By Jonathan Stempel
WASHINGTON (Reuters) - Nike Inc
Several justices appeared sympathetic to the sporting goods maker's argument to stop Already LLC from challenging its trademark covering a top-selling pair of sneakers, after Nike had agreed to drop its own lawsuit accusing that company of making illegal copies.
The case may be especially significant to companies such as Nike rival Adidas SE
A loss for Nike could make companies more hesitant to file trademark lawsuits, given the lessened incentive for alleged infringers to drop or settle counterclaims.
In 2008, Nike registered a trademark on the stitching, eyelet panels and other design features of Air Force 1, a low-cut sneaker that the Beaverton, Oregon-based company launched in 1982 and which sells in the millions each year.
In July 2009, Nike sued Already, which makes sneakers under the Yums brand, saying its "Sugar" and "Soulja Boy" shoes had features covered by the Air Force 1 trademark. Already had been on Nike's internal "top 10" list of alleged infringers.
After Already countersued to void the trademark, Nike decided to drop its lawsuit, believing Yums sneakers posed no real commercial threat. It also promised, through a legal promise known as a covenant, not to sue Already.
But the Arlington, Texas-based company refused to abandon its counterclaim and accused Nike of dropping the original lawsuit to deprive courts of jurisdiction over the whole matter.
Last November, the 2nd U.S. Circuit Court of Appeals in New York said Nike's action did just that, and the Supreme Court agreed to decide whether that ruling was correct.
PROMISES LEFT AND RIGHT
At Wednesday's oral argument, James Dabney, a lawyer for Already, contended that Nike was asserting an improper, "far-reaching claim of right to exclude competition."
But some justices were troubled by Already's refusal to say that it would produce no sneakers that would bother Nike, and Dabney's inability to explain what kind of protection would satisfy the smaller company.
"Is there any covenant that exists in the world that would make you secure?" Justice Elena Kagan asked. "I suppose I'm having a little bit of difficulty with an answer that says 'no.'"
Chief Justice John Roberts suggested Already had extracted more from Nike than most in winning a covenant not to be sued.
"Nike can't go around giving these covenants left and right, because if they do, they will undermine their own trademark," he said.
Thomas Goldstein, a lawyer for Nike, called Already "the only company in the entire world that has a promise that's substantial not to be sued under this trademark," and that this "really resolved the case."
He did acknowledge that Nike's promise would not cover exact copies or "colorable imitations" of its sneakers. "Our point is not that it covers every future shoe of theirs," he said.
Goldstein urged the court to reject the federal government's recommendation that the 2nd Circuit ruling be thrown out and that the case be remanded, or returned, to a lower court to gain more clarity about Nike's covenant and Already's product plans.
Kagan appeared to agree that keeping the case going might not resolve much.
"It sounds as though we're remanding for no purpose, given what Already has said throughout the course of the litigation and, indeed, in this court today," she told Ginger Anders, a Justice Department lawyer.
Two companies with well-known trademarks, clothing maker Levi Strauss & Co and automaker Volkswagen AG
A decision is expected by the end of June.
The case is Already LLC v. Nike Inc, U.S. Supreme Court, No. 11-982.
(Reporting by Jonathan Stempel; Additional reporting by Erin Geiger Smith in New York; Editing by Howard Goller and Lisa Von Ahn)