Nike’s Covenant Not to Sue Bars Trademark Invalidity Counterclaim

nike The United States Supreme Court ruled Wednesday that a shoe company could not dispute the validity of one of Nike Inc.’s trademarks, after Nike agreed not to sue the company for infringement.

Given that Nike’s covenant fully insulates Already LLC from any infringement claims from Nike, the court ruled that a controversy no longer exists between the parties and therefore the court cannot hear Already’s invalidity claims against Nike.
The Court also held that allowing Already’s invalidity claim to proceed would undermine the requirements for filing a lawsuit under Article III of the U.S. Constitution, which requires that there must be an actual controversy between the parties in order for a legal action to proceed.

Nike initially filed the lawsuit against Already in 2009, claiming that Already was selling two lines of shoes, its Sugar and Soulja Boy brands, that infringed on Nike’s design trademark for its Air Force 1 line of sneakers. Already responded with a counterclaim that alleged Nike’s design trademark is invalid.

When litigation costs began to outweigh its possible benefits, Nike moved to dismiss the lawsuit and issued Already a covenant not to sue. However, Already opposed the dismissal of the invalidity claims, arguing that it should still be able to dispute Nike’s trademark.

Chief Justice John Roberts wrote the unanimous decision affirming the Second Circuit’s ruling. The court held that since Nike had agreed unconditionally not to sue Already, the federal courts lack jurisdiction over Already’s counterclaims that Nike’s trademark is not valid.

“Given the covenant’s broad language, and given that Already has asserted no concrete plans to engage in conduct not covered by the covenant, we can conclude the case is moot because the challenged conduct cannot reasonably be expected to recur,” the opinion stated.

Justice Anthony Kennedy wrote in a concurring opinion, which was backed by Justices Clarence Thomas, Samuel Alito and Sonia Sotomayor, that a covenant not to sue may not always bar an accused infringer from continuing its invalidity counterclaim.
The concurring opinion stated that the covenant not to sue must be sufficiently broad enough to remove any risk that the defendant might be sued for infringement again in the future. Nike’s covenant was broad enough to eliminate the risk of future litigation, but the concurring opinion warned that might not always be the case.




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