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Nike, Adidas Sneaker Hole Case Makes Third Federal Circuit Trip

Aug. 1, 2022, 9:15 AM

Athletic footwear giants Nike Inc. and Adidas AG will spar Monday for the third time at the Federal Circuit in a case over a shoemaking process with major implications for both the industry and patent law.

The decade-old saga concerns whether Nike owns the method of creating knit sneakers without punching out holes for shoelaces. In this latest chapter, Nike wants the US Court of Appeals for the Federal Circuit to clarify who has the “burden of persuasion” to show that a patent shouldn’t have been issued when the Patent Trial and Appeal Board raises its own challenge.

How the issue is decided could mean more modes of attack against patent owners during US Patent and Trademark Office “inter partes review” proceedings.

Money is on the line for the shoemakers. If Nike successfully defends the patent, it could force Adidas and others to obtain licenses to use the resource-saving method to manufacture knitted sneakers, said Susan Scafidi, a fashion law professor at Fordham University.

“It would be a landmark case for both the footwear industry and for anyone looking at the process of inter partes process review,” Scafidi said. “It’s nontrivial in terms of the actual process of creating knitted sneakers, and it’s also nontrivial in terms of the process of an inter partes review and how much freedom really the patent office has.”

Sneaker Holes

Nike often tries to paint Adidas as a follower in the innovation space, as Nike owns more patents. Adidas challenged US Patent No. 7,347,011, the technology Nike used to make its 2012 FlyKnit sneaker. Adidas came out with a similar product, its Primeknit shoe, that same year.

Nike first appealed to the Federal Circuit in 2014 after the patent tribunal refused to allow it to amend some of the patent’s claims on grounds that the amendments were invalid as obvious based on previous inventions. The appeals court two years later partially vacated that decision, finding some errors in the board’s analysis.

On remand, neither Nike nor Adidas introduced new evidence or arguments. In 2018, the PTAB of its own volition issued a new decision finding that one patent claim was obvious, relying on a knitting handbook that neither party submitted to the record. Nike appealed to the Federal Circuit again, saying it should’ve had an opportunity to dispute the new challenge raised by the board.

In 2020, the Federal Circuit affirmed that the PTAB can raise its own challenges during IPRs, but remanded the case saying that Nike should’ve been given a chance to respond.

Now at the Federal Circuit for the third time, Nike argues that the board erred again by saying neither party has the burden of persuasion. Adidas, as the petitioner, should bear the burden, Nike says.

Adidas says in its response brief that because the board raised the challenge itself, it doesn’t make sense for Adidas to make the argument.

“It’s a broad question of how much authority the patent office has in an inter partes review to essentially be the third party and not just the adjudicator,” Scafidi said. “That’s key here.”

Patent Owner Headache

Clarity from the Federal Circuit is needed for practitioners to understand who does bear the burden in these situations, said Anna G. Phillips, a patent attorney at Sterne, Kessler, Goldstein & Fox PLLC.

The patent office can raise challenges in IPRs when the challenger drops out of the proceedings, but there are still open questions on the board’s role when both parties are still involved.

“It’s a question of law that the Federal Circuit could provide clarity on, whether or not they affirm the board’s decision or if they take another approach to the board’s decision,” Phillips said. “Either way the Federal Circuit decides, it’ll provide some guidance.”

For patent owners, an affirmance could create more headaches during IPR proceedings, attorneys said. It would mean that the patent office gets to start over in its analysis, and holders would have to anticipate challenges from two fronts.

“It makes it a little more unpredictable for patent owners in the sense that you make a motion for an amendment, the petitioner opposes it, and then the petitioner is supposed to prove the unpatentability of the claim,” said Laura W. Smalley, a patent attorney at Harris Beach PLLC, “but then you have a situation where the board can come in with its own arguments, and the burden of persuasion is arguably lower.”

It’s not unusual for Nike and Adidas to battle, but the potential money on the line makes this case unique, Scafidi said, though she noted that it “may seem crazy to spend 10 years arguing about holes for laces.”

“They have gone head to head before but not like this,” Scafidi said. “Nike is trying to not only save money on its own shoelace holes, but to collect money on everybody else’s.”

The case is Nike, Inc. v. Adidas AG, Fed. Cir., No. 21-01903, oral argument 8/1/22.

To contact the reporter on this story: Samantha Handler in Washington at shandler@bloombergindustry.com

To contact the editors responsible for this story: Tonia Moore at tmoore@bloombergindustry.com; Jay-Anne B. Casuga at jcasuga@bloomberglaw.com