SKX: lawsuits

I listened to the call and didn’t hear any mention of the lawsuits. I’ve been thinking about the lawsuits. Here’s what I remember:

  1. As of the Q3 conference call, the lawsuits were going to be an extraordinary expense in Q4 and a hit to EPS in the quarter. When it would be resolved was uncertain but management thought it would be done sometime in Q1.

  2. Lawsuit was ruled on in SKX’s favor earlier than expected (during Q4). Good news.

  3. Nike initiated a new lawsuit. Not good news.

So here we are. Lawsuits were supposed to be a one-time extraordinary expense so some people added this expenses back to earnings. However, I now question whether lawsuits against SKX will keep coming and I wonder whether it is wise to add back these expenses (i.e. if we think these legal expenses will be incurred on a regular basis then they are no longer extraordinary).



I don’t have an answer or suggestion; just some food for thought…

The old lawsuit was filed by Converse, a Nike brand, and they sued 31 different companies. Many companies settled by destroying the similar styles. SKX “won” because the two styles Converse sued over were not deemed similar enough i.e. enough to confuse a buyer. In an interesting twist, New Balance, which owns PF Flyer and has a toe bumper, toe cap and striped midsole like Converse, went on the offense and filed against Converse when Converse wouldn’t agree that they could keep using a design that they’ve used since the 1940’s.

In the new lawsuit the SKX/NKE styles are pretty similar. I believe the question will come down to, would it confuse buyers. If NKE wins the shoes will need to be destroyed and no new ones made; plus, Nike wants the profits made.…

There are a lot of “sneaker wars” going on now. The outcome will determine how costly it is to knock something off. To me, the swoosh alone, makes it clear that they are Nike’s. But, I don’t believe a logo is included in a design patent.


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