A Covenant Not to Sue May Avoid Invalidity Claims

Last week, in Already, LLC v. Nike, Inc. (opinion attached), the Supreme Court unanimously decided that the voluntary cessation doctrine, most often used when a defendant claims its voluntary compliance moots a case where it is “absolutely clear that the allegedly wrongful behavior would not reasonabl?? be expected to recur,” mooted trademark invalidity counterclaims where the plaintiff entered a sufficiently broad covenant not to sue. Thus, regardless whether Nike provided the covenant not to sue to avoid a vigorous cancellation claim against one of its trademarks, or whether it provided the covenant not to sue because the costs of the litigation outweighed any perceivable benefit of pursuing a case against infringing shoes that were no longer being sold, the choice remained Nike’s to make.

By way of background, Nike sued Already LLC, d/b/a Yums, in July 2009 for trademark infringement, false designation of origin, unfair competition and trademark dilution of Nike’s Air Force 1 athletic shoe. Already filed a counterclaim for declaratory judgment and cancellation of the registration. Eight months after filing suit, Nike provided Already with a covenant not to sue, and it subsequently moved to dismiss all claims (including the counterclaim). Already fought to maintain its right to sue on its counterclaims, claiming its business was threatened by the continued existence of the Air Force 1 trademark. The issue on certiorari was whether Nike’s broad covenant not to sue divested the court of subject matter jurisdiction over the invalidity claim because Article III only governs actual cases or controversies; it did.

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