JANUARY 11, 2013
Nike succeeds in dodging alleged trademark infringer’s
counterclaim for invalidity
By Robert A. Weikert and John A. Chatowski
Shoemaker Nike, Inc. sued one of its competitors, Already, LLC dba YUMS, for trademark
infringement, claiming that one of Already’s lines of shoes infringed and diluted Nike’s trademark for
its “Air Force 1” shoe line. Eight months later, and four months after Already filed a counterclaim
for declaratory relief challenging the validity of Nike’s trademark, Nike reversed course, issued a
broad “Covenant Not to Sue” Already or any of its affiliates for trademark infringement or unfair
competition based on any of Already’s existing shoes or future shoes that were a “colorable
imitation” of Already’s existing shoes, and dismissed its complaint with prejudice. Nike then moved
to dismiss Already’s counterclaim on mootness grounds, contending that based on the broad
language of the covenant, there was no longer any colorable controversy between the parties. The
district court agreed and dismissed Already’s counterclaim, and the Second Circuit affirmed, holding
that Already had not met its burden to show that it still had standing to pursue its claim. A
unanimous Supreme Court affirmed in a decision that will no doubt be closely read by trademark
(and patent) owners seeking to protect their intellectual property rights against possible infringers,
particularly in cases where there may be questions about the strength of such rights.
This case began in typical fashion. Nike demanded that Already cease selling its “Sugars” and “Soulja
Boys” line of shoes claiming that they infringed and diluted Nike’s Air Force 1 trademark. When
Already refused, Nike sued Already for trademark infringement and dilution. Already then filed a
counterclaim for declaratory relief contending that Nike’s mark was invalid. Four months later Nike
issued the covenant, which contained broad language in which Nike purported to “unconditionally
and irrevocably refrain from making any claim(s) or demand(s)” against Already or its affiliates for
trademark infringement, unfair competition, or dilution relating to Nike’s mark based on the
appearance of Already’s then existing Sugars and Soulja Boys shoe lines or any future “colorable
imitations thereof.” Nike then voluntarily dismissed its complaint with prejudice, and asked the
district court to dismiss Already’s declaratory relief counterclaim without prejudice on the grounds
that the covenant extinguished the case or controversy. Already opposed Nike’s motion, claiming
among other things that Nike had not sufficiently established that the case was moot because Already
had plans to market new versions of its shoes, investors were weary of investing in Already unless
Nike’s mark was invalidated, and that Nike had intimidated retailers into not selling Already’s shoes.
The district court agreed with Nike, holding that the broad language of the covenant would
sufficiently protect Already from the threat of future litigation, and therefore dismissed Already’s
counterclaim. The Second Circuit Court of Appeals affirmed.
-2The Supreme Court affirmed. Writing for a unanimous Court, and applying the “voluntary cessation
doctrine,” Chief Justice Roberts first noted that the burden was on Nike to establish at the outset
that it “‘could not reasonably be expected’ to resume its enforcement efforts against Already.” Only
if Nike met this high burden would the burden then shift to Already to establish that it engages in or
has “sufficient concrete plans to engage in activities not covered by the covenant.” Analyzing the
covenant and the evidence presented by Already below, the Court concluded that Nike had met its
burden under the doctrine and that Already had not. Specifically, the Court found that Already never
presented any specific evidence to suggest that it would engage in activities that might fall outside of
the broad language of the covenant, and therefore, “Already is free to sell its shoes without any fear
of a trademark claim.” The Court also dispensed with Already’s other efforts to establish standing,
including its claims that investors are apprehensive about investing in Already, that Nike has
intimidated retailers, and that Already “inherently has standing to challenge Nike’s intellectual
property.” As to the last argument, Justice Roberts wrote that the Court has “never accepted such a
boundless theory of standing,” noting that Already’s only injury “is now gone and, given the breadth
of the covenant, cannot reasonably be expected to recur.”
Justice Kennedy wrote a separate concurring opinion, joined by Justices Thomas, Alito, and
Sotomayor, noting that Already did not have to establish that a justiciable controversy existed—as
the district court and Second Circuit had held—but rather the “formidable burden” was on Nike to
show “that it is absolutely clear” that it could not sue Already again based on the issues raised in the
litigation. Justice Kennedy also observed that such covenants should not be seen as an “automatic
means” of ending infringement litigation, and indeed, that there may be cases when a court concludes
that a trademark holder has not satisfied its burden to show that the business of its competitor and
its supply network will not be disrupted or weakened due to the “satellite litigation over mootness, or
by any threat latent in the terms of the covenant.”
The implications of the Supreme Court’s decision could be significant. The mere existence of a
covenant not to sue will not automatically deprive the alleged infringer of standing to challenge the
validity of the IP at issue. Rather, covenants must be carefully drafted so as to absolutely and
completely foreclose the possibility of future claims against the alleged infringer based on the subject
IP, and at least in the minds of the four concurring Supreme Court justices, should be used with
caution to end litigation (or perhaps foreclose litigation after a demand to cease and desist
infringement has been made, as Nike did in this case). Consequently, intellectual property owners
must give careful thought to enforcing their IP and initiating disputes, because if the validity of the
IP is challenged in court and the owner becomes concerned about the strength of its rights based on
that challenge, an “exit strategy” based on simply the issuance of a covenant not to sue may or may
not be sufficient to thwart the attack and protect the IP at issue.
FOR MORE INFORMATION
Please contact:


Robert A. Weikert at (415) 984-8385 or [email protected]
John A. Chatowski at (415) 984-8410 or [email protected]