News & Events

Shoes Make the Man, And Sometimes Spur Lawsuits

Shoe companies like Nike, Adidas, and Under Armour begin courting future NBA stars when the players are in high school with the goal of signing them to endorsement deals when the player goes pro. This past year, the FBI and the DOJ began investigating this recruiting process. Through that investigation, the FBI found that numerous college coaches, financial advisors, agents, and shoe company representatives were participating in a system that used illegal bribes to influence the decisions of high school and college basketball players. The FBI implicated Adidas, claiming the shoe company funneled money to coaches and agents as bribes in an effort to lure recruits to attend the colleges Adidas sponsors. As part of the scheme, the players would later sign an endorsement deal with the brand when the player goes pro.

While the Federal government maintains that it has been harmed by this system because it subsidizes colleges through financial aid and grants, it is not the only party that has claimed harm. The shoe company, Skechers USA, Inc., asserted that Adidas’ illegal conduct harmed it and other shoe companies by creating an unfair advantage for Adidas in the shoe market.

Signing NBA players to endorsement deals is extremely valuable to shoe companies. Shoe companies make millions from the sale of basketball shoes every year, using NBA players as their primary marketing tool. The performance basketball wear market has a market value that exceeds $1 billion dollars, with shoes making up a majority of these sales. Despite such a large market value, there are three primary players in the market: Nike (including Jordan Brand), Adidas, and Under Armour.

In early May, Skechers filed a false advertising and unfair competition lawsuit against Adidas in the U.S. District Court for the Central District of California. Skechers claimed that Adidas’ use of bribes, which ultimately enabled it to sign basketball stars to endorsement deals, created a false belief in Adidas’ customers that Adidas’ products were of superior quality. Skechers further asserted that, had Adidas been required to play fairly, future NBA players may have signed with the Skechers brand, and customers would have purchased Skechers products over Adidas products.

Skechers’ specific allegations were that Adidas violated the Lanham Act, 15 U.S.C. § 1125(a), by “using false and misleading representations of fact in commercial advertising or promotion in interstate commerce in connection with Adidas’ products and services,” which caused damage to Skechers. For Skechers to prevail on a false-advertising claim under the Lanham Act, it would need to prove the following elements: (1) a false or misleading statement of fact; that is (2) used in a commercial advertisement or promotion; that (3) deceives or is likely to deceive a substantial segment of the audience in a material way; (4) in interstate commerce; and (5) has caused or is likely to cause competitive or commercial injury to the plaintiff. Cook, Perkiss and Liehe, Inc. v. N. Cal. Collection Serv., Inc., 911 F.2d 242, 244 (9th Cir. 1990).

In an odd twist, Skechers dismissed its lawsuit, with prejudice, just 20 days after filing. One can only speculate as to the reason for the dismissal, but it is highly possible that part of the reason was the difficulty in satisfying the burden of proof. Skechers’ claim was not that Adidas made any actual misrepresentations of fact, but rather it engaged in behavior that influenced athletes to sign endorsement deals. Proving actual damages may have also been difficult for Skechers. Skechers has had relatively minimal participation in the performance basketball wear market, having made few attempts to enter the space and sign top players to endorsement deals. In its complaint, Skechers claimed it tried to sign NBA player Jamal Crawford to an endorsement deal but lost him to Adidas. Although this may be evidence that Adidas has made it difficult for Skechers to enter the market, it does little to further Skechers’ allegations that Adidas’ alleged illegal scheme has kept Skechers out of the market. At the time both companies were courting Crawford, he was already an active NBA player, earning an NBA salary, and was not likely influenced by any illegal bribes on the part of Adidas. Other factors likely played a role in Skechers’ dismissal of its lawsuit, but it appears that, like many cases alleging violations under the Lanham Act, the plaintiff in this case faced a difficult task in satisfying the burden of proof necessary to obtain a favorable judgment.

by Andrew D. Tharp

Andrew Tharp