U.S. Supreme Court: Broad Covenant Not To Sue Moots Trademark Validity Challenge

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...