Supreme Court's Dismissal Of Invalidity Counterclaim Based On Covenant Not To Sue Raises New Potential Avenues For Argument In Hatch-Waxman Act Cases

In a trademark decision that may have implications on other intellectual property cases, last week, the United States Supreme Court issued a unanimous opinion affirming the dismissal of an alleged infringer's counterclaim for trademark invalidity after the trademark owner provided a covenant not to sue. See Already, LLC v. Nike, Inc., 568 U.S. ---, No. 11-982 (2013) (Slip Op.), available here. The Court found that Already's counterclaim challenging the validity of Nike's trademark was mooted after Nike issued a broadly worded covenant not to sue to Already and voluntarily dismissed its claims of trademark infringement with prejudice. While the end result in this case may not be remarkable, it provides insight on the current thinking of the Supreme Court Justices and provides potential new arguments for use in the context of patent cases, particularly in Hatch-Waxman ANDA litigation, where this issue has frequently arisen in recent years.

Proceedings In Already

Nike sued Already for infringement of its trademark on its Air Force 1 line of shoes, and Already filed a counterclaim alleging that the trademark was invalid. In an attempt to end the litigation without jeopardizing the validity of its Air Force 1 trademark, Nike provided a broad covenant not to sue Already, its distributors, and its customers for infringement of this trademark based on any of the shoes at issue in the suit and any "colorable imitations" thereof. Nike then moved to dismiss its infringement claims with prejudice and also moved to dismiss as moot Already's invalidity counterclaim without prejudice. Already opposed dismissal. In support, Already presented affidavits from its president stating that Already had plans to introduce new versions of its current shoe line into the marketplace and from three potential investors stating that they would not consider investing in Already until Nike's trademark was invalidated. The district court granted Nike's motion to dismiss for failure to meet the Article III "case or controversy" requirement. The Second Circuit affirmed and the Supreme Court granted certiorari.

The Supreme Court's Opinion

In a unanimous opinion, the Supreme Court found that no controversy existed and declared Already's counterclaims to be moot. The Court held that the "voluntary cessation doctrine" applied to this case, requiring that "'a defendant claiming that its voluntary compliance moots a case bears the formidable burden of showing that it is absolutely clear the allegedly wrongful behavior could not reasonably be expected to recur.'" Id. at 4 (citing Friends of the Earth, Inc. v. Laidlaw Envtl. Servs. (TOC), Inc., 528 U.S. 167, 190 (2000)). The parties and the Court did not seem to question that the covenant would cover any of Already's existing products, but were more concerned about whether the covenant would cover Already's future products. The Court held that the "breadth of the covenant suffices to meet the burden imposed by the voluntary cessation test." Id. at 6. Though Already attempted to create a "case or controversy" by focusing on its intent to introduce a new shoe line, the Court found the covenant so broad that it could not find evidence of any shoes Already might manufacture that would not be covered by the covenant. Id. at 7 ("If such a [potentially infringing] shoe exists, the parties have not pointed to it, there is no evidence...