Supreme Court Finds Covenant Not to Sue Sufficiently Broad

Trademark holders no longer have to worry about not being able to dismiss a case by entering into a properly drafted covenant not to sue.

In Already, LLC, dba Yums v. Nike, Inc., the Supreme Court unanimously affirmed the Second Circuit’s opinion by ruling that Nike’s covenant not to sue Yums for trademark infringement was sufficiently broad to render moot Yums’ challenge to the validity of Nike’s asserted registration. Yums had no reasonable apprehension of litigation and Nike met its burden of showing that Yums could not be sued later. Chief Justice Roberts delivered the opinion, which required a high standard for parties issuing the covenant, as they bear a “formidable burden” to establish that it is “absolutely clear” that the allegedly wrongful conduct cannot reasonably be expected to reoccur. Remand was not necessary under the circumstances, because the Court found that it “cannot conceive” of any shoe that Yums could make “that would potentially infringe Nike’s trademark and yet not fall under the Covenant.” Arguably, the Court construed the covenant so broadly as to exclude a claim of infringement based on Yums’ sale of the exact shoe covered by Nike’s challenged registration.

In a concurring opinion, Justice Kennedy cautioned that for a covenant to bar an invalidity challenge by an accused infringer, it must be sufficiently broad to eliminate any risk that a defendant might be sued again in the future. That concurrence was joined by Justices Alito, Sotomayor and Thomas.

An important takeaway for IP practitioners is that validity challenges to trademark rights asserted in litigation may be rendered moot if the owner grants a broad covenant not to sue. However, doing so — as the Court noted — “may be a risky long-term strategy for a trademark holder,” since it will adversely impact its ability to enforce its trademark rights.

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