Nike Tries To ‘Kill’ Small Company It Stole Trademark Technology From, Judge Asserts

In a classic "David vs. Goliath" case, a small Norristown, PA-based company, Lontex, was forced to take sportswear giant Nike to court over trademark infringement.

A 2021 civil jury trial held Nike accountable for infringing the trademark and ordered Nike to pay a modest amount in damages, plus cover Lontex's legal expenses due to "exceptional circumstances" surrounding Nike's unethical behavior and willful disregard of Lontex's claims.

Now on appeal, a court-ordered review of the special circumstances that warrant Nike pay Lontex's nearly $7 million in legal expenses found that forcing Lontex into court to uphold its trademark was Nike's intent all along, according to the Philadelphia Inquirer .

Retired Pennsylvania Supreme Court Judge Jane Cutler Greenspan wrote that Nike acted in "bad faith" through "vexatious litigation." She concluded that Nike intended to "kill Lontex's business" in lawyer fees, costs that Nike can easily absorb but Lontex can not. Nike did not respond to my request for comment.

War Lost, But Nike Keeps Fighting

In the original judgment, Nike was ordered to pay Lontex $791,000 in compensatory and punitive damages for appropriating Lontex's "Cool Compression" technology that supports muscle recovery, which Lontex sells under the "Sweat It Out" brand. That award is chump change considering the estimated $100 million Nike made on its copy-cat version.

Nike was not held accountable for Lontex's lost profits due to its trademark infringement; however, it was ordered to pay Lontex's legal fees, something not typical in a trademark infringement case except under "exceptional" circumstances, which the court originally found applied.

On appeal earlier this summer, the Third Circuit Court in Pennsylvania determined the trademark infringement proceedings were conducted fairly and upheld the judgment. But it reversed the order to pay Lontex's legal expenses, finding that the exceptional-circumstance exception doesn't apply in this case.

However, the court called for a "special master" to review that ruling. Judge Greenspan got the call and just submitted her report arguing forcefully that Nike's "outrageous" behavior meets the very definition of "exceptionality."

The two parties have until mid-October to respond to Greenspan's report before returning to court.

Reckless Indifference

Lontex originally registered its trademark for "Cool Compression" technology in 2008, selling its sports apparel under the "Sweat It Out" brand to sports teams and consumers. In 2015, Nike started offering compression clothing under its "Nike Pro" brand, using the term "Cool Compression" to describe it.

In April 2016, Lontex got wind of Nike's trademark infringement and sent a cease-and-desist letter. Nike lawyers directed the company to stop using the phrase "as soon as possible;" however, the company dragged its feet, according to Greenspan's report. Nike also refused to speak with Lontex to negotiate a compromise and avoid the expense of a trial.

"This lack of civility goes to the heart of the attorney fee expense and signals an improper desire to simply cause increased attorney costs rather than winning on the merits," Greenspan wrote in the report, which Lontex counsel Troutman Pepper shared with me.

"Nike, with its far greater resources, did not stop infringing until litigation, damages and an injunction to deter it and compensate this far smaller resourced company occurred," she continued.

The report cited an exhibit that showed Nike threatened to "kill Lontex's business" by overwhelming it with legal expenses.

"Nike's incivility, bad behavior, blatant willful infringement and reckless indifferent conduct upon notice of the infringement are rare qualities that distinguish this case from the typical case and, in sum, created an unusual discrepancy in the merits," Judge Greenspan concluded, arguing that the exceptional nature of Nike's behavior meets the legal definition of "exceptionality" to award attorney's fees.

Something Rotten In The State Of Beaverton, OR

Not only did Nike use its corporate might to overwhelm Lontex with legal fees to defend its trademark, Nike also used its heft to quash Lontex "Sweat It Out" brand in the marketplace.

Company founder Efraim Nathan, which at one time employed 60 garment workers in a plant near its headquarters outside Philadelphia and now operates a smaller manufacturing operation in Allentown, PA, said that Nike used its relationships with coaches, trainers and players to take away business that Lontex originally had and to keep it from securing future deals. And Lontex can hardly match Nike's muscle in the consumer market.

The rules of the competitive marketplace place smaller competitors at a disadvantage when going up against industry giants, but when those giants take unfair advantage by stealing smaller company's trademarks, they are not playing fair, which Nike egregiously did in this case.

Perhaps, all we need to do is look at what Nike said in its its " Winning Isn't For Everyone " ad campaign that broke with the Paris Olympics. While officially celebrating the fierce competitive spirit of champion athletes, its statements violated the core Olympics' values of "excellence, respect and friendship," not to mention fair play:

"I have no empathy. I don't respect you. I have an obsession with power. What's mine is mine. I want to take what's yours and never give it back."

"By Their Fruits You Will Know Them"

Regrettably, Nike has a long track record of not playing fair. In 2018, two former Nike employees, Kelly Cahill and Sara Johnston, filed a class action lawsuit against Nike on behalf of 500 women claiming discrimination on the basis of sex and further, that the company tolerated sexual harassment.

That lawsuit remains in legal limbo, but it led to the exit of several senior male employees and adjustments to the company's official workplace and pay policies. However, another former female employee filed suit earlier this year on the same sexual discrimination grounds.

Not only female employees, but Nike female athletes have taken Nike to task. Track stars Allyson Felix and Alysia Montaño brought attention to the company's mistreatment of sponsored athletes who become pregnant and Mary Cain wrote she was the "fastest girl in America until she joined Nike," in a New York Times op-ed .

Gymnast Simone Biles, basketball stars Chiney Ogwumike and sister Nneka Ogwumike, pro-basketball Breanna Stewart and long-distance runner Kara Goucher are other female athletes that have run away from Nike sponsorships .

"Nike's got a long history of pretending to stand up for women, but in reality, treating them with astonishing disregard," said the outspoken Jennifer Sey , former national gymnastics champion and Levi's president and now founder of XX-XY Athletics which stands for protection of women in sports.

"And now we know they treat small business owners with patented technology with the same disregard," she continued on an Instagram post .

New Chapter For Nike

Nike just announced its first-quarter earnings , reporting revenues down 10% to $11.6 billion with Nike Direct revenues off 13% and wholesale revenues down 8%. While the company readies to welcome long-time Nike veteran Elliott Hill as CEO on October 14, he's got more work to do than just change the trajectory of the company's sales performance.

He needs to fix what many have called a " toxic culture " and that Nike's behavior in the Lontex case suggests continues.

As longtime consultant to the retail industry Burt Flickinger of Strategic Resource Group share with me, "Nike doesn't have a soul, and I don't mean the soles on its sneakers. It lacks the soul of societal good that its key competitors seem to have."

See also:

Nike Loses In The 'Winning Isn't For Everyone' Ad Campaign