nike unanimously upheld the dismissal of Already’s counterclaims to invalidate Nike’s Air Force 1 trademark because Nike’s issuance of a broadly worded “covenant not to sue” rendered Already’s counterclaims moot. The Already decision provides a legal “escape hatch” for trademark plaintiffs who find themselves embroiled in lawsuits that they either fear losing or no longer want to prosecute; and the existence of such an escape hatch may encourage more aggressive filing of trademark suits. However, the potential downsides to engaging in this approach should give trademark owners serious pause before resorting to it.
This suit began in June of 2009, when Nike filed a suit in New York Federal Court alleging that two of Already’s sports shoe designs (the YUMS-brand sneakers designed by rapper Soulja Boy) violated Nike’s Air Force I trademark; Already responded with a counterclaim seeking a declaratory judgment that Nike’s trademark was invalid. While the suit was pending, Nike changed course and issued to Already a broadly worded covenant not to sue in which Nike promised to forego its current – and any future – claims against Already based on the designs at issue in the case, or any “colorable imitations” of such designs. Nike then moved to dismiss its own claims with prejudice, and to dismiss Already’s declaratory judgment claim without prejudice. The court granted Nike’s motion, and the U.S. Court of Appeals for the Second Circuit affirmed.
On appeal, Already argued that dismissing its claims against Nike would allow Nike to continue to bully Already and other small competitors with threats of costly lawsuits. Chief Justice Roberts, writing for the majority, rejected each of Already’s points. The opinion noted that Already had been unable to identify any concrete or imminent circumstance in which it could design a shoe that infringed the Nike mark and yet be unprotected by Nike’s covenant not to sue. Since Nike had sufficiently met its burden under the voluntary cessation doctrine, Already’s counterclaim was moot.
Critics of the Already decision will likely seize on the theme of Already’s appeal: aggressive and well-financed trademark owners will be encouraged to sue, and when their case gets rocky, they can bail out by issuing a covenant not to sue. Small companies targeted by this practice may be forced to spend considerable sums litigating against a questionable case only to have the plaintiff bail out. Indeed, Justice Kennedy wrote a concurring opinion “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 injunction.”
But will big trademark owners realistically use this tactic to bully the little guy? Maybe, but this tactic does come with a considerable cost. Nike was successful because the covenant not to sue it gave to Already was comprehensive and extremely broad, encompassing not only the shoe designs at issue, but any future “colorable imitations.” The consequences? Already may now freely design colorable imitations of its own shoes without any fear of reprisal from Nike. As the majority opinion noted, “granting covenants not to sue may be a risky long-term strategy for a trademark holder.” The covenant not to sue may have solved Nike’s immediate concerns, but it could create problems in the future. And the more covenants not to sue Nike grants with respect to the same mark, the less Nike will be able to protect it.