Are We Done Yet? Nike Thinks It Is Already Time to Move On
Already, LLC v. Nike, Inc. was heard by the Supreme Court on November 7, 2012. Already is one of the few trademark cases to be heard by the Supreme Court, with certiorari granted on June 25, 2012. At issue is whether a case or controversy remains after a plaintiff grants a broad, irrevocable covenant not to assert its mark against an opposing party. The court docket and amicus briefs referred to in this post can be found here: http://www.americanbar.org/publications/preview_home/11-982.html.
Nike developed the Air Force 1 shoe design in 1982 and held the trademark until 1986. In October of 2008, Nike filed a new trademark registration for Air Force 1’s name and design. Already created “Soulja Boy” and “Sugar,” two shoes designed by former Nike engineers. Nike brought suit against Already for trademark infringement in 2009 to enforce its Air Force 1 trademark. In 2010, either because Already’s market share was diminishing or because Nike was facing the cancellation of its Air Force 1 trademark (depending on which side you find more persuasive), Nike gave Already a broad, irrevocable covenant not to sue for any infringement by the “Soulja Boy” and “Sugar” designs and filed a motion to dismiss with prejudice. The motion to dismiss was granted and affirmed.
Already says that Nike’s motion to dismiss is an attempt to manipulate the federal courts by stripping Article III jurisdiction as soon as it appeared that Nike might lose the §37 counterclaim for trademark cancellation. In their view, there is a case and controversy because Nike’s retention of the trademark would give Nike the ability to control the market. If Already is able to cancel the trademark, it would alleviate market pressure from a potentially invalid trademark. Additionally, investors and distributors for Already had stated that they would either not carry the shoe designs or not invest in Already if Nike was allowed to retain their trademark.
In Nike’s view, the suit was resolved when they gave Already the permanent covenant. They point to the USPTO trademark challenge procedures as the proper channel for Already to pursue remedies and to gain relief in this case, but emphatically state that the Supreme Court should not overturn the lower Courts’ decisions to dismiss the case for lack of Article III standing.
Two of the briefs, Volkswagen and Levi Strauss, make the typical “slippery slope” argument that allowing Already to pursue this claim would somehow add a tremendous burden because “a brand owner must face expensive, serial litigation to validate its rights . . .” My inherent skepticism of the slippery slope argument aside, there are several problems with this argument. The least of which is that the §37 move to cancel a mark is most often brought by a defendant, not as an independently arising claim. §37 counterclaims are not compulsory, so perhaps the amicus brief for Volkswagen is concerned about an increase in the number of counterclaims for trademark cancellation.
One issue addressed briefly mentioned in the Volkswagen amicus brief is the five-year period in which challenges against a trademark can be brought with few restrictions. At the end of the five-year period, the trademark holder is able to file a §15 Declaration that, if approved, will grant the trademark holder an incontestable trademark. At that point, there are only a handful of levers against a trademark, including the ability to set it aside if it was fraudulently obtained, abandoned, the goods were misrepresented, it is functional, or there are significant antitrust issues or equitable concerns such as laches, estoppel, or acquiescence. 15 U.S.C. 1115. Removing the force of the §37 counterclaim by allowing plaintiffs to simply issue covenants and unilaterally withdraw from cases if it appears that the case will not be ruled in their favor effectively weakens the pressure, and the relief, available to the defendant in trademark disputes.
The amicus brief by Intellectual Property Professors states it perfectly, “invalid intellectual property rights limit the public’s freedom to use articles, ideas, or marks, but do not confer the social benefits that the intellectual property laws are meant to bring about.” Whether or not Already v. Nike will be remanded, it is important for trademark owners to be able to keep §37 cancellation claims alive even when the plaintiff moves to dismiss a case after granting covenants not to sue.
The issue here is in large part the Article III burden of showing (1) does the potential of a “scarecrow” trademark suppressing freedom to operate constitute an injury in fact and (2) which party bears the burden of proof in showing that a claim has been rendered moot. Mr. Dabney, arguing for Already, stated that “this case seeks to extinguish a source of cost, risk, and restraint on what footwear products the petitioner can and cannot legally sell. These are classic forms of injury in fact.”
Part of Mr. Dabney’s argument is that the respondent is supposed to be the one who bears the burden of proof in showing that the case is moot. Mootness doctrine states that if anything ends the injury, then proceedings are moot. Here, Already is arguing that the injury extends behind the specific damage of being held liable for damages or receiving an injunction from producing Soulja Boy and Sugar. Nike is using the Air Force 1 trademark to increase the “cost, risk, and restraint” that Already faces in producing their shoes. There is an exception to the mootness principle for wrongs capable of repetition and, here, it seems that even if the court finds that the specific case and controversy at issue did not continue, Nike’s ability to enforce the trademark at issue here against future Already products would qualify as a wrong capable of repetition.
Nike’s argument against this mootness principle seems to be that Already must show that it plans on creating a potentially infringing third design or else there is no wrong remaining. Justice Breyer’s asked Mr. Dabney to “refer [him] to the record where your president of your client or somebody else says we are intending to produce some new shoes that fall outside that definition . . .” provided in Nike’s covenant. As Justice Kennedy then pointed out, if Already is required to divulge their future plans to their competitor, that in itself could qualify as an injury.
We will soon learn how the Supreme Court comes down on this case. We don’t have costs for losing parties, so there are fewer barriers against companies using weak trademark claims to bully other companies through the threat of litigation. When such a suit arises, it is in the best interest of the defendant to push back with counterclaims that would have serious business consequences to the company that brought the suit. Allowing a company to initiate a trademark infringement suit and then dismiss all counterclaims if they won’t prevail takes away a key tool in minimizing lawsuits that are potentially without merit. Volkswagen’s argument is exactly the opposite of what will ensue. Upholding the ability to bring and maintain counterclaim, even if the initial claimant acts to remove the main case and controversy, acts as a market barrier on frivolous or scarecrow trademark suits.