Supreme Court Rules on Trade Dress Dispute Already v. Nike: Broad Covenants Not to Sue, Just Do It (Sort Of)

Nike sued competitor Already (dba Yums) in New York federal court for infringement of its registered trade dress in the super popular Air Force 1 footwear, an example of which is shown above. Yums filed counterclaims for declaratory relief that there was no infringement and that Nike’s Air Force 1 trade dress was invalid, seeking cancellation of the USPTO federal registration in the process. Upon conducting discovery, Nike determined that Yums’ conduct did not rise to the level of infringement and issued a fairly broad covenant not to sue — by which Nike agreed not to file any claim for trademark infringement or related claims “based on the appearance of any of [Yums’] current and/or previous footwear product designs, and any colorable imitations thereof, regardless of whether that footwear [was] produced, distributed, offered for sale, advertised, sold, or otherwise used in commerce before or after the Effective Date” of the covenant. The covenant also covered Yums’ distributors and customers.

Naturally, the court dismissed Nike’s claims and Nike subsequently sought to dismiss defendants’ counterclaims. In an aggressive move, Yums opposed, claiming it had the right to proceed with its request for cancellation of the Nike trade dress registration.

On January 9, 2013, the Supreme Court affirmed the Second Circuit’s dismissal of defendants’ counterclaim. The broad scope and breadth of the covenant not to sue removed any “case or controversy” between the parties, such that the court no longer had subject matter jurisdiction over the matter. Nevertheless, Yums could still pursue cancellation at the Trademark Trial and Appeal Board.

Practice Notes :

Setting aside the interesting procedural issues in this case, we believe Already v. Nike highlights the following practical considerations for trademarks owners and practitioners:

1. Seek trade dress registration when you can: regardless of the result in this particular case — and whether Yums successfully seeks to cancel Nike’s trade dress registration– companies sometimes overlook seeking proactive protection for their unique packaging or product design or the distinctive appearance and characteristics of their product or service offerings.

2. Refrain from pursuing a potential infringer unless you are reasonably certain your claims rely on strong, compelling senior rights and that any of your underlying registrations are not vulnerable to cancellation. Of course, it’s always possible certain facts will not be revealed until discovery is conducted, but it’s a good idea to slow down and carefully weigh all the facts available before throwing valuable corporate resources into a trademark dispute that could backfire.

3. When issuing a covenant not to sue, make it sufficiently broad in scope, as in this case. Also keep in mind Justice Kennedy’s dissent: covenants not to sue should not routinely be used in an effort to moot litigation that a trademark owner initiated.

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