Wednesday, 25 June 2008

Three Stripes? You're Out! Adidas Awarded $305 mil against Payless for Willful Infringement

An experienced trademark attorney can help you avoid the mistakes of those that have come before you.  Experienced trademark attorneys understand how to help businesses abide by the terms of settlement agreements, and what actions are likely to be found infringing in the aftermath of a negotiated settlement in a trademark dispute.  Failing to understand the mistakes of the past can be a costly misstep in trademark law, and in the case of Payless Shoes it proved to be a $305 million disaster. 

Payless Shoes, a large discount shoe retailer, was sued by Adidas in 1994 for infringing upon Adidas' popular three stripe mark and “superstar” trade dress, which consists of the three stripes, a flat sole, and the colored ankle tab bearing the Adidas logo.  Under the terms of the negotiated settlement, Payless was to discontinue the sale of any shoes bearing “three substantially straight parallel stripes on the side of the shoe running diagonally from the outsole forward to the lacing area,” or “two or four parallel double-serrated stripes of contrasting color running diagonally from the outsole forward to the lacing area.”  In return, Adidas agreed to release all future claims against Payless for the sale of shoes bearing two or four serrated stripe configurations. 

Adidas again filed suit in 2001 alleging that Payless had violated the settlement agreement by infringing upon their three stripe mark and trade dress.  Payless moved for summary judgement, arguing that their two and four-striped shoes had straight stripes and the settlement agreement only prohibited serrated stripes.  The summary judgement was granted and ultimately reversed by the 9th Circuit, and Adidas proceeded with its claims. 

Payless attempted to argue that their use of two or four stripes were not in violation of the settlement agreement.  In finding a likelihood of confusion between the two shoes at the summary judgement stage, the court stated:

This argument is not well taken. Although three stripes obviously do not equal four stripes, the issue is not simply the number of stripes. Instead, the issue is whether the total effect of the allegedly infringing design is likely to cause confusion in the minds of an ordinary purchaser. While there can be no debate that defendants' four stripe mark has one stripe more than adidas' Three Stripe Mark, so too there can be no debate that many of the other features of the stripes displayed on defendants' [shoes] are strikingly similar-if not identical-to the features of the Three Stripe Mark displayed on [adidas'] Superstar IIK and Campus II models.... The stripes are equal in size, are placed equidistant at a similar or identical angle, are in substantially the same location between the sole and the reinforced area which supports the shoelace holes (with the necessary adjustment to accommodate four rather than three stripes), are displayed in colors which contrast with the background color of the shoes, and have serrated edges. Thus, this court cannot simply count the number of stripes and determine as a matter of law that four stripes are not confusingly similar to three stripes.

It will be interesting to see whether the damages award is upheld.  Cases like this underscore the importance of having consistent oversight from counsel in these settlement issues.  As the Wall Street Journal noted, the $305 million award could even be increased because the court found willful infringement.  Judges can triple the damages award, here $137 million, when willful infringement is found.

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