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Shoe firm tripped up

Topeka Capital-Journal, The, May 7, 2008 by Michael Hooper

By Michael Hooper

THE CAPITAL-JOURNAL

Collective Brands, owner of Payless ShoeSource, plans to fight a $305 million judgment for what a jury determined was a violation of Adidas' trademarked three-stripe logo.

James Grant, spokesman for Collective Brands in Topeka, called the judgment "excessive and really unjustified."

Adidas filed a complaint in December 2001 in the U.S. District Court of Oregon. Following a three-week trial, the jury returned a decision Monday night and the outcome was released Tuesday.

"The first thing we will do is ask the court to set aside this verdict," Grant said. "A judge could see if the decision is out of balance. If that doesn't work, we will take steps to get it overturned, which would suggest an appeal."

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A spokeswoman for Adidas AG said the company was pleased with the verdict.

"The three-stripes are paramount to the Adidas brand, and a very strong and popular brand symbol globally," spokeswoman Anne Putz wrote in an e-mail to The Topeka Capital-Journal from Germany, where Adidas is based. "It is very satisfying for the three stripes to be recognized as a strong trademark after the court heard detailed evidence over more than three weeks."

The jury received a 44-page verdict form with pictures of 272 different types of Payless shoes.

Jurors were asked to decide which of the 272 shoes violated trademark infringement. The jury found all of them in violation except one. The exception had a one-and-a-half stripe along its side. The shoes in violation had either two stripes or four stripes.

JPMorgan analyst Robert Samuels called the judgment excessive.

"We did learn that the verdict exceeds the combined dollar value of sales for the product at the center of this lawsuit over the past seven years," Samuels wrote. "Given the recent acquisition of Stride Rite and the almost $900 million of debt currently on the company's balance sheet (and $232 million of cash) this is a serious concern for investors."

JPMorgan has done investment banking services for Collective Brands.

Collective Brands' stock (NYSE: PSS) fell to a 12-year low of $9.14 during trading Tuesday, and it closed at $10.46 per share, down $1.85. On Feb. 2, the company's book value - assets minus liabilities - was $11 per share.

"I understand investors being concerned on the face of it," Grant said. "It certainly appears to be a lot of money. But we're going to be taking some steps here, we think are the right ones to take, and maybe make this less of a concern going forward."

Grant said Payless never sold shoes with three stripes. He said the company has had a different number of stripes on its shoes, including two and four stripes.

"We don't sell three-stripe shoes," Grant said.

Grant declined to say whether Collective Brands has liability insurance to pay for trademark infringement suits.

Kyle Elliott, patent attorney with Spencer Fane Britt & Browne in Kansas City, Mo., disagreed with the jury's decision.

He believes Adidas' three stripes aren't inherently distinctive.

He said Adidas' attorneys successfully demonstrated to the jury that Adidas' three stripes have acquired distinctiveness. He said the ruling would be difficult to get overturned.

Douglas Weems, also an attorney with Spencer Fane Britt & Browne, said if Collective Brands appeals the decision, it would have to post a bond requiring upfront cash of 1 percent to 2 percent of the judgment.

The jury awarded $30.6 million in actual damages, $137 million in profits and $137 million in punitive damages.

Elliott said he would characterize the judgment's financial impact on Collective Brands as $274 million.

Adidas, based in Herzogenaurach, Germany, is the second-largest sportswear manufacturer in the world, founded in 1949.

Collective Brands was founded in Topeka in 1956 and is the largest specialty footwear retailer in the Western hemisphere.

Michael Hooper can be reached

at (785)295-1293

or michael.hooper@cjonline.com.

Shoe firm tripped up

Topeka Capital-Journal, The, May 7, 2008 by Michael Hooper

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