Business Law 13th Edition by Frank Cross, Kenneth Clarkson, Roger LeRoy Miller

Exercise 15

BACKGROUND AND FA CTS?Nike, Inc., designs, makes, and sells athletic footwear, including a line of shoes known as "Air Force 1." Already, LLC, also designs and markets athletic footwear, including the "Sugar" and "Soulja Boy" lines. Nike filed a suit in a federal district court against Already, alleging that Soulja Boys and Sugars infringed the Air Force 1 trademark. Already filed a counterclaim, contending that the Air Force 1 trademark was invalid. While the suit was pending, Nike issued a covenant not to sue, promising not to raise any trademark claims against Already or any affiliated entity based on Already's existing footwear designs, or any future Already designs that constituted a "colorable imitation" of Already's current products. Nike then filed a motion to dismiss its own claims and to dismiss Already's counterclaim. Already opposed the dismissal of its counterclaim, but the court granted Nike's motion. The U.S. Court of Appeals for the Second Circuit affirmed. Already appealed to the United States Supreme Court.
IN THE language OF THE COURT
Chief Justice Roberts delivered the opinion of the Court.
* * * * * * * A defendant cannot automatically moot a case simply by ending its unlawful conduct once sued. Otherwise, a defendant could engage in unlawful conduct, stop when sued to have the case declared moot [of no legal relevance], then pick up where he left off, repeating this cycle until he achieves all his unlawful ends. Given this concern, * * * 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. [This is the voluntary cessation test. Emphasis added.]
* * * * We begin our analysis with the terms of the covenant:
[Nike] unconditionally and irrevocably covenants to refrain from making any claim(s) or demand(s) * * * against Already or any of its * * * related business entities * * * [including] distributors * * * and employees of such entities and all customers * * * on account of any possible cause of action based on or involving trademark infringement * * * relating to the NIKE Mark based on the appearance of any of Already's current and/or previous footwear product designs, and any colorable imitations thereof, regardless of whether that footwear is produced * * * or otherwise used in commerce.
The breadth of this covenant suffices to meet the burden imposed by the voluntary cessation test. In addition, Nike originally argued that the Sugars and Soulja Boys infringed its trademark; in other words, Nike believed those shoes were "colorable imitations" of the Air Force 1s. Nike's covenant now allows Already to produce all of its existing footwear designs-including the Sugar and Soulja Boy-and any "colorable imitation" of those designs.
* * It is hard to imagine a scenario that would potentially infringe Nike's trademark and yet not fall under the covenant. Nike, having taken the position in court that there is no prospect of such a shoe, would be hard pressed to assert the contrary down the road. If such a shoe exists, the parties have not pointed to it, there is no evidence that Already has dreamt of it, and we cannot conceive of it. It sits, as far as we can tell, on a shelf between Dorothy's ruby slippers and Perseus's winged sandals.
* * * * * * * Given the covenant's broad language, and given that Already has asserted no concrete plans to engage in conduct not covered by the covenant, we can conclude the case is moot because the challenged conduct cannot reasonably be expected to recur.
DECISION AND REMEDY The United States Supreme Court affirmed the judgment of the lower court. Under the covenant not to sue, Nike could not file a claim for trademark infringement against Already, and Already could not assert that Nike's trademark was invalid.
THE economic DIMENSION?Why would any party agree to a covenant not to sue?
THE legal environment DIMENSION?Which types of contracts are similar to a covenant not to sue? Explain.