The opinion of the court was delivered by: BONSAL
Defendant Brooks Shoe Manufacturing Co., Inc. ("Brooks"), one of the defendants and the counterclaim plaintiff herein, moves for a preliminary injunction against plaintiff and counterclaim defendant Nike, Inc. ("Nike") pending the final hearing and determination of the counterclaim. The injunction would enjoin Nike from (a) authorizing, permitting, approving or in any manner causing Nike's "swoosh-stripe" trademark symbol or the "Nike" name to be placed or affixed on athletic shoes (including baseball and football shoes) manufactured or distributed by shoe manufacturers other than Nike; and (b) authorizing, permitting, approving or in any manner causing any professional athlete to wear athletic shoes made or distributed by shoe manufacturers other than Nike which bear in any manner the Nike "swoosh-stripe" trademark or "Nike" name.
A hearing was held on the counterclaim on December 18, 19 and 22, 1980. The parties have filed briefs and, at the request of the Court, have submitted findings of fact and conclusions of law.
Brooks alleges that its counterclaim is based upon Sections 4 and 16 of the Clayton Act, 15 U.S.C. §§ 15 and 26, and Section 1337 of the Judicial Code, 28 U.S.C. § 1337. Brooks charges Nike and its wholly-owned subsidiary, BRS, Inc. ("BRS"), with violations of Section 2 of the Sherman Act, 15 U.S.C. § 2, and asks for treble damages and costs, including reasonable attorneys' fees. Brooks also claims that the placing of the Nike trademark on shoes made by Brooks and other manufacturers constitutes false designation of origin and false description, in violation of § 43(a) of the Lanham Act, 15 U.S.C. § 1125(a).
Brooks alleges in its counterclaim that in recent years Nike has experienced rapid growth in sales of running shoes; during its fiscal year ending May 31, 1977 Nike sales were approximately $ 29 million; during fiscal year 1978, $ 71 million; and during fiscal year 1979, $ 150 million. Brooks estimates Nike's sales for its fiscal year 1980 will increase to $ 270 million. Brooks also alleges that Nike's share of the running shoe market has increased from 28% in 1977 to over 51% in 1980, and that it dominates the market.
The prospectus dated December 2, 1980 by which Nike offered 2,377,000 shares of its Class B common stock to the public states:
"The Company believes that it is the largest supplier of high quality athletic shoes in the United States and the third largest in the world. Although the Company is unaware of any comprehensive independent trade statistics, it believes, based on its knowledge of the market and available trade information, that its running, basketball and tennis shoes have the highest sales volume in the United States."
In its counterclaim, Brooks alleges 12 ways in which it claims that Nike has been attempting to monopolize the running shoe market in violation of Section 2 of the Sherman Act.
As part of its marketing of cleated sports shoes, which it began in 1980, Nike pays professional athletes prominent in their sport to wear its shoes, all of which bear a distinctive trademark characterized as a "swoosh-stripe." In some cases, Nike enters into oral contracts with athletes; thus, in January 1980, Nike agreed to make payments to 43 of the players in the 1980 Super Bowl who agreed to wear Nike shoes during the game. Nike also enters into written endorsement contracts with athletes, which require an athlete to wear Nike shoes exclusively. During the 1980 baseball and football season, Nike entered into such contracts with 72 major league baseball players and 115 football players. Brooks also enters into endorsement contracts with professional athletes.
The practice which is the subject of Brooks' application for a preliminary injunction is the "doctoring" of shoes worn by prominent professional football and baseball players to show the Nike trademark even though they were manufactured by Brooks or other manufacturers. The settings of the doctoring include Super Bowl XIV in January 1980 and the baseball season of 1980.
Dennis Harrah and Larry Brown, football players in the 1980 Super Bowl, concededly engaged in doctoring activity, of which Nike subsequently became aware, during the game. Both players wore shoes not of Nike manufacture to which the Nike trademark symbol had been affixed. Harrah's shoes were doctored both with the Nike trademark and that of another shoe manufacturer, Pony. The doctored shoes were not Brooks shoes, and when Nike learned of the doctoring, it withheld further payments to both players.
Baseball players who concededly wore shoes of other manufacturers doctored with the Nike logo were Mike Schmidt, voted the most valuable player in the major leagues, Bob Boone, and Del Unser, all of the Philadelphia Phillies.
Schmidt admitted to wearing shoes doctored with the Nike trademark during part of the baseball season. He was under contract to Nike to wear Nike shoes, for which he received payments with provisions for bonuses. Schmidt's contract provided that he would not wear shoes not manufactured by Nike and that he would not doctor shoes of other manufacturers to show the Nike trademark. In an affidavit, Schmidt stated that when playing on artificial surfaces he found that his Nike shoes caused him discomfort and problems, so that he used shoes manufactured by Brooks and Mizuno, which gave him greater comfort, and doctored them with the Nike trademark. He stated that a Brooks sales representative provided him with the Brooks shoes which he used and that the representative did not object to the doctoring.
Nike personnel first learned of Schmidt's doctoring activity in June, 1980. At the hearing, Russell Morrison, the former director of cleated sports promotions at Nike, testified that while in the locker room of the Philadelphia Phillies last June, he observed in Schmidt's locker shoes doctored with a painted "swoosh-stripe." Accompanying Morrison were two other Nike employees, Don Cantin and Charles Denson. Morrison testified that he, Denson and Cantin commented to Schmidt that he had done an "admirable job of doctoring." Morrison also testified that Cantin communicated information of Schmidt's doctoring activity by telephone, in his presence, to Ladd Lonnquist, Nike's Director of Operations.
Morrison stated that he did not instruct Schmidt to stop wearing the doctored shoes, nor, to his knowledge, did any other Nike employee. Nike continued to make payments to Schmidt under the endorsement contract after this occurrence.
Later in the season, Nike provided Schmidt with another model, "the Brooklyn," which he tried out on artificial surfaces and found to be satisfactory. Thereafter, he wore Nike shoes exclusively. His explanation for the doctoring was that he was under contract with Nike and that he felt it was only fair to display the Nike trademark. Schmidt stated that when Nike's representative discovered the doctoring, he informed ...