Introduction

Nike Inc ("The Respondent") designs, manufactures and sells athletic footwear. In 1982, it sold a line of shoes called Air Force 1s. The shoe was said to have a distinctive appearance. The Respondent registered multiple federal trademarks on the Air Force 1 design.

In July 2009, the Respondent instituted an action at the US District Court ("The District Court") against Already LLC ("The Appellant") on the ground that there was a confusing similarity between the shoe sold by the Appellant and Air Force 1. The Appellant denied the allegation and filed a counterclaim challenging the validity of the Respondent's trademark.

While the suit was pending, the Respondent issued a covenant not to sue. Thereby, promising not to raise any trademark or unfair competition claims against the Appellant. This promise extended to the Appellant's products, both current and future. The Respondent then dismissed their claims with prejudice and sought to dismiss the Appellant's counterclaim "without prejudice” because the covenant had extinguished the case or controversy.

Discussion

The Appellant opposed the dismissal of its counterclaim because the Respondent did not establish the covenant not to sue. In the affidavit supporting the opposition, the Appellant stated that they intended to create new products if the trademark office invalidated the Respondent's trademark.

The District Court dismissed the Appellant's counterclaim, by concluding that it was no longer a justiciable controversy.

Dissatisfied, the Appellant appealed to the United States Court of Appeals ("The Second Circuit"). The Second Circuit affirmed the decision of the District Court and held that the counterclaim did not create a case or controversy. Therefore, the District Court could not have subject matter jurisdiction over the claim. Thus, the Appellant further appealed to the Supreme Court.

At the Supreme Court, the issue for determination was whether the Appellant's counterclaim was sufficient to allow the District Court jurisdiction. The Supreme Court gave a unanimous opinion led by Chief Justice Robert.

The Supreme Court stated that the Respondent had met the burden that it could not be reasonably expected to resume the trademark's action. Thus, the Respondent's covenant not to sue was valid and made the case moot. The Supreme further stated that the language of the covenant was broad enough. As a result, 'shoe' could not be conceived to fall outside the covenant's scope.

The Supreme Court rejected the Appellant's assertion that dismissing the case would give room for enforcement of the Respondent's invalid trademark. In the Supreme Court's opinion, the Respondent did not intend such.

Moreover, the Supreme Court held that allowing many competitors to use the Respondent's trademark would lessen its strength. Therefore, the Respondent's trademark was valid. Justice Kennedy, in his opinion, emphasized the Respondent's covenant not to sue. However, he said covenant not to sue should not be the first reaction to trademark litigation.

Conclusion

Justice Kennedy concluded that courts should be wary of large companies intentionally burdening smaller ones and later promising not to sue. Hence, a covenant not to sue should only terminate litigation where it meets the high burden required, as done in this case.

Source: https://www.supremecourt.gov/opinions/12pdf/11-982_i425.pdf

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