Opinion recap: A promise better be a promise
on Jan 9, 2013 at 3:36 pm
With a not-so-subtle remainder to lawyers for business firms that the Supreme Court is well aware that they might try to manipulate the courts for commercial advantage, the Justices on Wednesday allowed the giant maker of athletic shoes — Nike, Inc. — to get itself free from a lawsuit that might have scuttled one of its most valuable trademarks. But it did so by stressing that Nike, having made a promise never to sue a small commercial rival for violating that mark, will be held strictly to that promise. And the Court told that small rival that it might have blown its own chance to keep its trademark challenge alive.
Although the case of Already LLC v. Nike, Inc. (docket 11-982) was a high-stakes legal fight over trademark infringement, it probably had even greater significance as a test of a company’s opportunity to shut down a competitor’s threatening lawsuit by giving up its right to pursue its own legal claim against that competitor. The Court’s main opinion — and, in particular, a separate opinion by four of the Justices — put lower courts on notice to be on guard against being trifled with by lawyers’ misuse of such a tactic.
The commercial reality at the end of the case was that Nike gets to keep its trademark on its highly popular “Air Force 1” shoes, and that Already, the maker of YUMS sneakers, must go on operating with the knowledge that its biggest competitor will continue to benefit in the marketplace from having a very valuable brand name intact. Already says that is already hurting its business and scaring off investors and retailers.
The main reason that Already will be in that position, though, the Court indicated, was that it had been entirely unable to convince any court — including the Supreme Court — that it really wanted to produce a new design of shoes in the future that might run afoul of that trademark and be outside the Nike promise not to sue (a situation that would have allowed it to press on with its claim that the Nike brand was invalid).
With disdain, Chief Justice John G. Roberts, Jr., wrote that Already’s supposed potential plan for a future rival to Nike’s shoe design was entirely a fiction. “If such a shoe exists,” the Chief Justice wrote, “it sits, as far as we can tell, on a shelf between Dorothy’s ruby slippers and Perseus’s winged sandals.” The opinion added: “There is no evidence that Already has dreamt of” such a shoe, “and we cannot conceive of it.”
Without any evidence that it might someday have such a shoe ready for market, according to the Roberts opinion, Already faces no risk whatsoever that it will be sued by Nike for infringing on the “Air Force 1” mark, because Nike’s promise not to sue is “unconditional and irrevocable.” And, with no such threat having over the courtroom battle between the two companies, the litigation must end — it is “moot,” the Court concluded unanimously. “Already is free to sell its shoes without any fear of a trademark claim” from Nike, Roberts wrote.
This battle of sneaker makers began in 2008 when Nike discovered that Already had hired two of Nike’s shoe engineers and was producing shoes that Nike considered to be near-clones of the design of its branded, low-cut “Air Force 1” design. After Nike contacted Already and got what it considered to be an unsatisfactory response, it sued the smaller rival for trademark infringement. Already answered with a lawsuit of its own, claiming that the Nike mark was invalid, and asking a federal judge to cancel it.
Nike soon came to the conclusion that the YUMS rival was not being sold very widely, that Already was not going to make big inroads into Nike’s market, and that the continuation of the legal fight threatened its mark. It then had its lawyers send Already’s lawyers a “covenant” not to sue. The document promised that Already would not be sued for any past, present, or future sales of any YUMS shoe, or any future imitation of Air Force 1. Arguing that this promise removed any legal controversy between the two, Nike asked the federal court to dismiss the case for lack of Article III jurisdiction. Already consented to dismissal of Nike’s infringement claim, but objected to having its own legal claims ended.
The District Court dismissed the entire case, finding it no longer had jurisdiction over a controversy “mooted” by Nike’s covenant. The Second Circuit Court agreed, concluding that Already had not salvaged its claim by any evidence that it was at any continuing risk of being sued by Nike over infringement.
In Wednesday’s ruling, the Supreme Court agreed that the case was moot. Nike, the opinion concluded, had done what it needed to do to wipe out any remaining controversy between it and Already. It also concluded that Already had failed to show that there was any realistic threat that it would be sued again by Nike.
“Beyond simply prohibiting Nike from filing suit,” the Court said, “[the covenant] prohibits Nike from making any claim or any demand. It reaches beyond Already to protect Already’s distributors and customers. And it covers not just current or previous designs, but any colorable imitations.” This, the opinion said, allows Already “to produce all of its existing footwear designs…. Nike, having taken the position in court that there is no prospect of such a shoe [that might infringe the Nike mark and not be insulated by Nike’s promise], would be hard pressed to assert the contrary down the road.”
The Roberts opinion went on to reject Already’s alternative arguments as to why it believed its case should continue in an attempt to get the Nike mark invalidated.
That opinion, speaking for all members of the Court, included a fairly short section warning against misuse of a case-ending promise not to sue. Once sued, a company cannot get out from under the lawsuit, the opinion said, simply by ending the challenged conduct that got it into court. It warned that allowing such a way out would mean that a company could engage in illegal activity, stop when sued in order to have the case declared moot, then pick up where it left off, repeating the cycle until it had succeeded in all of its unlawful conduct. In order to prevent that, Roberts wrote, the courts had imposed on such a company “the formidable burden of showing that it is absolutely clear the allegedly wrongful behavior could not reasonably be expected to recur.”
The Court found that Nike had met that “formidable burden.”
Four of the nine Justices joined in a separate, concurring opinion. Written by Justice Anthony M. Kennedy and joined by Justices Samuel A. Alito, Jr., Sonia Sotomayor, and Clarence Thomas, those members’ opinion showed considerably more sympathy toward Already and provided what amounted to a lecture to lower courts not to take promises to sue like Nike’s “as an automatic means” for shutting down a trademark infringement lawsuit by the holder of a mark who had initiated the litigation.
“Courts,” Justice Kennedy wrote, “should be well aware that charges of trademark infringement can be disruptive to the good business relations between the manufacturer alleged to have been an infringer and its distributors, retailers,and investors. The mere pendency of litigation can mean that other actors in the marketplace may be reluctant to have future dealings with the alleged infringer. Nike appears to have been well aware of that dynamic in this case.”
The separate opinion went on to counsel lower courts to give “careful consideration to the consequence of using a covenant not to sue as the basis for a motion to dismiss as moot.” The burden that the mark holder must be required to meet, Kennedy wrote, should include “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.”
Those views are those of only those four Justices, not of a Court majority. But they do amount to something of a warning against manipulation of the courts by trademark holders who sue their rivals, then back off to protect their own marks.
This decision, in plain English:
Nike, Inc., a major producer of sneakers and other athletic footwear, claimed that a smaller sneaker company, Already LLC, the maker of YUMS brand shoes, had illegally copied the design of Nike’s “Air Force I” shoe. That design was protected by a federal trademark; that protection means that only the holder of such a mark has a legal right to use it to sell the product to consumers. The idea of such protection is to keep from confusing consumers about where a given product comes from, and about its quality.
When one company is sued for illegally copying another company’s product design, the sued company has a right to bring its own lawsuit, to try to get the trademark on the copied design struck down. That was what Already did in response to Nike’s lawsuit against Already and its YUMS shoe design.
Nike made up its mind that it was not really being hurt commercially by Already’s shoes, and wanted to protect its own trademark from potentially being wiped out. So Nike sent a formal document to Already promising not to sue. That promise was then used as the basis for a request by Nike to end the court battle that it and Already were having. The lower courts agreed to do that. As a result, Nike’s trademark protection on its “Air Force 1” design remained in effect.
Already wanted to keep the case going, contending that Nike had not gone far enough in its legal promise to assure that Already could continue to sell its shoes free of any risk of being sued by Nike in the future. It argued that the Nike trademark was hanging over the sneaker market, making it hard for Already to make its way as a competitor.
The federal courts, however, concluded that Nike had gone far enough in its promise not to sue, so there was no remaining legal controversy between the two companies. Without such a “live” controversy, Nike contended, the federal courts had lost the authority to decide the case. The Supreme Court on Wednesday accepted that Nike had done enough to end the case, leaving Already free to market its shoes without fear of being sued again by Nike for illegally copying its shoe design.
(Disclosure: Attorneys who have roles in the publication of this blog were involved directly as attorneys in this case, on behalf of Nike. The author of this post operates independently of the law practice.)