Thursday, November 10, 2011

2d Cir.: Nike's broad covenant-not-to-sue for TM infringement kills jurisdiction over invalidity/cancellation DJ under MedImmune test

Nike was recently rewarded for pulling a potentially risky litigation move: trying to avoid a troublesome DJ/cancellation counterclaim by unilaterally issuing a broad covenant-not-to-sue. This move is a little like surrendering without knowing for sure if the adversary can shoot you when you raise your hands.

After filing an action alleging Yums infringed Nike’s marks for its “Air Force 1” shoes, Yums filed a counterclaim for a DJ of invalidity and a demand that Nike’s registrations be cancelled. Apparently the counterclaim gave Nike second thoughts, because it then sent Yums a covenant not to sue for footwear “based on the appearance of any [Yum’s] current and/or previous footwear product designs.” Nike then moved to dismiss: (1) its own infringement claims without prejudice under FRCP 41(a)(2) and (2) Yum’s counterclaim without prejudice for lack of a case or controversy under FRCP 12(b)(1).

The 2d Circuit affirmed the dismissal of the counterclaims for lack of a case or controversy. Applying the test under MedImmune, Inc. v. Genentech, Inc., 549 U.S. 118 (2007), the court ignored whether Yums retained any “reasonable apprehension” of suit, and focused only on whether there remained any “real and substantial” controversy after the broad covenant was issued.

Based primarily on the breadth of the covenant (which covered all past and present Yum’s designs and any future sales of present designs) and on the lack of any evidence that Yum’s intends to infringe or counterfeit through any future design, the Second Circuit held that the basis for a DJ evaporated upon issuance of the covenant, and that the request for cancellation (under 15 U.S.C. § 1119) is merely a remedy, not an independent source of jurisdiction.

The case is Nike, Inc. v. Already, LLC d/b/a Yums, No. 11-314-cv (2d Cir. Nov. 10, 2011).