Nike is one of the most well-known and recognized companies in the sports industry. In fact, Nike is the world’s largest supplier and manufacturer of athletic shoes, apparel, and other sports equipment. Nike is a leader in its industry and is making strides in its athletic technology. Nike relies heavily on endorsements as part of its marketing strategy; the company utilized the London 2012 Summer Olympics to promote its new ‘Flyknit’ footwear technology. While the London Olympics featured battles between the world’s top athletes, it also set the stage for a battle between two major companies; Nike and Adidas. This began with a patent infringement lawsuit filed against Adidas.
Nike identifies its mission statement as “To bring inspiration and innovation to every athlete in the world” (Nike, Inc). Nike is able to work towards this goal by showcasing its products through popular athletes, in order to market them to average, everyday athletes. Nike’s endorsements are a major contributor to the company’s leadership within the sports industry. Endorsements help spread a positive image of the company and demonstrate the company’s involvement with sports. Nike promotes their products through sponsorship agreements with notable celebrity athletes, professional teams, and college athletic teams worldwide. The company is very focused on presenting itself as a leader and as a unique company through these athletes.
It is no surprise that Nike’s latest advancements in the footwear industry were showcased at the London Olympics. Nike Flyknits were worn by USA’s gold medal decathlete, Ashton Eaton; as well as Michael Phelps as he accepted his record-breaking 22nd medal. The Flyknits were also worn by several other medal-winning athletes, and four Independent Olympic Athletes (Banks, 2016). These shoes were unique to the market because they were made to feel like a sock; as requested by some major athletes. The shoe was designed with a knitted textile ‘upper’ (referring to the upper part of the shoe, above the sole structure.) This design created a more lightweight, form-fitting, and performance-enhancing product. Another remarkable aspect of this shoe was that the process of its construction was one that minimizes waste.
Then, in July 2012, Adidas unveiled its new Primeknits that would appear in the market in August. The Primeknits were designed the same way the Flyknits were; with utilization of the new knitted form. Nike responded to this announcement by filing a patent infringement claim. The production of such a similar shoe by their competitor challenged Nike’s leadership in the footwear industry, and this is not something that was taken lightly. Patent infringement occurs when one makes, uses, or sells another’s patented product, process, or design without permission. The claim was filed in a District Court in Nuremberg, Germany. The case was handled strictly in Germany due to the fact that this was the only location at which the Primeknits were being manufactured, thus granting the court jurisdiction. Nike requested for Adidas to be prohibited from production and sales of Primeknits until the resolution of the legal dispute. It is common for German court to “impose temporary injunctions on allegedly infringing products when a suit is filed but can lift the injunction after hearing from the defendant” (James, 2012).
The court granted Nike’s request, and Nike continued to push for a permanent injunction. The case was centered around the European patent filed by Nike. Nike supported its decision to file suit by explaining that patents are the foundation of their leadership, which is why the company fights to protect them (Banks, 2016). The question was whether or not the Flyknit technology was qualified to possess the right of being patented. In order for intellectual property to be patentable, the applicant “must prove that the invention, discovery, process, or design is novel, useful, and not obvious” (Clarkston, et., al. 2014). In this case, the technology of the footwear was in question.
In defense to Nike’s suit, Adidas presented the argument that the shoes were not copied, as they started developing them in 2008 following the Beijing Olympics. However, their most valuable argument challenged the validity of Nike’s patent. Adidas explained that the intertwined yarns making up the shoes arose from a technique developed in the 1940s. This implies that the Nike Flyknits were not a ‘novel’ idea. Since they did not meet this requirement, then the technology would not qualify for a patent.
The case then moved over into the United States. Adidas began selling its Primeknits outside of Germany, so this case would be dealt with on an international level. It is significant to note that there are differences between the law and processes of law between different countries. For instance, concerning patent rights, the United States differs from many countries. Patent protection is provided to the first person to invent the product, process, or design as opposed to the first person to file the patent. If the U.S. were to handle this in a manner opposite to this custom, then Nike would hold a clear advantage over Adidas. Adidas hoped that the victory in Germany would translate over to the U.S., while Nike hoped that a change in location may grant a different outcome.
Adidas immediately took action by challenging Nike’s U.S. patent on the Flyknit technology. The patent in question was patent no. 7,347,011 entitled, “Article of footwear having a textile upper,” Nike, Inc. v. Adidas Ag, 812 F.3d 1326, 1329 (Fed. Cir. 2016). The patent was challenged by means of an inter partes review (IPR), and the petition by Adidas was filed with the U.S. Patent Trial and Appeal Board. The goal of using the IPR was to avoid the alternative, in which Nike would file a suit against Adidas. A great benefit of this is similar to the benefits from Alternative Dispute Resolution; in which the parties avoid the hefty costs associated with court procedures.
Through the IPR, Adidas challenged all 46 claims in Nike’s patent. Nike responded by requesting to cancel claims 1-46, and amend its patent by substituting in claims 47-50. The Board agreed with Adidas, denying Nike the rights to the patent and denying Nike’s petition to substitute. The Board decided that Nike could cancel claims 1-46, but they were denied substitution due to the fact that the company “failed to carry the burden of demonstrating patentability” Nike, Inc. v. Adidas Ag, 812 F.3d 1326, 1329 (Fed. Cir. 2016). Since this is a civil case, the evidentiary standard under an IPR is that the petitioner proves unpatentability by a preponderance of evidence. Adidas was able to do so to the discretion of the Board by citing various previously filed patents. It was concluded by the Board that Nike’s claims were in fact unpatentable because either 1.) they were seen as obvious due to prior patents; or 2.) a person of skill in the art would have reason to arrive at the same result. Adidas and the Board noted many previous claims that demonstrated too many similaries to Nike’s claims; therefore supporting Adidas’ allegation that Nike failed to show patentable distinction.
Unsatisfied with the results of the Board review, Nike filed an extensive appeal. The appeal contained three major arguments. “First, Nike asserts that the Board erroneously shifted to Nike (the patent owner) the burden of proving patentability of its proposed substitute claims 47–50. Second, Nike contests the Board’s finding on the merits that the proposed substitute claims are unpatentable as obvious. Finally, Nike objects to the Board’s practice of requiring a patent owner to establish patentability of substitute claims over all prior art known to the patent owner, including prior art not of record but known to the patent owner” Nike, Inc. v. Adidas Ag, 812 F.3d 1326, 1332 (Fed. Cir. 2016).
The major dispute of the appellate case was whether Nike’s patent was deemed ‘obvious,’ which would deny it patentability. The appellate court concluded that the PTAB’s decision would be affirmed in part, vacated in part, and remanded. The decision was affirmed in part that Adidas will maintain the rights to produce and market its Primeknits and that Nike did not provide sufficient evidence to support the patent. The part of the decision that was vacated was that Nike would not be able to amend the patent. The appellate court determined that the Board was wrong in denying Nike these rights. Finally, the decision was remanded as the Board must hear Nike through in their attempts to adjust the patent. At this point in the case, with Primeknits and Flyknits both on the market; it was clear that Adidas had won, and would be permitted to continue its sales of the knitted shoe. “Much as you can’t patent a knitted sweater, it’s tough to patent a knitted shoe” (Tsui, 2014).
Nike has indicated that it will continue to battle for its rights in protecting its work and advancements. Nike currently holds a 23.9 percent market share in the athletic footwear industry, and is projected to increase this share to 27.2 percent in 2020 (Statista, 2017). As previously stated, Nike emphasizes the importance of protecting its intellectual property in order to grow in the market. Recently, Nike has made two advances in footwear technology that they will have to protect. The first, is a sensor built into the heel of Nike’s HyperAdapt 1.0 shoe that has the ability to tighten the shoe itself in adjustment to the user. The second, is the replacement of the traditional foam midsole with flexible, pillow-like air bags (Marum, 2016). These shoes, along with the Flyknits are viewed as symbols of Nike’s innovation and are vital to the company’s leadership. Although Nike may not have won the case against Adidas, they continue to succeed in the industry.