The United States Supreme Court, which rarely gets involved in
trademark cases, has ruled that when a Defendant in a Trademark
infringement case countersues to cancel the Plaintiff's
registration, the Plaintiff can divest a court of jurisdiction over
the cancellation by granting the Defendant a broad covenant not to
sue.
In Already LLC, d/b/a/ YUMS, v. Nike, Inc., 568 U.S.
____(2013), Nike sued Already over an alleged violation of a trade
dress registration for a shoe:
Already counterclaimed to cancel the registration. In response,
Nike granted Already a very broad promise not to sue, dismissed its
complaint, and then moved to dismiss the counterclaim as moot
(i.e., unnecessary). Under Article III of the U.S.
Constitution, federal courts do not have jurisdiction to hear a
case where there is no real case or controversy. Hence, the trial
court dismissed the counterclaim because the court could not
envision any scenario under which the defendant could ever be sued
for infringement given the broad covenant not to sue. In
other words, there was no jurisdiction to ask the lower court to
cancel the registration because there was no longer a controversy.
In affirming the decision, the Supreme Court drew an analogy to,
and applied, cases in which the defendant voluntarily ceases the
conduct alleged in the complaint, with no reasonable chance of it
recurring, which deprives the courts of further jurisdiction.
Already argued that a controversy still existed – that
despite the covenant not to sue, investors remained nervous about
investing in Already as long as the Nike registration was in
effect. The Court rejected that argument, finding that the harm was
too speculative because Already could never be sued by Nike over
that registration.
Already also raised an interesting twist on a trademark
bullying. Already argued that if Nike could threaten smaller
competitors with lawsuits over this potentially unenforceable
trademark, and just hand over a covenant not to sue in the
instances in which the smaller company fought back, it would allow
serial trademark bullying to continue. The Court was not persuaded.
Again, it was unable to find that it had jurisdiction to continue
with this particular case as necessary for Article III, and it
feared that accepting Already's argument would cause a flood of
litigation by larger companies which would sue to knock out
others' intellectual property rights absent an actual dispute.
The Court also noted that Nike's strategy was risky, hinting
that a pattern of covenants not to sue might result in a finding of
naked licensing, which may lead to an abandonment of trademark
rights.
Notably, Already took its case to the Supreme Court rather than
filing a cancellation (revocation) action against the registration
before the U.S. Patent & Trademark Office, which is not covered
by Article III. The threshold for having grounds to request
cancellation of another's registration by the PTO is simply a
showing that the petitioner might be damaged by the registration.
The correspondence from investors saying they might not do business
with Already as long as the Nike registration was in effect may
have sufficed for this purpose. Indeed, the trial court suggested
that the proper forum to pursue the claim was through a
cancellation action at the PTO. The International Trademark
Association (INTA) also suggested that a cancellation action would
have been the appropriate course in an amicus curiae brief
filed in support of Nike.
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