Business Workshop: No Harm, No Lawsuit

In an unusual case involving running shoes, the U.S. Supreme Court recently ruled that when it comes to intellectual property invalidity lawsuits, there is no basis to pursue a claim against a party that has voluntarily and unconditionally ceased its own infringement claims.

The case started when Nike sued Yums apparel for trade dress infringement for allegedly selling shoes similar to the trademarked design of the Nike Air Force 1. Yums filed a counterclaim to invalidate Nike’s trade dress registration.

Nike decided it didn’t want to proceed with its lawsuit and withdrew its infringement claim.

Nike also gave Yums a written covenant promising not to sue Yums for infringement of the Nike Air Force 1 mark for any past or future shoe design Yums might make.

Nike moved to dismiss the invalidity case against it, but Yums opposed the motion. Despite the covenant not to sue, Yums wanted the Nike trade dress rights completely cancelled.

The lower court ruled in Nike’s favor that the case should be dismissed. The appeals court agreed with the lower court, and so did the Supreme Court. The reasoning of all the courts was that since the Nike covenant made it impossible for Nike to pursue any claim against Yums, the covenant protects not only Yums, but also its distributors and customers, thereby making the case moot.

The decision appears to give companies initiating lawsuits for intellectual property infringement an easy and inexpensive way out if they believe they are losing or if pursuing the lawsuit gets too costly. But some legal scholars believe the Supreme Court decision gives large companies an unfair advantage when suing smaller firms for intellectual property infringement.

For more information on this topic, please contact David G. Oberdick at [email protected].
This article originally appeared in the Pittsburgh Post-Gazette’s Business Workshop section. Business workshop is a weekly feature from local experts offering tidbits on matters affecting business.
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