Argument recap: Play-acting as CEOs
on Nov 7, 2012 at 1:23 pm
Analysis
Supreme Court Justices took turns on Wednesday in what sounded much like play-acting the role of business CEO, pondering what a future consumer marketing strategy might look like, and what commercial secrets a company might not want to share with its main competitor. Beneath that exercise was a related legal inquiry: when can a company feel safe enough from the threat of a costly lawsuit from a rival that it can go ahead and develop new products? That question arose in Already LLC v. Nike, Inc. in the context of a trademark fight between two manufacturers of sneakers; the high-energy argument ended without a clear sign of a winner.
From the moment very early on when Justice Anthony M. Kennedy insistently demanded evidence that one of the sneaker companies, Already LLC, was actually inhibited from planning its business future, the members of the Court showed they were fully caught up in the business implications of this fight over the design of athletic shoes, and whether those implications should influence when a court can go ahead and settle the validity of the trademark at the center of the case — a mark registered by Nike, Inc., four years ago.
Nike had sued Already for allegedly copying too closely Nike’s “Air Force 1” sneaker design, and Already countered with a claim that the design did not deserve trademark protection anyway, so a judge should cancel the mark. Nike got the case dismissed, though, by promising not to sue its competitor and, in the process, kept its mark intact. Wednesday’s argument focused essentially on two issues: how complete was that promise, and, if it did not go far enough for Already, what more did Already want — and why.
The Justices energetically questioned Already’s lawyer, James W. Dabney of New York City, on both of those issues, with a particular emphasis on whether Already genuinely had any reason to fear legal action once it got Nike’s “covenant not to sue.” Dabney kept insisting that the company could not make plans, but not so much because the covenant was not extensive enough, but because Nike’s trademark still hung over the market for popular sneakers, inhibiting Already’s control of its own business. He stressed that, as long as that trademark was in effect, the shoe industry was in its thrall. In reaction, several of the Justices drew the conclusion that Already would not be satisfied with the covenant, no matter how broad its promise.
But when Justice Stephen G. Breyer tried out some ideas on what Already might reveal to Nike about what its future business plans were, Justice Kennedy and Justice Antonin Scalia suggested that forcing Already to come out with its plans was harm in itself — harm enough, they implied, that it may well have been entitled to keep pressing on with its court challenge to Nike’s trademark. To have to make revelations to a competitor, Kennedy commented, would be “at least patronizing” and might actually be a form of commercial injury — injury sufficient to give it a right to continue in court.
But the going did not get any easier for Dabney, because most of the Justices seemed to want to talk about the scope of Nike’s non-suit covenant, and not about the validity of the trademark itself. “Is there any covenant in the world that would make you safe?” Justice Elena Kagan asked Already’s lawyer with heavy skepticism in her voice. Chief Justice John G. Roberts, Jr., questioned what Dabney, as a lawyer, would write as a covenant if he genuinely wanted to assure that there would be no threat of a future lawsuit.
When a Justice Department lawyer, Ginger D. Anders, an Assistant to the Solicitor General, went to the lectern to urge the Court to send this case back to lower courts to explore more fully whether the covenant went far enough and whether Already had any legitimate basis for its commercial anxiety about the future, the Justices questioned her, too, about what it was that Already would have to reveal in order to persuade a court that it was exposed to future litigation. Some of the Justices also wondered whether there was anything to be gained by sending the case back down.
In addition, the Justices who seemed to want to insulate Already from revealing too much of its business strategy again made that point. Justice Kennedy, for example, argued that being forced to tell Nike what Already planned to do would give Nike a very important commercial advantage.
Nike’s lawyer, Thomas C. Goldstein of Washington, started his defense of the dismissal of Already’s trademark challenge by describing the sweep that he said the covenant had. But Justice Sonia Sotomayor promptly questioned what gave Nike a right to require Already to reveal everything it planned to do in its business. Goldstein answered that Already need not worry, since there had been a protective order in place in this case that would have protected any commercial secrets from being revealed.
While energetically defending the covenant given to Already, Goldstein also was careful to say that Nike could not go around regularly forfeiting the defense of its trademark, lest it run the risk of having abandoned the mark and thus having it taken away. The owner of a mark, he said, cannot evade its duty to defend it. But, he added, that should be no worry for Already, since it is in the unique place in the shoe industry of having been given the covenant by Nike.
Much of Goldstein’s argument, though, amounted to a repeated effort to keep the Justices focused on what was actually in the record of this case, to demonstrate his point that Already had plenty of chances to show why the covenant was not broad enough to allow it to plan its business future. It could have done so in two lower courts, Goldstein said, but it did not. “Already,” he said, “has told the District Court and the Circuit Court everything it wants to say about its intentions.” That, he argued, should lead the Court to decide the case on the record as it already exists, and not send the case back for further exploration. But, Goldstein confidently added, if Nike does not win in the Supreme Court, it would win on a remand to lower courts.
(Disclosure: Mr. Goldstein is the publisher of this blog, but had no role in the writing or editing of this post. The author operates independently of Mr. Goldstein’s law practice.)
