Intellectual Property Attorney

Supreme Court: Broad Covenant Not To Sue Renders Trademark Cancellation Counterclaim Moot

As reported by Reuters, the Supreme Court has issued a decision in favor of Nike, Inc. (“Nike”) in a case involving the dismissal of a trademark cancellation counterclaim. Nike filed suit against Already, LLC (“Already”), alleging that Already’s “Soulja Boys” and “Sugars” shoe designs infringed upon Nike’s “Air Force 1” trademarked shoe design. In response, Already brought a counterclaim seeking cancellation of Nike’s trademark registration.

Perhaps feeling a bit uneasy about the trademark cancellation counterclaim, Nike subsequently dismissed its trademark infringement claims in the litigation and also delivered a broad covenant not to sue to Already (i.e., a binding promise not to sue in the future). Nike promised that it would not make any “claims or demand(s) against Already or any of its affiliates based on any of Already’s existing footwear designs, or any future Already designs that constitute a colorable imitation of Already’s current products.” Despite this covenant, Already refused to dismiss its trademark cancellation counterclaim. Nike then moved the court to dismiss the entire action, arguing that its broad covenant not to sue removed any “case or controversy” between the parties. The result would be that the court would lack jurisdiction to hear the case.

Nike contends that it dismissed its trademark infringement claims because discovery revealed the limited extent of Already’s infringement. Already contends that Nike dismissed its claims because it feared putting at issue its longstanding, registered trademark for its shoe design.

The lower court dismissed the case on grounds that there was no case or controversy between the parties, which decision was affirmed on appeal. Before the Supreme Court was the impact of Nike’s covenant not to sue.

There are valid policy arguments to be made on both sides of the issue. On the one hand, if there is truly no case or controversy between the parties, the counterclaim arguably should not be allowed to proceed because it would allow a party to use a trademark cancellation claim as a weapon even though the party faces no real threat. The International Trademark Association (“INTA”) filed a brief in support of Nike’s position, arguing that under Supreme Court precedent, a broad covenant not to sue removes the controversy between the parties and divests a court of jurisdiction over the cancellation counterclaim. INTA pointed out that such a result would merely preclude a trademark cancellation counterclaim in court and would not prevent Already from seeking cancellation before the U.S. Patent and Trademark Office’s Trademark Trial and Appeal Board, arguably the more appropriate forum for pure cancellation cases.

On the other hand, allowing a trademark owner to file suit for trademark infringement, but to withdraw the suit if a serious challenge is posed, may lead to trademark bullying. The trademark owner, having no down side, could commence trademark infringement litigation against all competitors to thwart competition, without serious fear of reprisal.

The Supreme Court ultimately upheld the decision of the lower court that a sufficiently broad covenant not to sue moots a trademark cancellation counterclaim because it removes the case or controversy between the parties. The Court cautioned that covenants not to sue need to be evaluated on a case by case basis to ensure that, given the covenant’s language and the parties anticipated future activities, it is absolutely clear that the alleged trademark infringement cannot reasonably be expected to recur.

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