Earlier this week, the U.S. Supreme Court ruled that a promise not to sue a competitor for infringing its trademark means that Nike won’t have to face a lawsuit challenging the validity of that mark. Michael Boudett of law firm Foley Hoag explains:
“Nike, having sued competitor Already LLC for infringing its marks, later issued a covenant not to sue to Already and sought to dismiss the case. Defendant Already, however, had filed a counterclaim seeking a declaration that Nike’s mark was invalid, and argued that that counterclaim should proceed. The District Court dismissed the counterclaim, and the Second Circuit affirmed that there was no ongoing case or controversy. In an opinion issued yesterday, the Supreme Court affirmed this outcome.”
In plain English: since Nike promised never to sue Already for trademark infringement, the smaller rival could essentially make whatever shoe they wanted without the risk of a lawsuit. As such, Already’s challenge to the validity of Nike’s trademark was moot.
For your reference, three takeaways from the ruling:
1. Trademark holders now have an option to tit-for-tat litigation:
“In summary, the Court’s decision gives comfort to trademark plaintiffs who seek to drop a case rather than fight an invalidity counterclaim. But the price for doing so will be a very broad, unambiguous, and comprehensive covenant which removes any foreseeable threat to the alleged infringer. Despite this decision, then, trademark plaintiffs must still consider the risk of exposing their rights to challenge if they choose to commence litigation. (Foley & Lardner)
2. The implications go beyond trademarks:
“Although this is a trademark case, this decision likely will also affect other kinds of intellectual property, including patents. According to the Court, all such cases may be moot if, after considering a covenant’s language and the plaintiff’s anticipated future activities, it is determined that ‘it is “absolutely clear” that the allegedly unlawful activity cannot reasonably be expected to recur.’” (Orrick)
3. There are no guarantees that covenants not to sue will eliminate all counterclaims:
“A concurrence by four of the justices was ‘written 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 adjudication.’ However, since the concurring justices agreed with the result notwithstanding Already’s affidavits, it seems clear that a well-drafted, broad covenant will do the job in most cases.” (Foley Hoag)
- Supreme Court Holds Covenant Not to Sue Moots Counterclaim for Invalidity – Foley & Lardner LLP
- Supreme Court Decision May Allow Infringement Plaintiffs to Use a Covenant Not to Sue to Avoid an Invalidity Ruling – Orrick, Herrington & Sutcliffe LLP
- Nike’s Successful Retreat Strategy: Trademark Defendant’s Invalidity Counterclaim Is Moot Following Plaintiff’s Covenant Not to Sue – Foley Hoag LLP
- Already v. Nike: The Supreme Court Finds Covenant Not to Sue Made Competitor’s Claim for Invalidity of Trademark Moot – Morrison & Foerster LLP
- Supreme Court Upholds Nike’s Promise to “Break the Wrist, and Walk Away” – Winthrop & Weinstine, P.A.
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