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October Term, 2012

January 9, 2013

Today the Supreme Court issued one decision, described below, of interest to the business community.

Article III—Mootness

Already, LLC v. Nike, Inc., No. 11-982

Article III of the United States Constitution confers jurisdiction on the federal courts to adjudicate “Cases” and “Controversies.” A case or controversy becomes moot when the dispute “is no longer embedded in any actual controversy about the plaintiffs’ particular legal rights.” Alvarez v. Smith, 558 U.S. 87, 93 (2009). In 2000, the Supreme Court held that when a defendant voluntarily ceases the conduct alleged to be unlawful, the dispute does not automatically become moot; rather, the defendant “bears the formidable burden of showing that it is absolutely clear the allegedly wrongful behavior could not reasonably be expected to recur.” Friends of the Earth, Inc. v. Laidlaw Envtl. Servs. (TOC), Inc., 528 U.S. 167, 190 (2000). Today, in Already, LLC v. Nike, Inc., No. 11-982, the Court held that the defendant in a trademark dispute had met that burden.

The Court’s opinion is of general interest to all businesses that face claims based on hypothetical future conduct, and is of particular interest to businesses that face trademark-invalidation claims premised on nothing more than the plaintiff’s status as a competitor.

Both petitioner Already and respondent Nike design and market athletic footwear. Nike holds the registered trademark “Air Force 1” for one of its product lines; Already offers a product line that Nike contended violated that trademark. Nike filed suit, claiming that Already infringed and diluted its Air Force 1 trademark, and Already filed a counterclaim challenging the trademark’s validity. Nike then issued an unconditional and irrevocable “Covenant Not to Sue,” promising that it would not “raise against Already or any affiliated entity any trademark or unfair competition claim[s] based on any of Already’s existing footwear designs, or any future Already designs that constituted a ‘colorable imitation’ of Already’s current products.” Slip op. 2. Nike moved to dismiss its own claims with prejudice, and to dismiss Already’s counterclaim without prejudice as moot. The district court granted Nike’s motion to dismiss because Already had not offered any evidence that it intended to offer a product line not covered by Nike’s covenant. The Second Circuit affirmed, agreeing that Already “ha[d] not asserted any intention to market any such shoe,” and therefore could not establish an injury sufficient to confer continuing Article III jurisdiction. Slip op. 3 (quoting Nike, Inc. v. Already, LLC, 663 F.3d 89, 97 (2d Cir. 2011)).

In a unanimous opinion by Chief Justice Roberts, the Supreme Court affirmed. The Court reasoned that the broadly worded covenant not to sue satisfied Nike’s burden under the voluntary-cessation doctrine to establish that Nike could not reasonably be expected to pursue further trademark claims against Already. Slip op. 5–9. Because Nike had asserted that there was no prospect of a shoe that would infringe Nike’s trademark but be outside the scope of the covenant, the Court observed that Nike would likely be estopped from subsequently asserting claims against Already over future shoe designs. Slip op. 7. And because at no point during the litigation had Already “assert[ed] any intent to design or market a shoe that would expose it to any prospect of infringement liability” in light of Nike’s covenant, the Court concluded that Already lacked a cognizable injury under Article III. Slip op. 8. The Court rejected Already’s alternative theories of Article III injury, concluding that (1) given Nike’s covenant, the conjectural or hypothetical concerns of Already’s investors could not confer standing; (2) the covenant removed any legitimate basis for Already’s concern about being sued again; and (3) Already’s role as Nike’s competitor did not confer automatic standing to challenge trademark validity. Slip op. 9–14. Finally, the Court concluded that remand was unnecessary because Already had repeatedly declined to offer record evidence that would support a finding of continuing injury. Slip op. 14–15. 

In a concurrence joined by Justices Thomas, Alito, and Sotomayor, Justice Kennedy observed that the lower courts had improperly shifted to Already the burden of defeating Nike’s mootness argument. The concurrence emphasized that Nike, as the counterclaim defendant, bore the burden of showing that, under the covenant, “Already can have no reasonable anticipation of a future trademark infringement claim from Nike.” Slip op. 1 (concurrence). The concurrence also observed that a trademark holder’s litigation conduct—in this case, filing a trademark-infringement claim and then issuing a covenant not to sue—may result in continuing injury to a competitor by, for example, deterring the allegedly infringing manufacturer’s business partners. Slip op. 2. The concurrence reasoned that, in future cases, the defendant trademark holder should have to “make a substantial showing that the business of the competitor and its supply network will not be disrupted or weakened by satellite litigation over mootness or by any threat latent in the terms of the covenant itself.” Slip op. 3. 

Any questions about the case should be directed to John Mancini (+1 212 506 2295) in our New York office.

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