On Wednesday, the Supreme Court heard oral argument in the case of Already, LLC d/b/a Yums v. Nike, Inc. As we reported previously, that case arose from an appeal of the Second Circuit’s decision affirming the Southern District of New York’s holding that a covenant not to sue entered in a trademark dispute ended the case and controversy between the parties. We enclose the full transcript of the oral argument. 

During oral argument, at which this author was present, Already, LLC d/b/a Yums’ (“Yums”) attorney argued that the covenant would force it to be the "involuntary licensee" of Nike. He analogized the challenged registration to a scarecrow, arguing that it creates "informational injury" by improperly stopping competitors from producing similar shoes, under color of right.

Significantly, Nike’s covenant not-to-sue only extended to claims based on Yums’ current and past products and "colorable imitations" thereof. It did not preclude that Yums might later be sued based on the challenged registration for other shoe designs.

Nike’s attorney urged the Court that the covenant obviated any injury to Yums arising from the registration. He argued that Yums had failed to show that it had plans to produce any shoes that would not be covered by Nike’s covenant not-to-sue. However, he admitted that, if Yums had plans to produce the exact shoe covered by Nike’s registration, sufficient harm would be present for the federal court to have continuing Article III jurisdiction.

The justices asked a number of questions, including whether any covenant not-to-sue could ever suffice in a trademark action if the underlying registration remained valid. Justices Breyer and Sotomayor both noted that the record did not affirmatively show that Yums had plans to develop an exact replica of the Nike shoe at issue. However, Yums’ attorney reminded the court that the record was not fully developed in the district court proceeding, and urged that the procedural posture of the case is analogous to that of a summary judgment, where all reasonable inferences should be drawn in Yums’ favor, as the non-moving party.

The Supreme Court is expected to hand down its decision prior to June 30, 2013. Gibbons will continue to monitor developments in this case.

Catherine M. Clayton is a Director in the Gibbons Intellectual Property Department.