Decision Nike Soulja DJ Counterclaims

8/7/2019 Decision Nike Soulja DJ Counterclaims

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UNITED STATES DISTRICT COURTSOUTHERN DISTRICT OF NEW YORK

No. 09 Civ. 6366 (RJS)

NIKE, INC.,Plaintiff,

VERSUSALREADY, LLC, D/B/A YUMS,

Defendant.

MEMORANDUM AND ORDERJanuary 20,2011

RICHARD J. SULLIVAN, District Judge:This action for trademark infringement,

false designation of ongm, unfaircompetition, and trademark dilution arisesunder the Trademark Act of 1946 (the"Lanham Act"), New York GeneralBusiness Law Section 360, and New Yorkstate common law. Now before the Court isPlaintiff Nike, Inc.'s motion to dismiss itsown complaint with prejudice and to dismissthe counterclaims of Defendant Already,LLC, d/b/a Yums, without prejudice. Forthe following reasons, Plaintiffs motion isgranted in its entirety.

L BACKGROUND

A. FactsPlaintiff, an Oregon corporation, is aleading designer, marketer, and distributor

of athletic footwear. (Compl. 1, 7.) In1982, Plaintiff designed an athletic shoecalled the Air Force L (Id 9.) Since thattime, Plaintiff has produced the shoe in over1,700 different color combinations and hassold it around the world. (Id) Today,Plaintiff sells millions of pairs ofAir Force Ishoes per year. (Id)

Since June 24, 2008, Plaintiff has heldU.S. Trademark Registration No. 3,451,905(the "905 Registration") for an athletic shoe

Case 1:09-cv-06366-RJS Document 52 Filed 01/20/11 Page 1 of 10


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design, which it claims is the Air Force Idesign. (Id. 11.) Specifically, the 905Registration covers

the design of stitching on theexterior of the shoe, thedesign of the material panelsthat form the body of theshoe, the design of the wavypanel on top of the shoe thatencompasses eyelets for theshoe laces, the design of thevertical ridge pattern on thesides of the sole of the shoe,and the relative position ofthese elements to each other.

(Comp!., Ex. A.)Defendant, a Texas corporation, alsosells, among other items, athletic footwear.

(Id. 2, 14.) In its Sweet line of athleticshoes, Defendant sells two shoes calledSugar and Soulja Boy. (Id. 15.) Plaintiffscomplaint alleges that these shoes infringethe 905 Registration and its common lawtrademark rights (together, the "Nikemark"). (ld. 19-55.)B. Procedural History

Plaintiff filed the complaint in thisaction on July 16, 2009. On November 19,2009, Defendant filed its answer andcounterclaims seeking a declaratoryjudgment that (1) the mark depicted in the905 Registration is invalid under federal orNew York state law; (2) the design of theAir Force I shoe is not a valid trademarkunder federal or New York state law; (3)Defendant "has not infringed any rights thatNike may have" in the mark depicted in the905 Registration; and (4) Defendant "has notinfringed any rights that Nike may have in

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the configuration" of the Air Force I.(Def.'s Answer, Doc. No. 17, ii-v.)Additionally, Defendant seeks cancellationof the 905 Registration pursuant to 15U.S.C. 1119 and the award of attorney'sfees pursuant to 15 U.S.C. 1117. (Id.vi-vii.)

In the middle of discovery, Plaintiffdelivered a covenant not to sue, dated March19, 2010, to Defendant. (See Declaration ofErik S. Maurer ("Maurer DecL") 9 & Ex.A, dated April 12, 2010.) The covenantdefines the "Nike Mark" as the "federal andcommon law trademark rights in the designof Nike's Air Force I low shoe," includingthe 905 Registration. (Id. at Ex. A.) Thecovenant provides that, because Defendant'sactions "no longer infringe or dilute the NikeMark at a level sufficient to warrant thesubstantial time and expense of continuedlitigation," Plaintiff "unconditionally andirrevocably covenants to refrain frommaking any claim(s) or demand(s), or fromcommencing, causing, or permitting to beprosecuted any action in law or equity"against Defendant or any related entities

on account of any possiblecause of action based on orinvolving trademark infringement, unfair competition, ordilution, under state or federallaw in the United Statesrelating to the Nike Markbased on the appearance ofany of [Defendant's] currentand/or previous footwearproduct designs, and anycolorable imitations thereof,regardless of whether thatfootwear is produced,distributed, offered for sale,advertised, sold, or otherwise



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(Jd.)

used in commerce before orafter the Effective Date of thisCovenant.

In light of this covenant, Plaintiffpetitioned the Court to dismiss its action andDefendant's counterclaims pursuant to Rule41(a)(2) of the Federal Rules of CivilProcedure. Defendant consented to thedismissal of Plaintiffs causes of action withprejudice but objected to the dismissal of itscounterclaims. Accordingly, on April 12,2010, Plaintiff filed the instant motionseeking to dismiss its claims with prejudiceand to dismiss Defendant's counterclaimswithout prejudice. Defendant filed itsopposition to Plaintif f s motion on April 26,2010, and Plaintiff filed its reply on May 5,2010.

II. DISCUSSION

A. Standard ofReview"A case is properly dismissed for lack

of subject matter jurisdiction under Rule12(b)(1) when the district court lacks thestatutory or constitutional power toadjudicate it." Makarova v. United States,201 F.3d 110, 113 (2d Cir. 2000). "In thetrial court, of course, a party seeking adeclaratory judgment has the burden ofestablishing the existence of an actual caseor controversy." Cardinal Chern. Co. v.Morton In! 'I, Inc., 508 U.S. 83, 95 (1993);see also ICaS Vision Sys. Corp., N V. v.Scanner Tech.'J. Corp., 699 F. Supp. 2d 664,667 (S.D.N.Y. 2010) ("[T]he party 'seekingto invoke the subject matter jurisdiction ofthe district court' . . . bears the burden ofdemonstrating that there is subject matterjurisdiction in the case.") (quoting Scelsa v.

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City Univ. of NY, 76 F.3d 37, 40 (2d Cir.1996)). Accordingly, although Defendantargues otherwise, because it is seeking toinvoke the Court's declaratory judgmentjurisdiction, it bears the burden ofdemonstrating that the Court has subjectmatter jurisdiction over its counterclaims.

B. AnalysisAs an initial matter, the Court need notfocus on the dismissal of Plaintiffs claimsin this action, as Plaintiff has moved fortheir dismissal with prejudice and Defendant

consents to this relief. (Def.'s Opp'n at 14.)Accordingly, the Court grants Plaintiffsmotion with respect to its claims on consent.

The parties dispute, however, whetherthe Court may retain jurisdiction overDefendant's counterclaims. The issue iswhether, after the March 19 covenant, anactual controversy exists such that the Courtcan continue to exercise jurisdiction overDefendant's counterclaims seekingdeclaratory relief and cancellation of the 905Registration. For the following reasons, theCourt holds that it does not.

1. Declaratory ReliefPlaintiff maintains that the March 19covenant divests the Court of jurisdiction

over Defendant's counterclaims seekingdeclaratory relief, as it strips this action of ajusticiable controversy. Although Defendantagrees that the March 19 covenant isenforceable, it argues that the Court retainsjurisdiction over its counterclaims because adispute between the parties remains activeand live. (Def.'s Opp'n at 16.)

The Declaratory Judgment Act providesthat "[i]n a case of actual controversy within



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its jurisdiction ... any court of the UnitedStates . . . may declare the rights and otherlegal relations of any interested partyseeking such declaration." 28 U.S.C. 2201(a). Additionally, "in order for afederal court to have jurisdiction over an'actual controversy,' a federal question'arising under the Constitution, laws ortreaties of the United States' must beinvolved, 28 U S.c. 1331, since it is wellsettled that the Declaratory Judgment Actdoes not expand the jurisdiction of thefederal courts." Starter Corp. v. Converse,Inc., 84 F 3d 592, 594 (2d Cir. 1996) (percuriam), abrogated on other grounds byMedlmmune, Inc. v. Genentech, Inc., 549U.S. 118 (2007). Accordingly, the Courtlacks authority to grant any declaratory reliefunless both a federal question and an actualcontroversy exist. ld. Additionally, theactual controversy must remain throughoutthe entirety of the action, not merely at theinitiation of the action. Benitec Austl., Ltd.v. Nucleonics, Inc., 495 F 3d 1340, 1344(Fed. Cir. 2007).

What constitutes an actual controversyis well settled. "Basically, the question ineach case is whether the facts alleged, underall the circumstances, show that there is asubstantial controversy, between partieshaving adverse legal interests, of sufficientimmediacy and reality to warrant theissuance of a declaratory judgment."Maryland Cas. Co. v. Pac. Coal & Oil Co.,312 U.S. 270,273 (1941). In Medlmmune,the Supreme Court clarified that the properanalysis for whether a case or controversyexists in patent actions seeking declaratoryrelief is the same analysis as in any otherdeclaratory judgment action. l 549 U.S. atI Although this case is a trademark, not patent, case,"[d]ec\aratory judgment actions involving trademarksare analogous to those involving patents, and

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127, 132. In other words, the properanalysis remains one that considers all of thecircumstances in the particular case. See id.;see also lCOS, 699 F. Supp. 2d at 668-69(explaining that any claim for declaratoryrelief must present "a substantialcontroversy, between parties having adverselegal interests, of sufficient immediacy andreality to warrant the issuance of adeclaratory judgment") (internal quotationmarks omitted).

Prior to Medlmmune, the SecondCircuit held that in "declaratory judgmentaction[s] involving trademarks," courts areto apply a two-prong test to determinewhether an actual case or controversy exists.See Starter, 84 F.3d at 595. Specifically,courts are to ascertain "(1) [whether] thedefendant's conduct created a real andreasonable apprehension of liability on thepart of the plaintiff, and (2) [whether] theplaintiff engaged in a course of conductwhich has brought it into adversarial conflictwith the defendant." ld. The Second Circuitclarified that the second prong entails theparty seeking a declaratory judgment to have"demonstrated the imminent intent andability to use [the mark on its products]." ld.at 596. Additionally, the party mustdemonstrate that it has more than a "vagueor general desire" to use the mark. Id.

Whether the Second Circuit test in itsentirety survives Medlmmune is unclear.Compare Bruce Winston Gem Corp. v.Harry Winston, Inc., No. 09 Civ. 7352(JGK), 2010 WL 3629592, at *4 (S.D.N.Y.principles applicable to declaratory judgment actionsinvolving patents are generally applicable withrespect to trademarks." Starter, 84 F.3d at 595,abrogated on other grounds by Medlmmune, 549U.S. at 118 (internal citations omitted).



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Sept. 16, 2010) (stating that "[a fterMedImmune, the first prong of the Startertest cannot survive"), with Analect, LLC v.Fifth Third Bancorp, 380 F. App'x. 54, 56(2d Cir. 2010) (citing to the first prong fromStarter) (summary order). However, what isclear is that the Defendant must, "under allthe circumstances," demonstrate "asubstantial controversy, between partieshaving adverse legal interests, of sufficientimmediacy and reality to warrant theissuance of a declaratory judgment" in orderfor the Court to retain jurisdiction over itscounterclaims. Medlmmune, 549 U.S. at127 (internal quotation marks omitted).Because of the March 19 covenant,Defendant cannot meet that burden.

"Whether a covenant not to sue willdivest the trial court of jurisdiction dependson what is covered by the covenant."Revolution Eyewear, Inc. v. Aspex Eyewear,Inc., 556 F.3d 1294, 1297 (Fed. Cir. 2009)."Courts look to the precise language of thecovenant or agreement in determining itsscope and whether declaratory judgmentjurisdiction is appropriate." ICOS, 699 F.Supp. 2d at 669. "Where a covenant not tosue does not extend to future sales of thesame product as was previously sold, suchan agreement will not divest the trial courtof declaratory judgment jurisdiction." ld.(internal citations and quotation marksomitted). "Moreover, a court is not divestedof jurisdiction where the declaratoryjudgment plaintiff has taken 'meaningfulpreparatory steps' toward developing new orupdated [products] not covered by the[covenant not to sue]." ld. (citingDiamonds.net LLC v. ldex Online, Ltd., 590F. Supp. 2d 593, 600 (S.D.N.Y. 2008).

The March 19 covenant clearly extendsto future sales of Defendant's current

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footwear designs, including the Sugar andSoulja Boy shoes, as well as to future salesof "colorable imitations" of those shoes.2This case, therefore, is easily distinguishablefrom Diamonds. net - a case cited byDefendant in which Judge Holwell foundthat the court retained subject matterjurisdiction over Defendant's declaratoryjudgment counterclaims after the plaintiffexecuted a covenant not to sue. SeeDiamonds.net, 590 F. Supp. 2d at 595. Thatcovenant did not extinguish any justiciablecontroversy because, unlike the March 19covenant, it pertained only to the allegedlyinfringing website as it "previously existed"or "currently exist[ ed]" on the date of thecovenant. ld. (alteration in original).

There is also nothing before the Courtto indicate that Defendant "has taken'meaningful preparatory steps' towarddeveloping new or updated [products] notcovered by the [covenant not to sue]."ICOS, 699 F. Supp. 2d at 669 (citingDiamonds. net, 590 F. Supp. 2d at 600).Setting aside the fact that - as alreadyexplained - few "new or updated" productscould potentially infringe the Nike Mark andnot be covered by the March 19 covenant,Defendant does not allege that it has takenany "meaningful preparatory steps" to createshoes that could potentially infringe the NikeMark. Meaningful preparatory steps wouldbe those "'preparations for production which[suggest] that, but for a finding that theproduct infringes or for extraordinary andunforeseen contingencies, the [party seekinga declaratory judgment of infringement]2 Although the March 19 covenant leaves "colorableimitation" undefined, given a broad reading of thephrase, it seems clear that any of Defendant's futureproducts that arguably infringed the N ike Mark wouldbe "colorable imitations" of the Sugar or Soulja Boyshoes. (Maurer Decl., Ex. A.)



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would and could begin productionimmediately.'" Diamond. net, 590 F. Supp.2d at 599 (quoting Sweetheart Plastics, Inc.v. Ill. Tool Works, Inc., 439 F.2d 871, 875(1 st Cir. 1971 . The affidavits submitted byDefendant do not show that Defendant hastaken any meaningful preparatory steps tocreate shoes that would infringe the NikeMark, given the March 19 covenant. Rather,the affidavits describe only forthcomingmodifications of the Sweet shoe line, as wellas other shoe lines. (See, e.g., Affidavit ofJohn P. McDade ("McDade Aff.") 8, 13,dated April 23, 2010.) The March 19Covenant, however, covers all future"colorable imitations" of the Sugar or SouljaBoy shoes, and the Court has no indicationthat any of Defendant's forthcoming modelswould extend beyond this broad language.Accordingly, neither the "future sales" factornor the "meaningful preparatory steps"factor favor Defendant. leaS, 699 F. Supp.2d at 669.

In fact, none of the rationalesinfluencing then-District Judge Chin'sdecision in leaS are present in this action.In four related cases before Judge Chin, theleaS plaintiffs sought declaratoryjudgments that several of the defendant'spatents were invalid and that they were notinfringing those patents. Id. at 665. Afterthe defendant delivered covenants not to sueto the plaintiffs, the defendants moved todismiss the four actions under Rule 12(b)(l).ld. at 666-67. Finding that the covenants didnot divest the court of subject matterjurisdiction, Judge Chin denied thedefendant's motion. Id. His decision wasbased on the fact that (I ) the covenants didnot "explicitly cover future sales of productsthat existed at the time of the covenants," (2)the covenants did not "cover futureproducts," (3) the covenants did not cover

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related patents involving the sameunderlying technology, (4) plaintiffs refusedto amend the covenants in order to cure theirdefects, and (5) the parties had a history oflitigation. Id. at 670-71. With respect to thefirst two reasons, the Court repeats that theMarch 19 covenant clearly applies to futuresales of products that existed at the time ofcovenant and also covers future, newproducts that would be "colorableimitations" of any of Defendant's previousor current footwear designs. The third andfourth factors are not present here, as theparties do not discuss any trademark relatedto the 905 Registration and the Court has notasked Plaintiff - and Plaintiff has notrefused to cure any defect in the March19 covenant.

With respect to the final reason - theparties' litigation history - the only otheraction between the parties of which theCourt is aware is a complaint filed byDefendant in Texas after Plaintiff filed thisaction. (See Maurer Decl. 5.) On the otherhand, the parties in leaS had a long,protracted history of litigation, with multipleactions filed by both parties, spanning thecourse of a decade. leaS, 699 F. Supp. 2dat 666-67; see also Diamonds. net, 590 F.Supp. 2d at 598 ("While a threat of suit isnot necessary to declaratory judgmentjurisdiction, an aggressive litigation strategysuch as plaintiffs' may signal the existenceof an actual controversy.") (internal citationomitted). Therefore, the Court has no reasonto believe that Plaintiff has plans to bringany future action against Defendant.

Nevertheless, Defendant argues that itscounterclaims standing alone even afterthe March 19 covenant - present ajusticiable controversy. It argues that the905 Registration continues "to interfere with



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Yums' ability to carry on a lawful businessin making and selling YUMS-brandedshoes." (Def.'s Opp'n at 19.) In support ofthis assertion, Defendant has submittedaffidavits from potential investors. Forexample, the Affidavit of Vincent Piras (the"Piras Aff."), dated April 23, 2010, statesthat, although he has seen the 905Registration and the March 19 covenant, hecontinues to refuse to invest in Defendant"because the covenant discusses applicationonly to existing designs and colorableimitations thereof." (Piras Aff. 6.) Pirasfurther explains, "I would considerreinvesting in Yums if the 905 Registrationwas cancelled and it was clearly establishedthat Nike has no right to object to Yums[sic] sale of shoes similar to Air Force I. "(ld. (emphases added).)

As an initial matter, Piras will only"consider" investing in Defendant if the 905Registration was cancelled and he wasassured that Nike has no right to object toshoes similar to the Air Force I. (See alsoAffidavit of Kyle Schnable, 6, dated April23, 2010 ("[I)f the 905 Registration wascancelled and it was clearly established thatNike has no right to object to Yums [sic]sale of shoes similar to the Air Force I, Iwould strongly reconsider" investing inDefendant.") (emphases added); Affidavit ofMarvin Wilson, ,r 6, dated April 25, 2010(substantially the same).) Thus, there is noevidence that even the cancellation of the905 Registration would persuade investorslike Piras to invest in Defendant. Rather,cancellation of the 905 Registration onlymight persuade these investors.

Additionally, the Court does not placethe same significance as Piras on thedistinction between shoe designs "similarto" the Air Force I and designs that are7

"colorable imitations" of current designs byDefendant As described above, the Courtinterprets the phrase "colorable imitations"in the March 19 covenant broadly, and thusthe Court sees little difference between theassurances Defendant's potential investorsseek and the scope of the March 19covenant.

Therefore, in light of the March 19covenant, the Court concludes that theexistence of the 905 Registration alone doesnot create a "substantial controversy. . . ofsufficient immediacy and reality to warrantthe issuance of a declaratory judgment."MedImmune, 549 U.S. at 127 (internalquotation marks omitted); see also Benttec,495 F.3d at 1347-48 (dismissing thedefendant's counterclaims in light of theplaintiffs execution of a covenant not tosue); Amerimax Real Estate Partners, Inc. v.RE/MAX Int'l, Inc., 600 F. Supp. 2d 1003,1008-10 (N.D. IlL 2009) (same);Furminator, Inc. v. Ontel Prods. Corp., 246F.RD. 579, 590-92 (E.D. Mo. 2007) (same);Crossbow Tech., Inc. v. YH Tech., 531 F.Supp.2d 1117, 1121-24 (N.D. CaL 2007)(same).

2. CancellationAlternatively, Defendant maintains thatits counterclaim seeking cancellation of the905 Registration pursuant to 15 U.S.c. 1119 is an independent basis for the Court'scontinued subject matter jurisdiction. TheCourt disagrees.Section 1119 provides that "[i]n anyaction involving a registered mark the courtmay determine the right to registration, orderthe cancellation of registrations, in whole orin part, restore cancelled registrations, andotherwise rectify the register with respect to



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the registrations of any party to the action."15 U.S.C 1119. However, if no "actioninvolving a registered mark" is before adistrict court, then a party seekingcancellation must obtain such relief from theUnited States Patent and Trademark Office.Significantly, the law is clear that "a federalcourt's authority to determine registrability .. . depends on a properly-instituted andotherwise jurisdictionally-supported actioninvolving a registered trademark."Manganaro Foods, Inc. v. Manganaro'sHero-Boy, Inc., No. 01 Civ. 849 (JGK),2002 WL 1560789, at *10 (S.D.N.Y. July15, 2002) (citations omitted); see also Ditriv. Coldwell Banker Residential Affiliates,Inc., 954 F.2d 869, 873-74 (3d Cir. 1992)("[A] controversy as to the validity of orinterference with a registered mark mustexist before a district court has jurisdictionto grant the cancellation remedy.");McCarthy on Trademarks and UnfairCompetition 30; 110 (4th ed. 2010)("[Section 1119] alone does not creategrounds for federal jurisdiction").

Defendant attempts to distinguish thisaction from such precedent by arguing that,at the time Defendant answered thecomplaint, the Court had jurisdiction tocancel the registration under Section 1119.In other words, it was only a subsequentevent - the March 19 covenant - thatdivested the Court of jurisdiction.Defendant, in essence, argues that it is unfairfor Plaintiff to have instituted this action, forDefendant to have properly counterclaimedfor declaratory relief and cancellation, andthen for Plaintiff's unilateral execution ofthe March 19 covenant to prevent the Courtfrom deciding the validity of the 905Registration.

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Although some courts in other districtshave agreed with Defendant's argument, see,e.g., Bancroft & Masters, Inc. v. AugustaNat 'I, Inc., 223 F.3d 1082, 1085 (9th CiT.2000), the Court is aware of no suchauthority in this Circuit. To the contrary, along line of cases recognizes that Section1119 does not provide for a concurrentremedy to seeking cancellation before thePatent and Trademark Office, if concurrentis "taken to mean . . . that an original suitmay be instituted. . . in the district court forcancellation of another's federal registrationwhere no other basis of jurisdiction ispresent. . . . [Rather, Section 1119] assumesa properly instituted and otherwisejurisdictionally supportable action involvinga registered mark." Univ. Sewing Mach. Co.v. Standard Sewing EqUip. Corp., 185 F.Supp. 257, 260 (S.D.N.Y. 1960) (emphasisadded); see Bruce Winston, 2010 WL3629592 at *6 ("The existence of the disputeover the registrability of the plaintiff's markis an insufficient basis to continue the actionin this Court."); cf GMA Accessories, Inc. v.Idea Nuova, Inc., 157 F. Supp. 2d 234, 241(S.D.N.Y. 2000) (denying a motion todismiss for lack of subject matterjurisdiction on the basis of the continuedpresence of a case or controversy, not due tothe presence of a cancellation counterclaimitself).

The logical extension of these cases isthat, if an event subsequent to the pleadingsstrips a court of jurisdiction over the action,the court is also stripped of the ability toorder cancellation of a registered trademarkpursuant to Section 1119.3 See, e.g., CIBER,3 It is also worth noting that the Second Circuit hasindicated in dicta that "[i]f a district court actioninvolves only the issue of whether a mark is entitledto registration and if subject matter jurisdiction isavailable, the doctrine of primary jurisdiction might



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Inc. v. CIBER Consulting, Inc., 326 F. Supp.2d 886, 892-93 (N.D. Ill. 2004) (dismissinga counterclaim for cancellation underSection 1119 for lack of a justiciablecontroversy after plaintiff's executed acovenant not to sue). After the March 19covenant, there remains no "substantialcontroversy . . . of sufficient immediacy andreality to warrant the issuance of adeclaratory judgment." Medlmmune, 549U.S. at 127. Therefore, the Court mustdismiss Defendant's counterclaims. SeeSewing Mach., 185 F. Supp. at 260.

Although some inefficiency results fromrequiring Defendant to now institute anadministrative proceeding before the Patentand Trademark Office in order to seekcancellation of the 905 Registration, "noamount of 'prudential reasons' or perceivedincreases in efficiency, however sound, canempower a federal court to hear a casewhere there is no extant case orcontroversy." Dow Jones & Co., Inc. v.Ablaise Ltd., 606 F.3d 1338, 1348 (Fed. Cir.2010); see also Diamonds.net, 590 F. Supp.2d at 596 (explaining that while federaljurisdiction should not be subject to theparties' manipUlation, a court cannot"respond to jurisdictional gamesmanship" bysimply continuing to exercise jurisdictionwell be applicable." Goya Foods. Inc. v. TropicanaProds., Inc., 846 F.2d 848, 853 (2d Cir. 1988)(citation omitted). Because the doctrine of primaryjurisdiction "guards against premature judicialencroachment upon an agency's sphere ofresponsibility and expertise," id. at 851, a districtcourt facing such a situation should await a decisionon registration from the Patent and Trademark Office,as "the benefits of awaiting the decision of the [Patentand Trademark Office] would rarely, if ever, beoutweighed by the litigants' need for a promptadjudication," id. at 853. This dicta lends support tothe Court's conclusion that, in the present posture ofthis case, the Patent and Trademark Office is theproper venue for Defendant to seek cancellation.

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unless Article Ill's case or controversyrequirement is met, as it is "an unwaivableconstitutional limitation on the authority ofthe federal courts"); CIBER, 326 F. SUpp. 2dat 892-93 (same).

Accordingly, the counterclaims ofDefendant are dismissed pursuant to Rule12(b)(l) of the Federal Rules of CivilProcedure for lack of subject matterjurisdiction.3. Attorney's Fees

On the basis of the March 19 covenant,Defendant is petitioning for an award ofattorney's fees under Section 35 of theLanham Act. That section, however,provides for the recovery of attorneys' feesin "exceptional cases." 15 U.S.C. 1117(a).In order for a case to be considered"exceptional," the Second Circuit requires ashowing of bad faith. Conopco, Inc. v.Campbell Soup Co., 95 F.3d 187, 194 (2dCir. 1996). "An action is brought in badfaith when the claims are 'entirely withoutcolor and made for reasons of harassment ordelay or for other improper purposes. "Gamla Enters. N Am., Inc. v. Lunor-BrillenDesign U Vertriebs GmbH, No. 98 Civ. 992(MGC), 2000 WL 193120, at *4 (S.D.N.Y.Feb. 17, 2000) (quoting BrowningDebenture Holders' Comm. v. DASA Corp.,560 F.2d 1078, 1089 (2d Cir. 1977). "Thetest is conjunctive and neither meritlessnessalone nor improper purpose alone willsuffice." Sierra Club v. us. Army Corps ofEng'rs, 776 F.2d 383, 390 (2d Cir. 1985).Accordingly, "defendants are rarely awardedattorney's fees in trademark infringementcases." Banff, Ltd. v. Colberts, Inc., 810 F.Supp. 79, 80 n.2 (S.D.N.Y. 1992), aff'd, 996F.2d 33 (2d CiT. 1993).



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Decision Nike Soulja DJ Counterclaims