Voluntary Cessation and Loss of Standing

Voluntary Cessation and Loss of Standing

Voluntary Cessation and Loss of Standing

Voluntary Cessation and Loss of StandingVoluntary Cessation Case – Competitors should not be able to use trademark lawsuits as offensive weapons.  This was the clear message issued by Justice Roberts for a unanimous Supreme Court in the case of Already LLC v. Nike Inc.

In the case, also covered by ReutersNike sued Already (DBA Yum) for trademark infringement of its iconic Nike Air Force One sneakers.  Already, maker of the “Sugar” and “Soulja Boy” brands of shoes, countersued to invalidate Nike’s trademark.  Then, things became tricky.

Already’s Countersuit to Void the Trademark

After considering all the factors, Nike decided that Already was not a competitive threat, and so issued a covenant not to sue them for trademark infringement of the Air Force One sneaker and dismissed its own pending lawsuit.  However, Already refused to dismiss its own suit to void the trademark.  Nike argued essentially that Already’s suit was moot because they lacked standing to sue.  The district court and the 2nd US Circuit Court of Appeals for New York both agreed with Nike, but because the case had some interesting and novel policy questions, the Supreme Court of the United States (SCOTUS) decided to hear it.

Voluntary Cessation

The court first focused on the voluntary cessation doctrine.  As it discussed, a defendant accused of wrongful conduct cannot get a case dismissed (mooted) by simply stopping that conduct – this raises the specter of defendants stopping and starting bad conduct to coincide with lawsuits!  In Friends of the Earth, Inc. v. Laidlaw Environmental Services (TOC), Inc., cited by the court, a company accused of illegal pollution could not moot the case simply by ceasing to pollute and closing the factory – because the key fact was that they still retained a license to operate that factory, and so presumably could start it up again at any time.  Thus, a defendant must meet a “formidable burden” to demonstrate that it is protected by this doctrine.

Here the court decided that Nike had met that formidable burden.  The covenant not to sue was so broad that it prevented Nike from ever suing Already for trademark infringement even on future derivations or copies of the brands at issue.  None of the justices and none of the attorneys for Already could think of any possible shoe design that would make it possible for Nike to pursue a trademark suit against Already.  Such a design would have to somehow lie outside the covenant not to sue and inside the trademark, a near-impossibility.

Confusing Issues

A confusing point that the court glossed over was how voluntary cessation exactly related to Already’s claim.  Already’s claim depended on the idea that Nike had an improper or otherwise defective trademark that Nike used to harm Already via an infringement lawsuit.  Thus, Already could challenge that trademark in order to protect itself.

However when the court decided that, due to satisfaction of the voluntary cessation doctrine, Already could no longer be harmed by Nike’s mark, Already lost its standing to sue – it didn’t matter whether or not the Air Force One mark was valid because Already could never possibly be harmed by it at any point in the future, in the opinion of all three courts who heard the case.

Public Policy Arguments

Already also argued that it should have standing to sue as a matter of public policy because Nike’s conduct was an example of “bullying” behavior that a large company could use to harm a smaller competitor.  SCOTUS was incredibly unsympathetic to this argument, and for good reason.  Trademark law is chiefly concerned with direct harms – harms to consumers and harms to competitors.  Allowing one company to sue another, without any theory of direct harm, simply because they were both competitors would make it dramatically easier for companies to use trademark lawsuits as offensive weapons.

The majority also spotted the crucial flaw in Already’s “big vs. small” argument: granting Already’s suit would make it much easier for a large company to bully a small company!  Under such a hypothetical rule, large companies could attempt to invalidate the trademarks of smaller competitors with absolutely no theory of direct harm!  Such a situation would have a dramatic and chilling effect on the competitive landscape and prove particularly bad to small and start-up businesses.

Contact Cartee, LC Today

If you need assistance with a trademark, copyright, IP issue, or related business matter, call Orange County Trademark attorney Anthony Cartee today at (714) 942-2225 or contact us online.