Supreme Court Applies Voluntary Cessation Doctrine in Finding Nike Trademark Case Moot
On January 9, 2013, the US Supreme Court affirmed the US Court of Appeals for the Second Circuit's decision in Already, LLC, d/b/a Yums v. Nike, Inc., holding that Nike's covenant not to enforce its AIR FORCE 1 trademark against competitor Already's existing products and any future colorable imitations renders moot Already's action to have the trademark declared invalid. The Court expressly invoked the voluntary cessation doctrine in this decision.
Key Litigated Issues
The issue in Already, LLC, d/b/a Yums v. Nike, Inc. was whether a covenant not to enforce a trademark against a competitor's existing products and any future colorable imitations renders moot the competitor's action to have the trademark declared invalid.
Nike, Inc. and Already, LLC both design and market athletic footwear. Nike filed a suit in the District Court for the Southern District of New York alleging that Already's shoes infringed and diluted Nike's AIR FORCE 1 product configuration trademark. Already counterclaimed that Nike's AIR FORCE 1 trademark is invalid.
Issued a covenant not to sue promising that Nike would not raise any trademark or unfair competition claims based on any of Already's existing footwear designs or any future colorable imitations.
Moved to dismiss its claims with prejudice and dismiss Already's invalidity counterclaim without prejudice on the ground that the covenant extinguished the case or controversy.
The district court dismissed Already's counterclaim, stating that, as the party seeking to invoke the court's jurisdiction, Already had the burden of demonstrating that the court had subject matter jurisdiction over the counterclaim. The court read the covenant broadly and concluded there was no longer a substantial controversy to warrant a declaratory judgment of invalidity because:
Any of Already's future products that arguably infringed Nike's mark would be colorable imitations of Already's existing footwear and therefore protected by the covenant.
There was no evidence that Already was going to develop any shoes not covered by the covenant.
The US Court of Appeals for the Second Circuit affirmed. The Second Circuit held that to determine whether a covenant not to sue eliminates a justiciable case or controversy courts should look to the totality of the circumstances, including:
The language of the covenant.
Whether the covenant covers both past and future products and activity.
Evidence that the party asserting jurisdiction intends to engage in conduct not covered by covenant.
The court noted the covenant's breadth and concluded that no justiciable controversy remained because Already:
Had not asserted any intention to market a shoe that would infringe the AIR FORCE 1 mark and not be covered by the covenant.
Therefore could not show any continuing injury.
The Supreme Court granted certiorari.
In a unanimous decision, the Supreme Court affirmed the Second Circuit's ruling, holding that Nike's covenant rendered Already's invalidity claim moot. However, the Court clarified that:
The voluntary cessation doctrine applies.
Under the voluntary cessation doctrine, Nike had the burden of proving it could not reasonably be expected to resume enforcing its AIR FORCE 1 trademark against Already.
The Court found that the covenant's breadth sufficiently met the burden because the covenant:
Is unconditional and irrevocable.
Prohibits Nike from making any claim or demand.
Protects both Already and its distributors and customers.
Covers colorable imitations in addition to Already's existing footwear designs.
The Court rejected as insufficient to support Article III standing the following three arguments advanced by Already:
As long as Nike could assert its trademark, investors would be apprehensive about investing in Already.
From a policy standpoint, dismissing the case would allow Nike to bully small innovators.
As one of Nike's competitors, Already inherently has standing to challenge Nike's intellectual property.
Justice Kennedy wrote a concurring opinion joined by Justices Thomas, Alito and Sotomayor to underscore that courts should:
Not view covenants not to sue as an automatic means for a party that first sued a competitor for trademark infringement to avoid the risk of an adverse decision by abandoning the suit.
Carefully consider the consequences of deeming a suit moot based on a covenant not to sue.
Proceed with caution before ruling that a covenant not to sue can be used to terminate litigation.
This case is noteworthy for clarifying that the voluntary cessation standard applies in determining whether a trademark owner's issuance of a covenant not to sue as part of a voluntary dismissal of an infringement action moots counterclaims challenging the validity of the trademark owner's mark. Trademark owners seeking to end litigation to avoid potential adverse consequences should ensure any covenants not to sue they issue are sufficiently broad to meet this burden. Where a trademark owner's covenant fails to satisfy this burden, the trademark owner may face a situation where its infringement claims are dismissed but the validity challenge survives.