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Nike’s Case Against Adidas Inches Forward

The U.S. International Trade Commission (USITC) will investigate patent-infringement claims that Nike brought against Adidas in December, it revealed on Friday.

Nearly a decade of back-and-forth legal fights over Nike’s Flyknit patents culminated last month with the Oregon-based footwear giant’s request that the USITC block the import of Adidas’ Primeknit footwear. Nike’s complaint called out roughly four dozen silhouettes as examples of the styles it seeks to block.

Since Adidas introduced its first Primeknit shoe in 2012, it has expanded the technology across a wide swath of styles, perhaps most notably within its family of Ultraboost running shoes. Nike’s complaint alleged that the Primeknit material infringes on its own Flyknit patents and thus violates section 337 of the Tariff Act of 1930. As such, it asked that the USITC issue a limited exclusion order and cease-and-desist orders against all Primeknit footwear and any styles that include Primeknit “elements.”

The USITC noted that by instituting its investigation it has not yet made any decision on the merits of the case. Moving forward, the commission’s chief administrative law judge will assign the case to one of the USITC’s administrative law judges (ALJ), who will then schedule and hold an evidentiary hearing. The ALJ will make an initial determination as to whether there is a violation of section 337, as Nike alleges. That determination is subject to review by the commission, which will make a final determination “at the earliest practicable time.”

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Within 45 days of instituting the investigation, the USITC will set a target date for completion. Any remedial order the USITC might issue would be effective when issued and become final 60 days after issuance, unless disapproved for “policy reasons” by the U.S. Trade Representative.

“We are currently analyzing the complaint and will defend ourselves against the allegations,” an Adidas spokesperson said, reiterating the comment the company offered a month ago. “Our Primeknit technology resulted from years of dedicated research and shows our commitment to sustainability.”

When Nike petitioned the commission last month, it also filed a complaint in federal court the same day alleging Adidas infringed upon nine separate patents. The suit identifies four dozen products as “examples of the infringing products,” including 18 variations on Adidas’ Ultraboost sneaker, as well as multiple variations of its Terrex Free Hiker hiking shoes and X Speedflow+ cleats.

Nike unveiled its first Flyknit style in February 2012 “after more than a decade of research and development and an investment of more than $100 million,” according to the lawsuit. The technology uses high-strength fibers to create lightweight, single-piece uppers with targeted areas of support, stretch and breathability. Since Flyknit uses yarn that is made of recycled materials, it has come to represent an “important part” of Nike’s sustainability efforts, it added. Adidas introduced its first Primeknit style five months after Nike’s inaugural Flyknit sneaker.

Though Nike’s suit alleges Adidas forewent “independent innovation,” a 2019 blog post from retailer JD Sports presents a different story. According to that account, the idea for Primeknit originated in 2010 when members of the company’s footwear development team were inspired by a knitted glove they saw at a textile fair in Germany.

Though Nike claims to own more than 300 issued utility patents related to its Flyknit technology, its lawsuit only specifically refers to nine of these. The first of these was issued in Oct. 2010. The most recent patent was issued in March 2018.

In the years since Nike introduced its Flyknit technology, Adidas has filed multiple challenges to Nike’s patents. In two cases that Nike calls out in its lawsuit, Adidas allegedly threatened to attempt to invalidate the patents if Nike did not provide it with a covenant not to sue. Nike said it refused to agree to Adidas’ request, after which point its competitor filed challenges with the U.S. Patent Office. It eventually lost those challenges, but did not stop releasing Primeknit footwear. Both patents are among those Nike claims were infringed.

Nike, however, has not won every battle. In the United States, it is still fighting to defend its original application in what it described as “the Knitted Textile Upper Family”—the U.S. Patent and Trademark Office granted Nike the patent in 2008, four years after its initial application. In Germany, meanwhile, courts rejected Nike’s attempt to sue Adidas for infringing on that specific patent and instead have revoked the German portion of Nike’s European patent.

HSBC downgrades Nike amid China sales slump

A week after analysts at Guggenheim Securities dubbed Nike their “Best Idea” going into 2022, another firm has decided to zag the other way.

HSBC analyst Erwan Rambourg moved the footwear giant from a “Buy” rating to “Hold” amid weakening demand in China, The Street reported. Last month, Nike revealed that sales in the quarter ended Nov. 30 dropped 24 percent on a currency-neutral basis. Rather than attributing the decline to the boycott that started in the spring, executives instead cited low inventories due to Covid-related factory shutdowns in Vietnam and lockdowns in local markets.

“Inventory shortages created during July-September 2021 lockdowns and in the following months (with only a gradual reopening) should continue to impact the Western sporting goods players’ top-line for at least the first few months of 2022e, due to higher lead times for goods to reach shelves,” Rambourg wrote, according to Seeking Alpha.

The declining sales Nike reported last month came after multiple quarters of weak China revenue. Last March, Nike was one of numerous Western brands facing a consumer boycott for its statements on sourcing from Xinjiang, the Chinese cotton-producing region linked to the forced labor of Uyghurs and other Turkic minorities. Less than two months later, early May Tmall sales data showed Nike sales down 59 percent. Though the company’s reported sales in the region never fell that far, year-over-year comparisons remained low in the quarters ended May 31 and Aug. 31 at 9 percent and 1 percent, respectively.

“We hoped Western brands would have started to regain some footing (in China demand) by now, but we see no signs of a real pick up, and the breadth of the decline at Nike was a bit of a shocker to us,” Rambourg added.