By Erin Geiger Smith 

The U.S. Supreme Court will hear arguments on Wednesday to decide whether Nike can be forced to defend the validity of one of its trademarks, even though it dropped the original infringement suit it brought against a small shoe company. Think that's a minor procedural question? Think again. Even the Justice Department has stepped into a case that could leave a footprint on all trademark litigation. (And yes, we used "stepped in" and "footprint" deliberately.)

The background of the litigation, which revolves around an all-white shoe by Nike, is, yes, colorful. Graffiti-artist-turned-shoe-designer Howard "Tex" Moton works for a Texas-based company called Already, better known in the apparel world as Yums. (The brand has garnered fans in the hip-hop community, including rapper Sean Kingston.) A Yums sneaker from a line known as Sweet, which features a rainbow-bright bottom but an all-white top, attracted the attention of Nike, which has a trademark on an all-white version of its popular Air Force 1 shoe. (The best visual of the two shoes can be found in a photo on page 4 of Nike's brief. They are both all white and have several similarities, but they are not identical.)

Nike sent a cease-and-desist letter to Yums, along with similar suits it had filed against other companies and the corresponding settlement papers. Moton, a lifelong Nike admirer, told us that receiving the letter was like being told by "my favorite player in my favorite sport" that he couldn't play anymore.

Yums refused to go quietly, and in July 2009 Nike filed an infringement suit against Yums in federal court in Manhattan. Yums' lawyers at Fried, Frank, Harris, Shriver & Jacobson counterclaimed, alleging that Nike's mark is invalid because the trademarked stitching and eyelet design isn't a "symbol" or a "device" but an integral feature of Nike shoes. In March 2010, Nike's lawyers at King & Spalding informed the court and Yums that Nike wanted to drop the case, explaining that their client had decided Yums' sales weren't worth the expense of litigation. That notice, which included Nike's offer to dismiss the suit, came in the form of a covenant in which Nike agreed not to sue the small shoemaker over any past or present Yums shoes or future Yums shoes that are close imitations of those already produced.

Nevertheless, Yums refused to drop its counterclaim seeking to invalidate Nike's trademark. U.S. District Judge Richard Sullivan said he had no jurisdiction over the counterclaim, a conclusion the 2nd Circuit Court of Appeals affirmed in November 2011. But Yums -- the little shoe company that could -- petitioned for Supreme Court review. In June, as we've reported, the justices agreed to hear the case. The question for the court is whether a federal district court still has jurisdiction over a challenge to a trademark when the trademark holder has promised not to assert its mark against the challenger's then existing products.

That's of concern to trademark holders everywhere. As we've discussed, any time trademark holders bring suits to enforce their marks, they risk a counterclaim that the mark is invalid. (Just ask Christian Louboutin.) If the Supreme Court agrees with Yums that such counterclaims can outlast dismissed infringement suits, trademark holders will have to think hard about using litigation to protect their marks, since they'd face increased risk. Alleged infringers, meanwhile, would have additional leverage in settlement talks from the threat of continuing to litigate the mark's validity.

Yums' counsel, James Dabney of Fried Frank, argued in the company's merits brief that Nike's trademark impedes his client's ability to compete in the marketplace, so Yums should be permitted to challenge it. The 2nd Circuit's refusal to hear Yums' invalidity case does not comport with "the strong federal policy favoring the full and free use of ideas in the public domain," the Yums brief said. Nike's Supreme Court counsel, Thomas Goldstein of Goldstein & Russell, countered that the covenant it offered to Yums was broad enough to end any justiciable controversy. If Yums intended to produce a shoe that would fall outside the covenant, Nike argued, it was Yums' burden to say so. Yums had suffered no injury from Nike's trademark.

The U.S. solicitor general's office filed a brief asking the Supreme Court to reverse the 2nd Circuit, but otherwise offering only tepid support for Yums. The government does not agree with Yums, the brief said, that the public interest is harmed when trademark owners moot challenges to their marks by promising not to sue challengers. So the Justice Department disputes that courts should retain jurisdiction over a defendant's trademark validity countersuit just because the trademark owner might attempt to enforce its mark against someone else. But the Justice Department does step up for Yums by arguing that the trademark holder should not get to walk away from an infringement suit without making crystal clear that the covenant it is offering is nearly certain to prevent future disputes with the defendant. In this case, it said, Nike should have had to say what would fall outside the agreement.

The details of procedure and the intricacies of trademark law aside, both Moton and Yums founder J.P. McDade are looking forward to their day at the high court. They don't feel like they copied from Nike and said they just want to design shoes without worrying about another lawsuit showing up in the mail.

Nike declined to comment.

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