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Adidas America, Inc. v. Skechers USA, Inc.

United States District Court, D. Oregon

August 3, 2017

ADIDAS AMERICA, INC., a Delaware corporation; ADIDAS AG, a foreign entity; and ADIDAS INTERNATIONAL MARKETING B.V., a foreign entity, Plaintiffs,
v.
SKECHERS USA, INC., a Delaware corporation, Defendant.

          Stephen M. Feldman Perkins Coie LLP, R. Charles Henn Jr. Charles H. Hooker III Nichole D. Chollet Kilpatrick Townsend & Stockton LLP Attorneys for Plaintiffs

          Kenneth R. Davis II Parna A. Mehrbani Lane Powell PC Daniel M. Petrocelli Mark A. Samuels Jeffrey A. Barker Jordan Raphael O'Melveny & Myers LLP Attorneys for Defendant

          OPINION & ORDER

          MARCO A. HERNÁNDEZ, United States District Judge

         Plaintiff adidas brings trademark infringement claims against Defendant Skechers concerning three different shoes (collectively “the disputed footwear”). First, adidas alleges that Skechers's Onix shoe infringes its Stan Smith Trade Dress. The Stan Smith shoe is an iconic white leather sneaker with a green mustache-shaped heel patch. Skechers's Onix shoe was designed to mimic the classic Stan Smith shoe and the two shoes appear strikingly similar. Second, adidas alleges that Skechers's Cross Court shoe infringes adidas's famous Three-Stripe Mark. The Cross Court features a sideways “E” shaped design that adidas claims look like its Three-Stripe Mark. Lastly, adidas claims that Skechers infringed its Supernova Mark by selling a shoe also named Supernova. Before the Court are the parties' cross motions for partial summary judgment as to adidas's infringement claims and Skechers's affirmative defenses. The parties also move for summary judgment on several remedy-related issues.

         With respect to the parties' substantive trademark disputes, the Court rules as follows. The Court DENIES Skechers's motions for summary judgment regarding adidas's trademark infringement claims as to all of the disputed footwear. The Court GRANTS adidas's motions for summary judgment on Skechers's functionality affirmative defense as to the Stan Smith Trade Dress and on Skechers's descriptive fair use defense as to the Supernova Mark. The Court also GRANTS adidas's unopposed motion that the parties' 1995 Agreement is valid and has not been superseded.

         The Court makes the following rulings regarding the parties' remedy disputes. The Court GRANTS in part adidas's motion that Skechers cannot reduce its profits using overhead costs that it did not actually incur. The Court RESERVES ruling on adidas's motions that Skechers cannot deduct income tax expenses from its profits. The Court GRANTS adidas's motions that Skechers cannot reduce its profits by using a royalty rate theory or its likelihood of confusion survey results. Lastly, the Court DENIES Skechers's motion that adidas cannot claim reasonable royalty rate damages.

         BACKGROUND

         adidas is a world-famous shoe manufacturer and Skechers is the second largest shoe producer in the United States. Murphy Decl. ¶ 8, ECF 7; Henn Resp. Decl. Ex. 18, at ¶ 3, ECF 166. Skechers's uses a “serialized branding strategy” it calls “Skecherizing, ” which involves “transform[ing] market trends into unique footwear products by prominently featuring Skechers' famous marks, brands, and logos on the products themselves and on their packaging.” Henn Resp. Decl. Ex. 18, at ¶ 9. Since 1995, the parties have entered into several settlement agreements as the result of litigation based on Skechers's alleged infringement of adidas's trademarks. Henn Resp. Decl. Exs. 1-7.

         Now, the parties litigate whether Skechers infringed adidas's trademark rights regarding the Stan Smith Trade Dress, the Three-Stripe Mark, and the Supernova Mark. The Court previously granted adidas's motion for a preliminary injunction enjoining Skechers from continuing to sell the disputed footwear. See Op. & Order, Feb. 12, 2016, ECF 83.

         I. The Stan Smith Trade Dress and the Onix Shoe

          adidas alleges that Skechers's Onix shoe infringes the Stan Smith Trade Dress:

         Image Omitted)

         Henn Resp. Decl. ¶ 12. The Stan Smith shoe was commonly worn by tennis players in the 1970s and gained its namesake from Stan Smith, who wore the shoe when he won Wimbledon in 1972. Roach Decl. ¶ 6, ECF 133. Since the shoe's creation, adidas has spent tens of millions of dollars on advertising the shoe and sold approximately 40 million pairs world-wide. Beaty Decl. ¶ 11, ECF 8; Beaty Supp. Decl. ¶¶ 17-19, ECF 67; Henn Resp. Decl. Exs. 39, 42, 43. The Stan Smith shoe has garnered accolades as an iconic sneaker and it has been prominently worn by celebrity entertainers and athletes. Naderi-Nejad Decl. ¶¶ 11-12, ECF 134.

         In 2013, adidas “made a strategic decision to clean up the market” by making it “virtually impossible” to buy the Stan Smith shoe for one year. Transcript of Oral Argument at 44-45, Dec. 15, 2015, ECF 81. In adidas's view, this decision would help to avoid flooding the market with Stan Smith shoes and retain its premium status. Id. In 2014, the adidas Originals division launched a campaign it called “The Return of the Stan Smith.” Id. at 45. This campaign involved aggressive marketing of the Stan Smith shoe which included creating custom limited editions of the shoe, grassroots events, social media, and product placement with celebrities. Id. at 45-48. adidas touted the campaign as a success which garnered more than $12.5 million in sales in its first nine months of 2015. Beaty Supp. Decl. ¶ 19.

         By at least June of 2014, Skechers began designing the Onix shoe which it intended to be a “Skecherized” version of the Stan Smith shoe. Henn Resp. Decl. Exs. 19-21, 65 at 4. As depicted above, the two shoes share many of the same design features. The most noticeable difference is that the Onix shoe features a 5x4 matrix of perforations whereas the Stan Smith shoe contains three rows of perforations in the Three-Stripe Mark pattern. In July of 2015, Skechers introduced the Onix shoe to the market. Raphael Decl. Ex. 33, ECF 152-159. adidas claims that Skechers created the Onix shoe in bad faith in order to profit from the goodwill garnered by the strength of the Stan Smith Trade Dress.

         II. The Three-Stripe Mark and the Cross Court Shoe

         adidas has used its famous Three-Stripe Mark on footwear since at least 1952. Murphy Decl. ¶ 8.The Three-Stripe Mark appears, among other places, on a variety of adidas's products, storefronts, packaging, and advertisements. Henn Resp. Decl. Ex. 66, at 31-32; Exs. 67-70. It is widely recognized and consumers strongly associate the Three-Stripe Mark with adidas. Henn Decl. Ex. 66, at 33-34. adidas has spent millions of dollars advertising its flagship Three-Stripe Mark and it attributes billions of dollars in global sales to products bearing the mark. Murphy Decl. ¶ 10; Transcript of Oral Argument at 23.

         Since the mid-1990s, adidas has brought several lawsuits against Skechers for infringing the Three-Stripe Mark. The parties settled their first dispute regarding the mark in 1995. Henn Resp. Decl. Ex. 1. In the 1995 Agreement, Skechers agreed not to use the Three-Stripe Mark or any mark confusingly similar to it. Id. Since then, the parties have skirmished several times over the Three-Stripe Mark. Henn Resp. Decl. Exs. 1-7. Each time, the parties settled their dispute and Skechers agreed to stop selling the challenged footwear. Id.

         In 2015, adidas learned that Skechers was producing the Cross Court shoe. Henn Resp. Decl. ¶ 9. The Cross Court shoe features an “E” shaped design that Skechers describes as “a piece of dark-colored fabric on the side panel that extends from the sole of the shoe to the eyebrow and vaguely resembles a sideways ‘E.'”

         Skechers Relaxed Fit Cross Court TR adidas Ultra Boost with the Three-Stripe Mark

         Image Omitted

         Def.'s Mot. Summ. J. 6, ECF 151; Vanderhoff Decl. ¶ 18, ECF 9; Pl.'s TRO Mot. 4, ECF 6. adidas alleges that the Cross Court's “E” design is confusingly similar to the Three-Stripe Mark in violation of the parties' 1995 Agreement and trademark law. Henn Resp. Decl. ¶ 9.

         III. The Supernova Mark

         adidas alleges that Skechers's “Relaxed Fit Supernova” shoe infringes its Supernova Mark. adidas has produced, sold, and promoted footwear under the Supernova Mark since the late 1990s. Compl. Exs. 14-16, ECF 1. Skechers produced a shoe identified on its website and packaging as “Supernova.”

         Image Omitted

Raphael Resp. Decl. Exs. 13, 14, ECF 162. Skechers's position is that it used the term “Supernova” not as a trademark, but to describe the shoe's “cosmic” color scheme. Def.'s Resp. 13-14, ECF 161.

         IV. The Parties' Motions

         Before the Court are the following motions. adidas moves for summary judgment on four issues:

(1) Skechers's Fourth Affirmative Defense (Functionality), on the ground that no genuine issue of material fact exists that the combination of elements comprising the Stan Smith Trade Dress are non-functional;
(2) Skechers's Seventh Affirmative Defense (Descriptive Fair Use), on the ground that no genuine issue of material fact exists that Skechers used the SUPERNOVA Mark as a trademark to identify one of its shoe styles and did not use the mark descriptively;
(3) The validity and enforceability of the 1995 Settlement Agreement between adidas and Skechers, on the ground that it was not subsequently superseded as alleged by Skechers; and
(4) Skechers's profit-reduction theories, including (i) the deduction of costs not actually incurred in connection with the accused shoes, (ii) the deduction of income taxes, and (iii) Skechers's expert's so- called “apportionment” theories, on the ground that they lack legal and factual support.

Pl.'s Mot. Summ. J. 1, ECF 132. Skechers moves for summary judgment on three issues:

(1) adidas' First through Seventh Claims for infringement and dilution by Skechers' RELAXED FIT® Cross Court TR shoe (the “Cross Court”), on the ground that there is no genuine issue of material fact and Skechers is entitled to judgment as a matter of law because adidas cannot establish likelihood of confusion or dilution;
(2) adidas' First, Second, Third, Fifth, and Sixth Claims for infringement and dilution of adidas' purported “STAN SMITH Trade Dress” by Skechers' Onix shoe (the “Onix”), on the ground that there is no genuine issue of material fact and Skechers is entitled to judgment as a matter of law because adidas has not clearly defined and cannot demonstrate ownership of the claimed “STAN SMITH Trade Dress”; and
(3) adidas' claim for actual damages, which is premised solely on the reasonably royalty analysis, because there is no genuine issue of material fact and there is no legal basis for such an award.

Def.'s Mot. Summ. J. 1.

         SUMMARY JUDGMENT STANDARD

         Summary judgment is appropriate if there is no genuine dispute as to any material fact and the moving party is entitled to judgment as a matter of law. Fed.R.Civ.P. 56(a). The moving party bears the initial responsibility of informing the court of the basis of its motion and identifying those portions of “‘the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, ' which it believes demonstrate the absence of a genuine issue of material fact.” Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986) (quoting former Fed.R.Civ.P. 56(c)). Once the moving party meets its initial burden of demonstrating the absence of a genuine issue of material fact, the burden then shifts to the nonmoving party to present “specific facts” showing a “genuine issue for trial.” Fed. Trade Comm'n v. Stefanchik, 559 F.3d 924, 927-28 (9th Cir. 2009) (quoting Horphag Research Ltd. v. Garcia, 475 F.3d 1029, 1035 (9th Cir. 2007)). The nonmoving party must go beyond the pleadings and designate facts showing an issue for trial. Bias v. Moynihan, 508 F.3d 1212, 1218 (9th Cir. 2007) (citing Celotex, 477 U.S. at 324).

         The substantive law governing a claim determines whether a fact is material. Suever v. Connell, 579 F.3d 1047, 1056 (9th Cir. 2009). The court draws inferences from the facts in the light most favorable to the nonmoving party. Earl v. Nielsen Media Research, Inc., 658 F.3d 1108, 1112 (9th Cir. 2011) (citing Noyes v. Kelly Servs., 488 F.3d 1163, 1166 n.1, 1167 (9th Cir. 2007)).

         DISCUSSION

         As to trademark infringement, the Court will discuss: (I) adidas's Stan Smith Trade Dress and Skechers's Onix shoe; (II) adidas's Three-Stripe Mark and Skechers's Cross Court shoe; and (III) Skechers's purported fair use of adidas's Supernova Mark. Next, the Court will turn to the parties' damages-related motions: (IV) adidas's motions on Skechers's profit-reduction theories; and (V) Skechers's motion on adidas's claim for royalty rate damages.

         I. adidas's Stan Smith Trade Dress and Skechers's Onix Shoe

          Skechers moves for summary judgment on adidas's claims against the Onix on three grounds. First, Skechers argues that the trade dress is generic and therefore unprotectable because it is indefinite and overbroad. Second, Skechers argues that the trade dress is generic on the additional ground that it is so common to the industry that it cannot be said to identify a particular source. Third, Skechers argues that the trade dress is not distinctive because adidas cannot establish secondary meaning for it. adidas moves for summary judgment on Skechers's Functionality Defense.

         A. Trade Dress Law

         Section 43(a) of the Lanham Act provides a cause of action to trade dress producers against “[a]ny person who . . . uses in commerce any word, term, name, symbol, or device, or any combination thereof” which “is likely to cause confusion, or to cause mistake, or to deceive as to the affiliation, connection, or association . . . or as to the origin, sponsorship, or approval of his or her goods.” 15 U.S.C. § 1125(a)(1). This statute's protection traditionally applied to trademarks but has since been expanded to cover unregistered “trade dress” as well. See Thomas McCarthy, 1 McCarthy On Trademarks § 8:1 (4th ed. 2002) [hereinafter, “McCarthy”]; Two Pesos, Inc. v. Taco Cabana, Inc., 505 U.S. 763, 776 (1992) (Stevens, J., concurring) (agreeing with the court's conclusion that under § 43(a) unregistered trade dress “should receive essentially the same protection as those that are registered”).

         Trade dress “involves the total image of a product and ‘may include features such as size, shape, color, color combinations, texture, or graphics.'” Vision Sports, Inc. v. Melville Corp., 888 F.2d 609, 613 (9th Cir. 1989) (quoting Rachel v. Banana Republic, Inc., 831 F.2d 1503, 1506 (9th Cir. 1987)). It has been well-established for a century that courts examine the total combination of elements that make up a trade dress. McCarthy § 8:2 (“A defendant cannot avoid liability for infringing a trade dress by segregating out individual elements of the trade dress as defined by plaintiff and arguing that no one of these is valid and protectable in and of itself.”); see also O. & W. Thum Co. v. Dickinson, 245 F. 609, 619 (6th Cir. 1917) (same). The Ninth Circuit has “stressed the importance of evaluating the establishment's combination of visual elements that, taken together, may create a distinctive visual impression.” Clicks Billiards, Inc. v. Sixshooters, Inc., 251 F.3d 1252, 1259 (9th Cir. 2001) (internal quotation marks, alterations, and citations omitted). “Trade dress is the composite tapestry of visual effects.” Id.

         As a preliminary matter, a plaintiff alleging trade dress infringement must establish that the trade dress is not generic such that it is unprotectable. Walker & Zanger, Inc. v. Paragon Indus., Inc., 549 F.Supp.2d 1168, 1174 (N.D. Cal. 2007) (setting forth three situations in which a trade dress may be generic); see also McCarthy § 8:3 (emphasizing the importance of having specific and defined trade dress elements). “[T]he rule against enforcing generic product features guards against the acquisition of broad trademark exclusivities that bear little relation to consumer confusion.” Walker, 549 F.Supp.2d at 1174. “Genericness” exists in situations where the “definition of a product design is overbroad or too generalized . . . or[] if the product design is so common in the industry that it cannot be said to identify a particular source.” Id.

         To state a trade dress infringement claim under § 43(a), “a plaintiff must meet three basic elements: (1) distinctiveness, (2) nonfunctionality, and (3) likelihood of confusion.” Kendall-Jackson Winery, Ltd. v. E. & J. Gallo Winery, 150 F.3d 1042, 1047 (9th Cir. 1998).

         Distinctiveness can either be inherent or acquired through secondary meaning. Id. at 1048 (citing Two Pesos, 505 U.S. at 769). A trademark is inherently distinctive if its “intrinsic nature serves to identify a particular source.” Wal-Mart Stores, Inc. v. Samara Bros., Inc., 529 U.S. 205, 210 (2000) (quoting Lanham Act § 43(a)). For example, “Camel” cigarettes, “Kodak” film, or “Tide” laundry detergent. Id. A mark acquires secondary meaning when “in the minds of the public, the primary significance of a mark is to identify the source of the product itself.” Id. at 211 (quotation and alteration omitted).

         As to the second element, a product feature is functional and therefore uncovered by trademark law “if the product feature is essential to the use or purpose of the article or if it affects the costs or quality of that article, that is, if exclusive use of the feature would put competitors at a significant, non-reputation-related disadvantage.” Kendall-Jackson, 150 F.3d at 1048 (internal quotation marks and alterations omitted) (citing Qualitex Co. v. Jacobson Prods. Co., 514 U.S. 159, 165 (1995)). Functionality is the province of patent law rather than trademark law because the former encourages “invention by granting inventors a monopoly over new product designs or functions for a limited time, after which competitors are free to use the innovation.” Qualitex, 514 U.S. at 164 (internal citation omitted).

         As to the third element, likelihood of confusion, courts consider this to be the “most important element of all.” Kendall-Jackson, 150 F.3d at 1048 (citing Two Pesos, 505 U.S. at 780). Given the Stan Smith and Onix shoes' similar appearances, the parties do not dispute this element.

         B. Genericness

         (1) Whether the Stan Smith Trade Dress is Overbroad or too Generalized

         According to Skechers, adidas has failed to put forward a clear definition of its purported trade dress. Instead, adidas has defined the Stan Smith Trade Dress in general terms that would result in overbroad protection affecting a wide range of shoes currently on the market. See Glassybaby, LLC v. Provide Gifts, Inc., No. C11-380 MJP, 2011 WL 4571876, at *2 (W.D. Wash. Sept. 30, 2011) (granting summary judgment that a trade dress describing small round glass containers was generic as overbroad). “A plaintiff should clearly articulate its claimed trade dress to give a defendant sufficient notice.” Sleep Sci. Partners v. Lieberman, No. 09-04200 CW, 2010 WL 1881770, at *3 (N.D. Cal. May 10, 2010) (citing Walker, 549 F.Supp.2d at 1174); McCarthy § 8:3 (same).

adidas has defined the Stan Smith Trade Dress using the following elements:
1. a classic tennis-shoe profile with a sleek white leather upper,
2. three rows of perforations in the pattern of the well-known Three-Stripe Mark,
3. a defined stitching across the sides of each shoe enclosing the perforations,
4. a raised mustache-shaped colored heel patch, which is often green, and
5. a flat tonal white rubber outsole, as depicted below.

         Image Omitted

Pl.'s Resp. 4-5, ECF 165; Beaty Decl. ¶ 9.

         Skechers employs a “divide and conquer” approach here which the Court previously rejected regarding functionality in its preliminary injunction order. See Op. & Order 17-18 (citing Clicks Billiards, 251 F.3d at 1259) (“The Ninth Circuit has repeatedly rejected this ‘divide and conquer' approach to analyzing functionality[.]”). In the Ninth Circuit, courts considering trade dress look to the overall visual impression or total combination of elements as opposed to viewing each element in isolation. This holistic approach applies not only to functionality, but also to the issue of genericness. Clicks Billiards, 251 F.3d at 1259. The parties, nevertheless, discuss each element of the Stan Smith Trade Dress in a “tit-for-tat” fashion when addressing the issue of genericness.

         (a) A Classic Tennis-Shoe Profile With a Sleek White Leather Upper

          Skechers asserts that “classic tennis-shoe profile” is a vague and empty generality. In response, adidas argues that terms like “classic, ” when taken alone could be considered generic but that the term is coupled with “sleek white leather upper” which “evokes a very specific shoe profile, color, and material” to avoid the pitfalls described in Walker. Pl.'s Resp. 20-21. adidas also argues that artistic elements like “classic” can be harder to capture in words and need to be more broadly framed. Id. (citing Walker, 549 F.Supp.2d at 1176) (acknowledging decorative or artistic trade dress elements “may be harder to capture in words, and may need descriptors more broadly framed”).

         The Court agrees with Skechers that if the element was only “classic tennis-shoe profile” that it would be vague. When viewing the facts in the light most favorable to adidas, the Court should adopt its description of its own elements. As phrased above, “classic tennis-shoe profile with a sleek white leather upper” should be considered together. This element does not describe the trade dress in terms that are too indefinite, unlike the product at issue in Walker. In that case, the court ruled that terms referring to floor tiles, such as “rustic look, ” “weathered look, ” “architectural character, ” and “Old World handiwork” were too unclear to warrant protection. Walker, 549 F.Supp.2d at 1176. The element here is distinguishable because it describes shape, color, and material.

         As to “sleek white leather upper, ” Skechers argues that adidas has proposed no boundaries for this element and described many shoes which have non-sleek, non-white, and non-leather uppers as part of the Stan Smith Trade Dress. Raphael Decl. Ex. 1, at 62-64, 71-73, 87; Ex. 14, at 132-138, 147-149. Once more, this element contains descriptors of the shape, color, and material of the upper. While several of adidas' employees stated that they believed that shoes which did not have a sleek white leather upper to be covered under the Stan Smith Trade Dress, the trade dress as defined in this lawsuit explicitly requires a “sleek white leather upper.” Skechers conflates the Stan Smith Trade Dress with the Stan Smith line of products as a whole. The former refers to the classic white leather shoe with a green mustache-shaped heel patch. The latter refers to a constellation of limited edition Stan Smith spinoffs that are extremely varied. Many of those limited editions do not have the elements described above and are not covered under the Stan Smith Trade Dress. That does not mean, however, that the trade dress elements themselves are too indefinite to be protectable.

         (b) Three Rows of Perforations in the Pattern of the Well-Known Three-Stripe Mark and a Defined Stitching Across the Sides of Each Shoe Enclosing the Perforations

          Skechers does not contest the third and fourth elements of the trade dress. Beaty Decl. ¶ 9. Once more, courts consider the combination of the trade dress elements and examine the overall visual impression they present rather than looking at each element in isolation. While Skechers's Onix shoe may not share these two elements, Skechers's silence as to them undercuts its argument that the Stan Smith Trade dress-as a whole-is generic.

         (c) A Raised Mustache-Shaped Colored Heel Patch, Which is Often Green

         adidas's deponents stated that shoes with heel patches of colors other than green fell within the ambit of the Stan Smith Trade Dress. Raphael Decl. Ex. 1, at 83:5-84:5; Ex. 29, at 64:10-17, 111:1-22. For example, Brandon Beaty, adidas's Director of Sport Style Brand Marketing, testified at his deposition that when “looking at the shoe in its entirety” a shoe's heel tab could be white and it would still be covered by the trade dress. Raphael Decl. Ex. 1, at 83:5- 84:5. Skechers also argues that “mustache-shaped” is vague because many shoes could be said to have a mustache-shaped heel patches. Raphael Decl. Ex. 41, at ¶¶ 114-115; Ex. 93.

         The Court agrees with Skechers that the trade dress would have been more definite had adidas defined the element as “green” instead of “often green, ” but this does not fall to the level of generality prohibited by Walker. In Walker, the element described a “palette of colors reminiscent of Provence” as opposed to simply “ often green.” 549 F.Supp.2d at 1176. Here, the trade dress as a whole describes the “classic” Stan Smith shoe, which evokes a particular shade of green. This element describes color and shape which is sufficient to survive this preliminary ...


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