Intellectual Property Law

Payless and the Terrible, Horrible, No Good, Very Bad Day

By Tim Armstrong, Derek Bambauer, and William McGeveran.

The Oregonian reports that Adidas won an astronomical $305 million trademark infringement verdict against discount retailer Payless Shoes this morning. Trademark blogger Marty Schwimmer can’t think of another infringement verdict even close to this size, and neither can I. Most trademark litigators would consider any case worth more than $25 million a very big one.

Payless lost most of its key legal arguments in a set of pretrial rulings back in February, as Rebecca Tushnet explained at the time. But even if one might have predicted an Adidas victory at that point, I think its magnitude is pretty surprising. It doesn’t look like this award is vulnerable to a due process attack in the vein of BMW v. Gore and State Farm, however, because the punitive damages appear to have been calculated to represent double the Payless profits attributable to the infringement ($30.6 million in actual damages, $137 million in profits, and $137 million in punitive damages). In those cases, by contrast, the ratio of punitive to actual damages was many times greater (145:1 in State Farm).

The dispute centers on 268 different Payless sneakers with parallel stripes. (Images here.) Adidas has a trademark for three parallel stripes on the side of a shoe. The jury found that all but one of the Payless versions, with various numbers of stripes on the side, infringed on that trademark.

Some might consider those stripes a pretty basic aspect of sneakers. I remember all my sneakers as a kid looking like that, and I think they were usually Keds. Indeed, one of my 4-year-old daughter’s favorite books, Alexander and the Terrible, Horrible, No Good, Very Bad Day, written in 1972, illustrates the point very nicely (sign into Amazon here for the image):

So then we went to the shoestore to buy some sneakers. Anthony chose white ones with blue stripes. Nick chose red ones with white stripes. I chose blue ones with red stripes but then the shoe man said, We’re all sold out. They made me buy plain old white ones, but they can’t make me wear them. … It was a terrible, horrible, no good, very bad day.

I think the Payless attorneys know just how you feel, Alexander. (”The jury found that stripes on sneakers identify Adidas as their source in the public mind, and I still have to pay the lawyers, and now we have to file the post-verdict motion to set aside the damages and then the appeal. And I have to wear my railroad train pajamas, and I hate my railroad train pajamas.”)

[Cross-posted on Concurring Opinions]

Full post as published by Info/Law on May 06, 2008 (boomark / email).