On January 10, 2013, the Supreme Court held that a trademark plaintiff's voluntary dismissal of its infringement suit, together with a broad covenant not to sue, removed the district court's Article III jurisdiction and therefore barred consideration of the defendant's counterclaim of trademark invalidity. Already LLC d/b/a Yums v. Nike, Inc., No. 11-982, 568 U. S.___ (2013).
Nike, the trademark owner, sued Already for alleged infringement of Nike's athletic shoe trademark. Already counterclaimed that Nike's trademark was invalid. Eight months after filing suit, Nike dismissed its infringement claims with prejudice and issued an extremely broad covenant not to sue. At Nike's urging, the district court then dismissed Already's counterclaim on the ground that the covenant had extinguished the case or controversy. The Second Circuit affirmed. Nike, Inc. v. Already, LLC, 663 F.3d 89, 91 (2d Cir. 2011).
The Supreme Court first determined that Nike, the party asserting mootness, bore the "formidable burden" imposed by the voluntary cession test to show that it is "absolutely clear" Nike's alleged wrongful behavior (enforcing its trademark) could not reasonably be expected to recur. The Court found that Nike's sweepingly broad covenant met that burden — it was unconditional and irrevocable; it prohibited Nike from filing suit or otherwise making any claim or demand regarding the trademark against Already; it reached beyond Already to protect distributors and customers; and it covered not just current or previous designs, but any colorable imitations of those designs in the future.
Because Nike met its burden to show the covenant encompassed all of its allegedly wrongful behavior, the Court held that it was incumbent on Already to show that it engaged in, or had sufficiently concrete plans to engage in, activities not covered by the covenant. Already failed to make this showing, or any showing that it had an intention to manufacture a shoe that would infringe Nike's trademark yet not fall within the covenant. Because Already's "only legally cognizable injury — the fact that Nike took steps to enforce its trademark" was gone, the Court held that the Already's invalidity counterclaim was moot.
What This Means for You
Already confirms that a broad covenant not to sue can moot a trademark defendant's counterclaims for invalidity.
Although the Supreme Court's decision regarded trademark rights, similar situations arise often in patent litigation where a defendant asserts declaratory judgment counterclaims of patent invalidity after being sued for patent infringement. It was already the law of the Federal Circuit that a patent holder can divest a federal court of Article III jurisdiction over the defendant's invalidity claims by issuing a covenant not to sue regarding a defendant's past and current products. See Super Sack Mfg. Corp. v. Chase Packaging Corp., 57 F.3d 1054, 1059–60 (Fed. Cir. 1995). Because the covenant at issue in the Already decision was extremely broad, however, lower courts will need to determine what lesser covenants will now be sufficient to achieve the same effect. It seems likely that, following Already, it will be more difficult for patentees to moot invalidity counterclaims with narrow covenants.
Originally published in V&E IP Insights E-communication, January 11, 2013
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