If you don't want your registration cancelled, just hand the defendant a covenant not to sue. Janet Satterthwaite reports on the latest Supreme Court trade mark case
The US Supreme Court, which rarely gets involved in trade mark cases, last month ruled that when a defendant in a trade mark infringement case countersues to cancel the plaintiff's registration, the plaintiff can divest the 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 US ____(2013) Nike had sued Already over alleged violation of an arguably weak trade dress registration (see picture).
Already counterclaimed to cancel the registration. To dodge that, Nike unilaterally gave Already a broad promise not to sue, dismissed its complaint, and then moved to dismiss the counterclaim as moot (unnecessary).
No real case or controversy
Under Article III of the US constitution, federal courts do not have jurisdiction to hear a case where there is no real case or controversy, so the Court dismissed the counterclaims 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, so there was no jurisdiction to ask the court to cancel the registration because there was no longer a controversy.
The Court drew an analogy to, and applied, cases where the
defendant voluntarily ceases the conduct complained of in the
complaint, with no reasonable chance of it recurring, which also
deprives the courts of further jurisdiction.
Already showed the Court that investors were still nervous about
investing in Already as long as the Nike registration existed, but
the court said that harm was too speculative when Already could
never be sued by Nike over that registration.
Already also raised an interesting twist on trade mark bullying. It argued that if Nike could threaten smaller competitors with lawsuits over this probably unenforceable trade mark, and just hand over a covenant not to sue any time the little guy fought back, it would allow serial trade mark bullying to continue. But the Court was not able to find that it had jurisdiction to continue with the case, and feared that setting such a precedent would cause a flood of trade mark litigation as a weapon by larger companies who would sue to knockout others' IP rights just because they gave a competitive advantage to a rival, even absent an actual dispute. The Court also noted that Nike's strategy was risky, hinting that a pattern of covenants not to sue might end up as a finding of naked licensing.
USPTO is proper forum for cancellation
Already chose to take this case up to the Supreme Court when it could probably have simply filed a cancellation (revocation) action against the registration before the Trademark Office, which is not covered by Article III. The threshold for having grounds to request cancellation of another's registration is simply a showing that you believe you might be damaged.
The correspondence from investors saying they might not do business with Already as long as the Nike registration was in effect would probably be enough to establish standing. Indeed, the trial court acknowledged that the proper forum to pursue the claim would be through a cancellation action at the Trademark Office.
INTA filed an amicus curiae brief in support of Nike and argued that a cancellation action would have been the appropriate course for Already.
An informal poll of the MARQUES IP Outer Borders Team suggests that courts in Europe would have ruled in the same way as the US courts.
Previously published in MARQUES
Janet Satterthwaite is a trade mark partner at Venable LLP in Washington DC, a member of the MARQUES IP Outer Borders Team and the US correspondent for HouseMARQUES.
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