IP Law Daily adidas failed to show harm to its mark from Skechers Cross Court shoe
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Friday, May 11, 2018

adidas failed to show harm to its mark from Skechers Cross Court shoe

By Thomas Long, J.D.

The U.S. Court of Appeals in San Francisco has affirmed in part and reversed in part a district court’s preliminary injunction prohibiting Skechers USA, Inc., from selling shoes that allegedly infringe and dilute adidas America, Inc.’s Stan Smith trade dress and Three-Stripe mark. The district court did not abuse its discretion in issuing the preliminary injunction as to adidas’s claim the Skechers’s Onix shoe infringed on adidas’s unregistered trade dress of its Stan Smith shoe. However, the district court erred in issuing a preliminary injunction as to adidas’s claim that Skechers’s Cross Court shoe infringed and diluted its Three-Stripe mark because adidas did not show that it would be irreparably harmed from sale of the Cross Court. Concurring in part and dissenting in part, Circuit Judge Richard Clifton opined that the preliminary injunction should be affirmed in full (adidas America, Inc. v. Skechers USA, Inc., May 10, 2018, Nguyen, J.).

In 2015, adidas filed suit against Skechers, asserting that its footwear products copied adidas’s marks and trade dress. Specifically, adidas alleged that Skechers’ Onix shoe infringed the unregistered trade dress for adidas’s highly successful Stan Smith tennis-shoe and that Skechers’s Cross Court shoe infringed adidas’s famous "Three Stripe Mark." On February 12, 2016, the court preliminarily enjoined Skechers from selling the disputed footwear. Skechers appealed.

Likelihood of success—Onix and Stan Smith. The district court’s finding that the Stan Smith had acquired distinctiveness was supported by ample evidence in the record, the appellate court said. The Stan Smith trade dress was in use exclusively since the early 1970s, and adidas had expended considerable capital and human resources to promote the shoe. Placing the Stan Smith with celebrities, musicians, athletes, and other "influencers" helped drive consumer recognition of the trade dress. As of 2014, adidas had sold 40 million pairs of the Stan Smith model, making it adidas’s top selling shoe of all time. The Ninth Circuit also noted that Skechers had placed "metadata tags" on its website containing the "adidas Stan Smith" name, in order to attract consumers searching for that shoe.

An analysis of the Sleekcraft factors supported the conclusion that confusion was likely. Both shoes shared the same white leather upper, a raised green mustache-shaped heel path, angled stripes with perforations, the identical defined stitching pattern around the perforations, and a flat white rubber outsole. Minor differences between the trade dresses would not dispel confusion. There was no doubt that the parties’ goods were similar and that members of the public encountering them sold under the same mark would reasonably think they came from the same origin. In addition, the considerable commercial success of the Stan Smith design made confusion likely. In the court’s view, the evidence supported an inference that Skechers intended to confuse consumers by creating a nearly identical shoe to the Stan Smith and then using website metadata to lure consumers to its own website. Accordingly, it was not error for the district court to determine that adidas had successfully demonstrated a likelihood of succeeding on the merits of its trade dress claims over the Onix.

Irreparable harm—Onix and Stan Smith. The appellate court also affirmed the district court’s conclusion that irreparable harm to the Stan Smith brand was likely to result from Skecher’s conduct, in the absence of injunctive relief. Allowing Skechers to "flood the marketplace" with the Onix shoe was likely to damage the Stan Smith’s brand reputation and goodwill, considering adidas’s efforts to carefully control promotions for the shoe as well as the supply of the brand. Customer surveys submitted by adidas showed that approximately 20 percent of respondents believed the Onix was created by or affiliated with adidas.

Likelihood of success—Cross Court and adidas Three-Stripe Mark. adidas also sufficiently showed that the Skechers Cross Court shoe was likely to cause confusion with its Three Stipe Mark and was likely to dilute the distinctiveness of that mark, the court said. Both the Cross Court and adidas’s designs had three stripes. While there were distinctions between the marks—including a difference in the thickness of the stripes, the inclusion of a strip between the three stripes on the Cross Court, and the fact that the stripes did not continue to the sole of the shoe—the district court was permitted to discount these differences in its analysis. The strength of the Three Stripe Mark weighed in adidas’s favor, as did Skechers’ apparent intent in choosing to use three stripes on the Cross Court shoe. Skechers undoubtedly was aware of adidas’s mark. As for dilution, the only argument Skechers made that was different from its (unsuccessful) arguments regarding likelihood of confusion was that the Three Stripe Mark had not achieved sufficient recognition to be protected under federal dilution law. The court disagreed with this contention. There was substantial evidence that the mark had achieved a high degree of recognition.

Irreparable harm—Cross Court and adidas Three-Stripe Mark. The appellate court differed from the district court, however, on the issue of whether irreparable harm would result to adidas’s mark from continuing sales of the Cross Court shoe. At both the lower court and the appellate court, adidas made only a narrow argument on irreparable harm—that Skechers damaged its ability to control its brand image. The Ninth Circuit found that there was no evidence in the record that supported a finding of irreparable harm based on this loss of control theory. The theory depended on the notion that adidas was considered a premium brand, while Skechers was viewed as a lower-quality, discount brand. However, adidas did not provide evidence regarding Skechers allegedly less-favorable reputation. The fact that Skechers’ prices were lower than adidas’s did not indicate that consumers saw Skechers as a discount brand or that consumers saw Skechers products as inferior to those sold by adidas.

Moreover, this theory of harm contradicted adidas’s theory of confusion. adidas did not argue that a Cross Court purchaser would mistakenly believe he had bought adidas shoes at the time of sale, but instead that after the sale, someone else looking at a Cross Court shoe from a distance or in passing might not notice the Skechers logos and thus might mistake it for an adidas shoe. "The tension between adidas’s consumer confusion and irreparable harm theories, then, boils down to this," the court said. "How would consumers who confused Cross Courts for adidas shoes be able to surmise, from afar, that those shoes were low quality?" And if they could not assess the qualify of the shoe, why would their opinion of adidas change? In contrast to the evidence of harm produced by adidas about the Stan Smith shoe, the evidence of harm to the Three Stripe mark was nonspecific and insufficient to justify an injunction, the court determined. Therefore, the appellate court reversed the injunction as to the Cross Court shoe.

Concurring and dissenting opinion. Circuit Judge Clifton wrote that, in his opinion, the preliminary injunction should be affirmed in full. In Judge Clifton’s view, the district court did not abuse its discretion in finding irreparable harm to adidas’s Three Stripe Mark. According to Judge Clifton, the district court was well within its discretion to infer that confusion between Skechers’s "lower-end" footwear and adidas’s footwear was likely to harm adidas’s reputation and goodwill as a premium shoe brand.

The case is No. 16-35204.

Attorneys: Richard Charles Henn Jr. and Charles H. Hooker III (Kilpatrick Townsend & Stockton LLP) for adidas America, Inc., adidas AG, and adidas International Marketing B.V. Jonathan Hacker (O’Melveny & Myers LLP) for Skechers USA, Inc.

Companies: adidas America, Inc.; adidas AG; adidas International Marketing B.V.; Skechers USA, Inc.

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