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Adidas America v.

Payless Shoesource
Adidas America, Inc. et al v. Payless Shoesource, Inc., 2002 U.S. Dist. LEXIS 27438.

Facts: in Nov 2001, Adidas brought this action against Payless Shoesource for
trademark infringement and dilution, injury to business reputation, unfair
competition under the Trademark Act of 1946; anti-dilution laws of several states,
including that of Oregon; the fair business practices and unfair and deceptive trade
practices acts of several states, including the Oregon Unlawful Trade Practices Act.
Specifically the complaint alleges that Payless, the defendant, is offering a shoe that
bears the same THREE STRIPES trademark and SUPERSTAR Trade Dress of Adidas
and is likely to deceive, confuse and mislead pros
pective purchasers and purchasers into believing that footwear sold by defendant is
manufactured, authorized by or in some manner associated with Plaintiffs, which it
is not. The likelihood of confusion, mistake and deception engendered by
Defendant’s misappropriation of Plaintiff’s mark and trade dress is causing
irreparable harm to the goodwill symbolized by the THREE STRIPE Mark and
SUPERSTAR Trade Dress and the reputation for quality that they embody. Adidas’s
trademark is very famous and non-functional and the three stripe logo means to the
public that it is Adidas.

Issue: Whether Payless Shoesource has violated Adidas’s THREE STRIPES trademark
and the SUPERSTAR Trade dress by infringement, dilution or injury to business

Holding: The jury found 267 different styles and colors of Payless shoes resembled
Adidas’ trademarks. In particular, the jury that sat before the district court
unanimously awarded Adidas AG’s’ U.S. subsidiary $30.6 million in actual damages,
$137 million in punitive damages and $137 million in Payless profits for a total of
$304.6 million.

Discussion: The defendant’s main contention is that the plaintiffs failed to state a
claim for which relief can be granted. Payless claimed that plaintiffs SUPTERSTAR
trade dress in invalid. They also contend that there is no likelihood of confusion
regarding the payless brand or shoe store. Defendants are claiming that nobody
would confuse the two. They say the use of one or more stripes on a pair of shoes,
clothing, sports equipment, or other good has been used for decades. They further
argue that stripes are generic designs and that all shoes incorporate stripes in
different forms and colors. The bottom line is plaintiffs cannot monopolize the use of
a stripe. Therefore, the plaintiffs are using their trademark to monopolize in
violation of the U.S. Antitrust laws.
The defendants are also claiming that under their 1994 settlement that plaintiff’s
claims are barred. The agreement can only be reasonably interpreted as imposing on
Payless an ongoing obligation to refrain from selling shoes bearing the stripes
prohibited under the agreement, and imposing on Adidas a reciprocal ongoing
obligation to refrain from taking legal action against Payless based solely on its use
of stripes. However, Adidas is claiming payless broke this action. After many appeals,
motions, and judgments the final jury verdict in 2008 awarded Adidas a staggering
total of $304.6 million.

Adidas-America, Inc. v. Payless Shoe Source, Inc.,
2008 WL 4279812 (D. Or. 2008)

After a jury trial awarding plaintiff $305 million in damages based on a reasonable royalty, an accounting of
profits, and punitive damages, defendant moved for judgment as a matter of law, a new trial, and remittitur.
The district court held that $137 million of the jury's $305 million damages award had been based on
plaintiff's overly aggressive and overstated calculation of defendant's profits, and reduced the damages
award to $19.7 million. The court also reduced the $137 million punitive damages award to $15 million,
largely due to the solely economic nature of the plaintiff's harm.


In 2001, Adidas-America, Inc. and its parent company, Adidas-Solomon AG (collectively "Adidas"), claimed
that Payless ShoeSource, Inc. ("Payless") sold shoes and sportswear that were confusingly similar to the
Adidas "Three Stripe Mark" and "Superstar" trade dress. The case had initially been dismissed by the district
court, which held that a 1994 settlement agreement between the parties precluded most of Adidas's claims.
The Ninth Circuit reversed the dismissal in 2006, finding that trademark infringement claims cannot be
precluded when the allegedly infringing activity started after the agreement was finalized. The case was
remanded back to the district court for trial. At trial, the jury returned a verdict for Adidas on its trademark
infringement, trade dress infringement, and dilution claims. The jury also found that Payless acted willfully
and maliciously, and determined that Adidas was entitled to $30.6 million in actual damages (based on a 7.78
percent royalty calculation), $137 million for Payless's profits, and $137 million in punitive damages. Payless
responded by moving for judgment as a matter of law, for a new trial, and for remittitur on various grounds.

The court first dismissed Payless's motion for a new trial based on alleged juror misconduct, stating that a
juror's brief discussion about the Ninth Circuit's appeal process did not directly relate to any material fact or
substantive law applicable to the case, and there was no reasonable possibility of prejudice. The court also
refused to dismiss its prior rulings regarding likelihood of confusion, dilution, actual harm, and willfulness,
noting that Adidas submitted sufficient evidence to support the jury's findings on these issues.

The court considered Payless's arguments regarding the $305 million award, including Payless's contention
that the award of damages violates the Lanham Act's prohibition against damages as a penalty. The court first
examined the "reasonable royalty" aspect of the award and held that the jury correctly accepted Adidas's
calculations of a 7.78 percent royalty as a surrogate measure of damage to the marks, noting that the royalty
figure awarded was consistent with royalties between Adidas or Payless with third parties and with royalties
between third parties.

The court evaluated the award of Payless's profits ($137 million), holding that Adidas's expert's calculations
were aggressive, overstated, and did not follow generally accepted accounting principles. Adidas's expert's
calculation did not include a royalty deduction as a direct expense of selling the shoes, which the court cited
as an example of its unreasonable methodology. The court compared the figures offered by both parties'
experts for Payless's profits ($208 million by Adidas's expert versus $19 million by Payless's expert) and
concluded that the difference between the amounts also demonstrated the unreasonableness of Adidas's
calculations and the jury's award. The court reduced the recovery of Payless's profits to $19.7 million under
its reasoning that the $137 million profits award was punitive rather than compensatory, and thus violated
the Lanham Act.

The court then addressed the jury's $137 million punitive damages award, which was based on Adidas's
common-law claims for trademark and trade dress infringement and statutory claims for unfair and
deceptive trade practices under various state acts. Payless argued that the punitive damages award was a
violation of the Due Process Clause's prohibition against grossly excessive or arbitrary punishments of a
tortfeasor. Citing the three "guideposts" for reviewing a punitive damages award set forth by the Supreme
Court in BMW of North America, Inc. v. Gore, the court focused on what it deemed the most important
indicator of the reasonableness of a punitive damages award–the degree of reprehensibility of the
defendant's misconduct. The court found that the harm to Adidas was entirely economic, that Payless did not
show disregard to the health or safety of others, and that there was no evidence Adidas lost any sales due to
the infringement. The court also noted the Supreme Court's observation in Gore that, in practice, awards
exceeding a single-digit ratio between punitive and compensatory damages will likely violate due process.

In its evaluation of the second Gore guidepost, namely, the disparity between the harm suffered by Adidas and
the punitive damages award, the court found a 4.5:1 ratio between the $30.6 million royalties and $137
million punitive damages award. While concluding that this single-digit ratio on its own does not offend due
process, the court stated that $30.6 million in compensatory damages was already substantial, considering
that Adidas did not lose any sales and any damage to the Adidas brand was theoretical and not easily
quantified. Based on this reasoning, the court held that even a 1:1 ratio between the compensatory and
punitive damages would be too extreme and reduced the punitive damages to a $15 million award. The court
defended its self-proclaimed "unusual" reduction of an award to below a 1:1 ratio by stating that such awards
have been approved if there is solely economic harm, as was the case here. Accordingly, the court denied
Payless's motion for a new trial on the condition of Adidas's acceptance of the remittitur of the punitive
damages award.

The court's dramatic reduction of the profits calculation and punitive damages award is notable both for its
criticism of plaintiff's accounting method regarding defendant's profits and its finding that punitive damages
should be greatly decreased if the harm is solely economic in nature.

full details result

Shoe Case
In a 2008 Case, Payless Shoe Company was ordered to pay $305 million dollars to
Adidas Shoe company for violating on Adida's three stripe trademark. It is a symbol
that people around the world associate with the name Adidas, and it is their primary
logo for shoes, in particular the famous Superstar Brand. A jury examined 268
Payless shoes and found that 267 improperly used the Adidas stripe pattern and
color scheme. This case marks Adidas' and their aggressive enforcement of their
trademark. Not only winning the decision but gaining the large financial reward
validates how seriously trademark law and the severity when that law is violated is
viewed upon in this country. As of this date, it was the largest financial reward in a
trademark-infringment case.


10. Adidas America Inc. v. Payless
Shoesource Inc.
In 1994, Adidas and Payless got into a scuffle over stripes. Adidas had used its
three-stripe mark as a logo of sorts since 1952, and had recently registered it
as a trademark. But Payless was selling confusingly similar athletic shoes with
two and four parallel stripes. The two companies hashed out a settlement, but
by 2001, Payless was again selling the look-alikes. Fearing that the sneakers
would dupe buyers and tarnish its name, Adidas America Inc. demanded a
jury trial. The trial lasted seven years, during which 268 pairs of Payless shoes
were reviewed. In the end, Adidas was awarded $305 million—$100 million
for each stripe, as the Wall Street Journal’s Law Blog calculated.