LOHIER, Circuit Judge:
This appeal requires us to decide whether a trademark registrant's delivery of a covenant not to sue, and voluntary dismissal of its trademark claims, divests a federal court of subject matter jurisdiction over a defendant's counterclaims for a declaratory judgment and cancellation of the trademark's registration. After considering the breadth of the plaintiff's covenant not to sue and the improbability of future infringement, the United States District Court for the Southern District of New York (Richard J. Sullivan, J.) dismissed the defendant's counterclaims because no case or controversy existed under Article III of the United States Constitution. We affirm.
1. The Complaint and Counterclaims
In July 2009, plaintiff Nike, Inc. filed a complaint against defendant Already, LLC d/b/a Yums ("Yums"), alleging trademark infringement, false designation of origin, unfair competition, and trademark dilution in violation of 15 U.S.C. §§ 1114(1), 1125(a), and 1125(c), and related claims under New York common law and New York General Business Law § 360. According to the complaint, in 1982, Nike
In November 2009, Yums filed counterclaims for a declaratory judgment that the '905 Registration was not in fact a "trademark" under 15 U.S.C. § 1127 or New York law, and for cancellation of the '905 Registration pursuant to the cancellation provisions of the Lanham Act, 15 U.S.C. § 1119. Yums also alleged that an "actual controversy" existed regarding whether Yums had infringed any rights Nike had in the purported trademark.
2. The Covenant Not To Sue
In March 2010, Nike delivered a "Covenant Not to Sue" (the "Covenant") to Yums. The Covenant's preamble stated as follows:
The Covenant obligated Nike as follows:
3. The District Court Proceedings and Decision
In April 2010, a month after Nike delivered the Covenant, the District Court held a hearing to determine whether the Covenant divested it of subject matter jurisdiction over Yums's counterclaims. Although Nike conceded during the hearing that it would be bound by the Covenant even if Yums became a competitive threat, Yums argued that a case or controversy persisted because Nike's litigation—and the '905 Registration itself—constituted a "continuing libel" against Yums by making it appear that Yums had infringed and continued to infringe Nike's trademark. In the course of its argument, Yums acknowledged that it had not previously sought to cancel the '905 Registration, which had been filed nearly two years earlier.
In response, Yums argued that Nike's claims should be dismissed with prejudice by summary judgment under Rule 56(b) rather than Rule 41(a)(2) to allow the action, insofar as it included Yums's counterclaims, to proceed. Yums argued that its counterclaims were not subject to dismissal along with Nike's claims because, under the Declaratory Judgment Act, they created an independent controversy over whether Nike had violated Yums's rights by improperly obtaining a trademark registration.
To demonstrate the existence of an actual controversy notwithstanding the Covenant's broad language, Yums filed affidavits from prospective investors who suggested that Nike's lawsuit had deterred them from investing in Yums or had prompted them to withdraw prior investments. A former investor in Yums, for example, stated that he resold his stock to Yums at a loss after learning of Nike's lawsuit, which he feared would tarnish Yums's reputation and deter other investors from investing in the company. The investor explained that the Covenant provided inadequate assurance that Nike could not "assert its trademarks against" Yums in the future over the sales of shoes similar to Air Force 1.
On January 20, 2011, the District Court dismissed Nike's claims with prejudice and Yums's counterclaims without prejudice. See Nike, Inc. v. Already, LLC, d/b/a Yums, No. 09 Civ. 6366(RJS), 2011 WL 310321, at *1, *8 (S.D.N.Y. Jan. 20, 2011). In dismissing Nike's claims "on consent," the District Court explained that Yums had "consent[ed] to" dismissal of these claims but did not specify which rule, if any, it was invoking. Id. at *2.
Turning to Yums's counterclaims and relying on MedImmune, Inc. v. Genentech, Inc., 549 U.S. 118, 127 S.Ct. 764, 166 L.Ed.2d 604 (2007), the District Court first concluded that Yums's declaratory judgment action failed to create a justiciable "case or controversy," since a declaratory judgment claimant "must, `under all the circumstances,' demonstrate `a substantial controversy, between parties having adverse legal interests, of sufficient immediacy and reality to warrant the issuance of a declaratory judgment.'" Nike, Inc., 2011 WL 310321, at *4 (quoting MedImmune, 549 U.S. at 127, 127 S.Ct. 764). The District Court held that Yums's counterclaims did not meet this standard in light of the Covenant. In reaching this conclusion, the District Court considered the Covenant's language and broad scope, id., Yums's failure to show that it had taken meaningful steps to create new shoes not covered by the Covenant, id. (quoting Diamonds.net LLC v. Idex Online, Ltd., 590 F.Supp.2d 593, 600 (S.D.N.Y.2008)), and the absence of prior litigation between Nike and Yums. Id. at *5 (citing ICOS Vision Sys. Corp., N.V. v. Scanner Techs. Corp., 699 F.Supp.2d 664, 670-71 (S.D.N.Y.2010) (Chin, J.)). The District Court then ruled that Yums's counterclaim for cancellation of the '905 Registration under 15 U.S.C. § 1119 failed to confer subject matter jurisdiction because such a claim can arise only as part of a separate, independently supportable action. Id. at *6-7. Lastly, without holding an evidentiary hearing, the District Court rejected Yums's application for attorneys' fees under the Lanham Act, 15 U.S.C. § 1117(a), because the case was not "exceptional" as required by the Act. Id. at *8.
We determine the existence of subject matter jurisdiction before addressing other threshold issues. Where a district court dismisses an action "for lack of subject matter jurisdiction, we review factual findings for clear error and legal conclusions de novo." Maloney v. Soc. Sec. Admin., 517 F.3d 70, 74 (2d Cir.2008). A "case is properly dismissed for lack of subject matter jurisdiction under Rule 12(b)(1) when the district court lacks the statutory or constitutional power to adjudicate it." Makarova v. United States, 201 F.3d 110, 113 (2d Cir.2000).
1. Rule 41(a)(2)
Because the District Court's conclusion that it lacked jurisdiction followed its dismissal of Nike's claims under Rule 41(a)(2), Yums urges us to review in the first instance whether the District Court complied with that rule, which provides, in relevant part:
Fed.R.Civ.P. 41(a)(2). Yums claims that it did not consent to dismissal of its counterclaims, and that the District Court's dismissal of the entire action in fact occurred "over the defendant's objection" in violation of the second sentence of the rule.
When a plaintiff seeks to withdraw its claims pursuant to Rule 41(a)(2), but another event independently deprives the district court of an Article III case or controversy involving the defendant's counterclaims, Rule 41(a)(2) is irrelevant. See Super Sack Mfg. Corp. v. Chase Packaging Corp., 57 F.3d 1054, 1057 n. 2 (Fed. Cir.1995) (finding it unnecessary to consider whether dismissal pursuant to Rule 41(a)(2) was proper where dismissal was clearly proper because of the absence of an Article III case or controversy), abrogated on other grounds by MedImmune, 549 U.S. 118, 127 S.Ct. 764; see also Intellectual Prop. Dev., Inc. v. TCI Cablevision of Cal., Inc., 248 F.3d 1333, 1340 & n. 6 (Fed.Cir.2001) (affirming a dismissal of a counterclaim based on a lack of Article III case or controversy even though the district court had not indicated any reliance on Rule 41(a)(2) or a statement of non-liability, and the record failed to show whether the defendant consented to Rule 41(a)(2) relief). Accordingly, we need not further address Rule 41(a)(2) because we conclude, as a matter of law, that Nike's delivery of the Covenant to Yums divested the District Court of subject matter jurisdiction, and we affirm on that basis.
2. The Covenant Not To Sue
In order to qualify as a justiciable "case or controversy" under Article III, "[t]he controversy must be definite and concrete, touching the legal relations of parties having adverse legal interests." Aetna Life Ins. Co. v. Haworth, 300 U.S. 227, 240-41, 57 S.Ct. 461, 81 L.Ed. 617 (1937). The "case or controversy" requirement is not satisfied by a "difference or dispute of a hypothetical or abstract character." Id. at 240, 57 S.Ct. 461. In trademark cases seeking relief under either the Declaratory Judgment Act, 28 U.S.C. § 2201(a), or Section 37 of the Lanham
a. Declaratory Judgment Act
We turn first to the effect of such a covenant in trademark cases involving the Declaratory Judgment Act, which provides in relevant part:
28 U.S.C. § 2201(a). The Declaratory Judgment Act does not expand the subject matter jurisdiction of the federal courts. See PDK Labs, Inc. v. Friedlander, 103 F.3d 1105, 1110 (2d Cir.1997). In Aetna, the Supreme Court "explained that the phrase `case of actual controversy' in the Act refers to the type of `Cases' and `Controversies' that are justiciable under Article III." MedImmune, 549 U.S. at 127, 127 S.Ct. 764 (citing Aetna, 300 U.S. at 240, 57 S.Ct. 461). Its pronouncement in Aetna was refined four years later in Maryland Casualty Co. v. Pacific Coal & Oil Co., 312 U.S. 270, 273, 61 S.Ct. 510, 85 L.Ed. 826 (1941), in which the Supreme Court endorsed a totality of the circumstances test for determining whether a party seeking relief under the Act has demonstrated that a justiciable "controversy" exists. The Court in Maryland Casualty explained that "[b]asically, the question in each case is whether the facts alleged, under all the circumstances, show that there is a substantial controversy, between parties having adverse legal interests, of sufficient immediacy and reality to warrant the issuance of a declaratory judgment." Id. In adopting this test, the Supreme Court recognized that "[t]he difference between an abstract question and a `controversy' contemplated by the Declaratory Judgment Act is necessarily one of degree, and it would be difficult, if it would be possible, to fashion a precise test for determining in every case whether there is such a controversy." Id.
We did not apply the Maryland Casualty test in a trademark case until Starter Corp. v. Converse, Inc., 84 F.3d 592, 595 (2d Cir.1996) (per curiam). In that case, we employed a two-pronged test for determining whether subject matter jurisdiction exists:
Id. at 595.
After our decision in Starter, the Supreme Court decided MedImmune, which confirmed that Maryland Casualty's totality of the circumstances test for declaratory judgment actions applied in intellectual property cases, see 549 U.S. at 126-27, 127 S.Ct. 764, but which rejected Starter's reasonable apprehension requirement, id. at 122, 132, 127 S.Ct. 764 (quoting Gen-Probe Inc. v. Vysis, Inc., 359 F.3d 1376, 1381 (Fed.Cir.2004)). MedImmune requires that we consider only whether the adversity of legal interests that exists between the parties is "`real and substantial'" and "`admi[ts] of specific relief through a decree of a conclusive character, as distinguished from an opinion advising
Until now, we have not applied MedImmune in an intellectual property case. However, a few of our sister circuits have done so in the context of declaratory judgment actions involving patents, which we have described as sufficiently "analogous" to those involving trademarks that "principles applicable to declaratory judgment actions involving patents are generally applicable with respect to trademarks." Starter Corp., 84 F.3d at 596; see also Revolution Eyewear, Inc. v. Aspex Eyewear, Inc., 556 F.3d 1294, 1298-99 (Fed.Cir. 2009) (applying MedImmune to declaratory judgment action involving patents).
In determining whether a covenant not to sue eliminates a justiciable case or controversy in a declaratory judgment action involving a trademark, district courts applying the MedImmune totality of the circumstances test should especially consider, in addition to other factors: (1) the language of the covenant, (2) whether the covenant covers future, as well as past, activity and products,
In Revolution Eyewear, 556 F.3d at 1296, the Federal Circuit concluded that a controversy persisted when the plaintiff delivered a covenant that promised not to sue only as to prior sales of the allegedly infringing product. The crucial difference between Revolution Eyewear and this case is the scope of the two covenants. In Revolution Eyewear, it was undisputed that the covenant did not protect the defendant from suit for any future marketing. Id. Here, the Covenant is far broader. It covers both past sales and future sales of both existing products and colorable imitations. Given the breadth of the Covenant, no controversy exists.
Yums nevertheless urges that a justiciable controversy persists because Nike's litigation continues to have an injurious effect. Pointing to the affidavits of various investors, Yums alleges harm from the potential loss of investments by investors who fear infringement lawsuits in the future and for that reason have refrained from further investing or have withdrawn their investments. In this case, potential investor concerns about infringement lawsuits against the company, despite Nike's broad Covenant, fail to establish the sort of genuinely adverse legal interests between Nike and Yums that MedImmune requires. In addition, Yums contends that the Covenant is a "continuing libel" against it because the Covenant asserts Yums's ongoing de minimis infringement of Nike's trademark. Yums did not file a counterclaim alleging libel, however, and in any event we reject the contention that the mere existence of a document asserting infringement—where the registrant cannot assert a claim relating to that infringement—creates a case or controversy.
Relying on Cardinal Chemical Co. v. Morton International, Inc., 508 U.S. 83, 96, 99-103, 113 S.Ct. 1967, 124 L.Ed.2d 1 (1993), Yums also argues that a finding of
Yums also makes much of the District Court's exercise of subject matter jurisdiction over Nike's claims, which Yums contends was inconsistent with the District Court's determination that a case or controversy no longer existed. We have already acknowledged that the District Court could have dismissed Nike's claims either for lack of subject matter jurisdiction or "on consent." See supra at 92-94. But Yums has not appealed the District Court's exercise of jurisdiction over Nike's claims, which resulted in a ruling favorable to Yums, and in the part of the District Court order that is before us there is no error.
b. The Lanham Act
We turn next to the Lanham Act, 15 U.S.C. § 1119, which Yums contends provides an independent basis of federal subject matter jurisdiction, notwithstanding the dismissal of the underlying trademark claim.
Section 1119 therefore creates a remedy for trademark infringement rather than an independent basis for federal jurisdiction. Both the Third Circuit and the Federal Circuit have held that, by its plain terms, this provision requires that "a controversy as to the validity of or interference with a registered mark . . . exist before a district court has jurisdiction to grant the cancellation remedy." Ditri v. Coldwell Banker Residential Affiliates, Inc., 954 F.2d 869, 873 (3d Cir.1992); see id. (noting that a petition to the Patent and Trademark Office is the "primary means of securing a cancellation," and that
Yums cites only one case, Bancroft & Masters, Inc. v. Augusta National Inc., 223 F.3d 1082 (9th Cir.2000), in support of its argument that a court may retain jurisdiction over a § 1119 claim notwithstanding the end of a case or controversy with respect to the rest of the action. The Ninth Circuit in Bancroft & Masters, however, concluded that the promise not to sue in that case failed to end the case or controversy. Id. at 1085. Its pronouncement that even an unqualified promise "would not have mooted [the] separate request for [§ 1119] cancellation of [the] trademarks" is therefore dictum. Id. In addition, the Ninth Circuit in Bancroft failed to consider the language in § 1119 that renders that section remedial, not jurisdictional. Accordingly, we find its opinion unpersuasive.
Yums next characterizes Nike's original lawsuit as a "properly instituted and otherwise jurisdictionally supportable action" and contends that this fact alone provided a basis for the District Court to retain jurisdiction over Yums's § 1119 cancellation counterclaim notwithstanding the Covenant. Yums's argument ignores the settled rule that the "case-or-controversy requirement . . . subsists through all stages of federal judicial proceedings." White River Amusement Pub, Inc. v. Town of Hartford, 481 F.3d 163, 167 (2d Cir.2007) (internal quotation marks omitted) (citing Spencer v. Kemna, 523 U.S. 1, 7, 118 S.Ct. 978, 140 L.Ed.2d 43 (1998)). Although Nike's action was "properly instituted," it was no longer "jurisdictionally supportable" after the Covenant was delivered.
3. Attorneys' Fees
We review an order denying attorneys' fees under the Lanham Act for abuse of discretion. See Gordon & Breach Science Publishers S.A. v. Am. Inst. of Physics, 166 F.3d 438, 439 (2d Cir.1999) (per curiam). Such fees are available only in "exceptional cases," which generally means that fees will be awarded to the defendant only if the plaintiff filed the action in bad faith. See Banff, Ltd. v. Colberts, Inc., 996 F.2d 33, 36 (2d Cir. 1993). Here, Nike filed its action pursuant to its own registered trademark and withdrew the action quickly. On the record before us, we cannot say that the District Court abused its discretion when it found that Nike had not acted in bad faith, and Yums fails to identify what additional information the District Court needed to make an informed decision about attorneys' fees. Accordingly, we find no abuse of discretion in its decision to deny fees without a hearing.
We affirm the judgment of the District Court.
15 U.S.C. § 1119.