On January 9, 2013, the U.S. Supreme Court in Already, LLC v. Nike, Inc. unanimously ruled that Already could not dispute the validity of one of Nike’s trademarks after Nike agreed not to sue the company for infringement.
Nike sued Already, a designer and marketer of athletic footwear, for trademark infringement and Already counterclaimed to declare the trademark invalid. Eight months after filing suit, Nike provided Already with a covenant not to sue, and subsequently moved to dismiss all claims. In the covenant not to sue, Nike agreed to “unconditionally and irrevocably” refrain from making any claims or demands against Already, as well as its employees, distributors and customers, for any possible cause of action based on trademark infringement, unfair competition or dilution relating to the Nike trademark. In its motion to dismiss, Nike asserted that the covenant not to sue terminated the case or controversy and rendered the case moot.
The district court dismissed the counterclaims as moot and the Second Circuit affirmed. The Supreme Court unanimously affirmed. It held that the broad covenant not to sue, which covered past and future shoes, met the demanding standard of mootness by voluntary cessation, particularly as Already has no plans to develop or market shoes which infringe on the trademark. Since Nike had agreed unconditionally not to sue Already, the federal courts lacked jurisdiction over Already’s counterclaims that Nike’s trademark is not valid.
The decision here demonstrates a strategic weapon that trademark holders possess to forestall invalidity claims by promising not to sue competitors for infringing their IP rights. This provides another avenue in choosing where and when to fight invalidity battles.