By Gergana H. Miteva
Miteva Law PC www.mitevalaw.com
On Monday the United States Supreme Court granted certiorari to a case involving a Nike shoe design trademark (http://www.supremecourt.gov/orders/courtorders/062512d4f1zor.pdf). In early 2010, only a few months after Nike sued another shoe manufacturer for trademark infringement, it "abruptly" dropped the case and presented the defendant with a "Covenant Not to Sue", promising not to challenge any of the defendant's current or previous shoe designs. The defendant, apparently unconvinced by the covenant, moved to proceed with its counterclaim to invalidate the mark and cancel its registration. Both the Southern District of New York and the Second Circuit court sided with Nike (http://www.pattishall.com/pdf/Nike_v_Already.pdf), and held that since the defendant was no longer exposed to potential litigation pursuant the covenant not to sue, the court had no subject matter jurisdiction over the counterclaim. [http://newsandinsight.thomsonreuters.com/Legal/News/ViewNews.aspx?id=50949&terms=%40ReutersTopicCodes+CONTAINS+%27ANV%27]
The defendant's successful petition for certiorari (http://newsandinsight.thomsonreuters.com/uploadedFiles/Reuters_Content/2012/06_-_June/Trademark%20Nike.pdf) argued that the Second Circuit's decision diverged from a Ninth Circuit decision issued in 2000 (http://archive.ca9.uscourts.gov/coa/newopinions.nsf/2E84E99FE610B5F88825695200757AB0/$file/9915099.PDF?openelement) which allowed counterclaims challenging the validity of a trademark to proceed despite the plaintiff's promise not to sue. In the California case, the plaintiff offered to waive all of its trademark infringement, dilution, and unfair competition claims against the defendant's use of the "masters.com" domain. The court held that the plaintiff's promises did not divest the court from jurisdiction to hear the defendant's counterclaims.
This case taps into the very core of strategic decision making for trademark owners. Nike placed itself in a somewhat precarious situation by first suing to enforce its trademark and later voluntarily dismissing the suit, signaling apprehension that its mark may be invalidated. This move, planned or not, may backfire regardless of the outcome. Even if the Supreme Court finds that there is no jurisdiction over the counterclaim, Nike might still be vulnerable to competitors wishing to get a free ride on its popularity. Nike's apparent lack of confidence in the validity of this trademark might embolden opportunistic companies to manufacture products with similar designs and names.
Owners of valuable trademarks, however, also stand to benefit greatly from a favorable outcome in this case. If they gain the ability to enforce their marks without fearing invalidation, the risk of going to court to enforce them would decrease substantially. The down side of this is that it may inspire an increase in big name trademark owners flexing their muscles against small competitors by going to court with the option to voluntarily dismiss the case if the other side signals ability and willingness to litigate all the way.