Adidas America Inc. v. Payless Shoesource Inc.: $305M to $65M Verdict

Adidas v. Payless was a federal trademark lawsuit in which a jury found that Payless Shoesource willfully infringed and diluted Adidas’s three-stripe mark and Superstar trade dress by selling discount athletic shoes with two- and four-stripe designs. The jury returned a $304.6 million verdict in 2008, one of the largest trademark awards in U.S. history. The trial court later cut it to roughly $65 million, and the parties resolved the case in 2010 after both sides dropped their appeals.¹

What Payless Was Selling

Adidas has used its three-stripe branding since 1952: three parallel, contrasting stripes running diagonally along the side of the shoe from midsole toward the laces. It also claims a broader “Superstar Trade Dress” covering the whole look of the Superstar shoe, which combines the three stripes with small equidistant perforations, a rubber shell toe, a flat sole, and a colored patch on the outer back heel.²

Payless, a discount footwear retailer, sold athletic shoes with two or four parallel stripes running diagonally from the midsole to the laces. Some also copied the Superstar’s shell toe, flat sole, and heel patch, substituting four stripes for three. Adidas’s own design expert testified that the Payless shoes mimicked the angularity, positioning, and equidistant spacing of the Adidas stripes, along with specific structural elements of the Superstar.²

Why the 1994 Settlement Didn’t Protect Payless

The two companies had fought over stripes before. A 1994 settlement barred Payless from selling athletic shoes with three straight parallel stripes or with two or four parallel “double-serrated” stripes of contrasting color. In exchange, Adidas dismissed its earlier lawsuit and released any claims it “brought or could have brought” based on Payless’s prior use of those serrated-stripe designs.²

Payless read that agreement as broad permission to use two and four stripes going forward. The court disagreed. The shoes at issue in the new lawsuit were designed after 1994, so Adidas could not have released claims against products that did not yet exist. The 1994 release also did not authorize Payless to copy the three-stripe mark by swapping serrated stripes for straight ones.² The court likewise rejected Payless’s laches, estoppel, and waiver defenses at summary judgment.³

The Claims Adidas Brought

Adidas filed suit in the U.S. District Court for the District of Oregon, alleging trademark infringement, trade dress infringement, dilution, unfair competition, and deceptive trade practices under the federal Lanham Act and several state laws.⁴

The infringement claim required Adidas to show that Payless used a mark likely to confuse consumers about whether its shoes came from, were sponsored by, or were affiliated with Adidas. Federal law bars any reproduction or “colorable imitation” of a registered mark used in commerce in a way likely to cause confusion.⁵

The trade dress claim reached beyond the stripes to the Superstar’s overall appearance. For trade dress to qualify for protection, it must be both distinctive and non-functional, so Adidas had to show that the Superstar’s combined look served as a source identifier rather than a practical design feature.

The dilution claim worked on a different theory. Dilution does not require consumer confusion. It protects famous marks from having their distinctiveness eroded by similar marks in the marketplace, and the federal statute weighs factors including the similarity of the marks, the recognition of the famous mark, whether the owner uses it exclusively, whether the junior user intended to create an association, and whether any actual association exists.⁶

What Convinced the Jury

Consumer surveys showed that 41% of prospective purchasers believed Payless’s stripe shoes were made or authorized by Adidas. The court found both “initial interest confusion,” where the stripes drew shoppers to Payless shoes in the first place, and “post-sale confusion,” where people who saw the shoes on someone’s feet assumed they were Adidas. Expert testimony also showed the Payless designs harmed consumer perceptions of Adidas as a source of quality footwear.

Payless’s own paperwork made it worse. Employees reportedly referred to some of the company’s own shoes as Adidas “knockoffs,” undercutting any argument that the similarities were accidental and feeding directly into the intent factor of the confusion analysis.

The jury found willful infringement across 267 separate shoe styles and color combinations.¹

How the $305 Million Verdict Became $65 Million

The jury broke its award into three pieces:

$30.6 million in actual damages for lost sales and brand dilution
$137 million representing Payless’s profits from the infringing shoes
$137 million in punitive damages for willful, reckless conduct

Total: $304.6 million.¹

The trial judge then reviewed the verdict and reduced two of the three components. The court called the $137 million profits award “punitive rather than compensatory” and cut it to $19.7 million. It cut the punitive damages from $137 million to $15 million, citing the primarily economic nature of the harm. The $30.6 million in actual damages survived untouched. The final judgment was roughly $65 million.¹

How the Case Ended

Both sides appealed. Payless challenged the liability findings and the reduced damages; Adidas cross-appealed. Before the Ninth Circuit ruled, the parties stipulated to a voluntary dismissal of both appeals in January 2010, with each side bearing its own costs and attorney fees.⁷

A voluntary dismissal in that posture typically signals a confidential settlement. Neither party disclosed the terms, so the amount Payless actually paid is not public. The $65 million post-remittitur judgment stood behind Adidas in those negotiations.

Why the Case Still Matters

The clearest takeaway is that trademark protection reaches beyond exact copies. Payless never used three stripes. It used two and four. The court treated that numerical difference as beside the point because the overall visual impression, parallel contrasting stripes running diagonally across an athletic shoe, was what consumers associated with Adidas. Designing around a famous mark by making cosmetic tweaks is not a safe strategy when the total impression stays the same.

The dilution ruling matters for a different reason. Adidas did not need to prove that any single shopper mistakenly bought a Payless shoe thinking it was Adidas. Dilution law addresses a subtler harm: the gradual erosion of a famous mark’s ability to call one brand instantly to mind when similar designs proliferate.⁶

The 1994 settlement ruling has its own practical edge. A prior release covers only the claims that existed when it was signed. It does not license future designs, and it does not immunize a defendant that keeps iterating on the same infringing theme.³

And the damages trajectory carries a lesson for both sides of any trademark fight. Juries can return striking numbers on strong willfulness evidence, but judges have authority to remit awards they view as excessive, and they use it. Even so, the reduced $65 million judgment dwarfed whatever Payless earned from the infringing lines, which is generally how the economics of trademark infringement land when the plaintiff is a global brand with the resources to litigate.

1
GovInfo. United States District Court District of Oregon – 03-1116 – Adidas America, Inc. et al v. Payless Shoesource, Inc.
2
H2O Open Casebook. Adidas-America, Inc. v. Payless Shoesource, Inc., 546 F. Supp. 2d 1029
3
CaseMine. Adidas America, Inc. v. Payless Shoesource, Inc. (D.Or. 2008)
4
The Wall Street Journal. Adidas America, Inc. v. Payless ShoeSource, Inc. – Third Amended Complaint
5
Office of the Law Revision Counsel. 15 U.S. Code 1114 – Remedies; Infringement
6
Office of the Law Revision Counsel. 15 USC 1125 – False Designations of Origin, False Descriptions, and Dilution Forbidden
7
CourtListener. Adidas America, Inc v. Payless Shoesource, Inc., 3:01-cv-01655