Nike sues Puma, and the sneaker patent wars begin?
On May 3, 2018, Nike ($NKE) sued Puma for patent infringement. Nike’s principle gripe is that Puma ripped off its groundbreaking “knitwear” sneaker as well as its tech for Air and cleats. Nike’s lawsuit touches three large product segments, and Puma faces considerable exposure if Nike prevails. That exposure is increased based upon Nike’s request for potentially triple damages, lost profits and an injunction. Is this the start of the sneaker patent wars?
What is the lawsuit about?
Nike claims to have more than 300 worldwide patents covering its Flyknit technology. From those, Nike’s lawsuit accuses Puma of infringing four U.S. patents: U.S. Patent No. 7,637,032, U.S. Patent No. 8,266,749, U.S. Patent No. 9,078,488 and U.S. Patent No. 9,375,046. Nike claims that its innovative research and development revolutionized the manufacture of sneakers. Nike’s complaint claims, “NIKE invented novel and non-obvious ways to form uppers from a single knitted material while still providing different textures or properties to different areas of the uppers.” (Complaint ¶ 16). This became Nike’s Flyknit technology, which was introduced in 2012 and has become ubiquitous among shoe-wearers around the country. Nike describes Flyknit as “featherweight, form-fitting, and virtually seamless sock-like upper, scientifically tuned to provide areas of support, flexibility, and breathability where athletes need them most.” (Id. ¶ 17). Nike accuses several “knit” shoes sold by Puma as infringing the patents, including IGNITE Proknit, IGNITE Speed Netfit, Mostro Bubble Knit and The Jamming.
Nike’s lawsuit is not limited to Flyknit shoes. Nike also accuses Puma for infringing patents covering its popular Air Technology as well as patents covering manufacture of Nike’s cleats. Nike has accused Puma’s Jamming shoe of infringing one Nike’s Air Technology patents, namely, U.S. Patent No. 7,401,420. Nike’s Air Technology, launched in 1987, relates to the bags and bladders filled with gas or fluid located in the shoes soles. The technology has apparently evolved over the years, and Nike currently claims to have more than 800 utility patents covering to its Air Technology. Nike has also accused a number of Puma’s cleats of infringing Nike’s cleat patents, including, U.S. Patent Nos. 6,973,746 and 9,314,065.
Nike’s complaint also lays the groundwork for a case of willful infringement. Nike attaches to its complaint numerous letters from Nike to Puma going back to 2016. Those letters complain of Puma’s infringement of Nike’s Flyknit patents, identify the patents, explain infringement and request that Puma cease and desist all allegedly infringing use. (They also reveal that Nike’s letterhead is nothing more than the swoosh—literally, nothing else.)
What is Puma’s exposure?
This is a big lawsuit. Nike has asserted seven patents. More importantly, Nike’s lawsuit touches upon three large product segments for Nike, including Flyknit, Air and cleats. Together, that greatly inflates Puma’s exposure. Why? Because Nike has effectively marshalled every possible form of potential relief in its lawsuit against Puma. That includes willful infringement, lost profits, reasonable royalty and the prospect of the coveted permanent injunction.
It is rare for a patent plaintiff to have teed up each of these forms of relief, or for them all to be readily available. For instance, a permanent injunction is typically only available for practicing entities. Nike clearly checks this box. Similarly, lost profits are also typically only available for patentees selling a product covered by the asserted patents, so that the claim can be made that the infringer’s sales deprived the patentee of its own sales. Nike checks that box too. Given that lost profits are typically greater than reasonable royalty damages, Nike’s recourse to lost profits as a form of relief will likely increase Puma’s exposure if Nike prevails.
Finally, Nike also checks the box of willfulness. If infringement can be proven to be willful, or intentional, then the Patent Statute permits judges to triple the damages award. Often times, recourse to willful damages are hindered by the fact that it is difficult to prove the infringer was knowledgeable of the asserted patent. In this case, however, Nike’s complaint attaches correspondence going back to 2016, wherein Nike not only notified Puma of the patents, but explained why they are infringed. Mind you, proving willfulness, even with adequate notice of the patents, remains challenging. Puma appears to have responded to Nike’s letters with non-infringement arguments of its own. It remains to be seen how strong Nike’s infringement allegations actually are.
Is this the start of the sneaker patent wars?
All told, Nike has wielded a large bat against Puma. If successful, it may claim triple lost profits for large product category segments coupled with an injunction that Puma discontinue the infringing product lines. While that may be the golden ring that Nike is pursuing against one of its main rivals, most litigations settle. Here, however, it is not entirely clear what sort of settlement would appease Nike. The rule of thumb is that a good settlement is one that is painful to both parties. It is hard to imagine that Nike would settle for something that is not painful to Puma, including significant damages award coupled with a partial injunction or possibly a royalty rate on Puma’s future sales.
All that said, the suit is in its infancy, and Nike still needs to prove its case. It remains far from confirmed that Nike will be able to prove actual infringement of all of the patents. Given how much is at stake, Puma is likely to file petitions for inter partes review (IPR) within the next year. Further, Puma has its own patents, and to gain leverage in the suit, it will likely consider filing counterclaims for infringement of its own patents.
Further, these types of large competitor-against-competitor patent lawsuits are often avoided because they inevitably start a war. This case has the trappings of a potential sneaker-patent war. Everyone has patents, and lawsuits often lead to countersuits, where it seems only the lawyers make money. And then they end with a large, mutual cross-license where everybody walks away bloodied, and no richer.
Here, however, Puma’s patent portfolio may not be robust enough to offer a meaningful cross-license to Nike, other than what would effectively amount to a détente. Thus, it is hard to imagine that Nike started this battle just to get to a cross-license. Finally, whether Nike has similar plans for teeing up a patent lawsuit against its Adidas rivalship remains to be seen. That could be the start of a real war.