Supreme Court May Put a Stop to the “Hokey-Pokey” Approach to IP Ownership

by Elizabeth Swanson

You put your right foot in, you put your right foot out,

You put your right foot in, and you shake it all about,

You do the Hokey-Pokey and you turn yourself around.

That’s what it’s all about![1]

On June 25, 2012 the U.S. Supreme Court granted YUMS’ Petition for a Writ of Certiorari in Already, LLC dba Yums v. Nike, Inc., No. 11-982.  This grant is important because its result may change federal court  jurisdiction in both patent and trademark infringement declaratory judgment cases.

The “Question Presented,” according to YUMS, is as follows:

“Whether a federal district court is divested of Article III jurisdiction over a party’s challenge to the validity of a federally registered trademark if the registrant promises not to assert its mark against the party’s then-existing commercial activities.”

YUMS explains its logic in its STATEMENT OF THE CASE:

1.     The issue cannot be resolved by litigation because it concerns the constitutional scope of Article III jurisdiction;

2.     Both trademark registrations and issued patents are evidence of the exclusive rights granted to the owners;

3.     Under 15 USC §1119, a person accused of infringement may ask a court to award judgment declaring that the mark is invalid;

4.     When validity is challenged under §1119, the owner may be willing to settle and to include a broad covenant not to sue, as in the YUMS case below;

5.     There may also be an argument that the court is divested of Article III jurisdiction because there are then no more claims of infringement, and this is often used as part of a litigation strategy;

6.     The Ninth Circuit has a pattern of holding that a covenant not to sue does not divest the district court of Ariticle III jurisdiction (Bancroft & Masters, Inc. v. Augusta National Inc., 223 F.3d 1082 (9th Cir. 2000);

7.     The Supreme Court has followed the Ninth Circuit’s reasoning with respect to patent cases including Lear, Inc. v. Adkins, 395 U.S. 653 (1969), MedImmune, Inc. v. Genentech, Inc., 549 U.S. 118 (2007), Cardinal Chem. Co. v. Morton Int’l, Inc., 508 U.S. 83 (1993), and Scott Paper Co. v. Marcalus Mfg. Co., 326 U.S. 249 (1945);

8.     The Federal Circuit stated its rule regarding dismissal after settlement in patent cases in Super Sack Mfg. Corp. v. Chase Packaging Corp., 57 F.3d 1054, 1059-60 (Fed. Cir. 1995).  There, the Federal Circuit held  that the patent owner can divest a federal court of Article III jurisdiction over the defendant’s counterclaim for a declaratory judgment of patent invalidity by promising not to sue.  Judge Dyk has argued in a subsequent case against this “Super Sack” rule.  See Benitec Australia, Ltd. v. Nucleonics, Inc., 495 F.3d 1340, 1350-55 (Fed. Cir. 2007) (Dyk, J., dissenting).

9.     When the appeal was brought by YUMS, the Second Circuit stated that it was not persuaded that jurisdiction still exists.  This meant that a plaintiff could file an infringement case and not have to deal with the issue of validity and enforceability of its mark if it covenanted not to sue before a judgment was issued.  This interpretation is inconsistent with those followed by both the Federal Circuit and the Ninth Circuit, and can be viewed as a limitation of the power of federal courts in trademark cases.

If the Supreme Court agrees with YUMS and holds that once you are in court, you are there to the end, not withstanding a covenant not to sue, it may change litigation strategy for both patent and trademark owners;  filing a complaint could become less like dancing the Hokey-Pokey and more like an actual commitment – and attorneys would then need to make full disclosure of that changed risk to their clients.


[1] Written by Roland Lawrence LaPrise, (with Charles Macak and Tafit Baker) 1950 Copyright Acuff-Rose Music, Inc.

Elizabeth Swanson’s Century City practice includes all aspects of patent, trademark and copyright prosecution, trade secret management, and also includes infringement matters and litigation.  Ms. Swanson has been practicing only IP law for over 22 years.

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