Nike ‘threatened to kill’ small Pa. firm and should pay millions, says court-ordered review

A court-ordered review of sports retail giant Nike Inc.’s conduct in copycatting Norristown-based Lontex Corp.’s Sweat It Out knit garments for pro athletes’ battered muscles has found that “Nike knew” it was violating the much smaller company’s trademark rights “but just did not care.”

Lontex, founded by Efraim Nathan in 1989 and run from his office and workroom on the second floor of a former overall factory in Norristown, won a federal jury verdict against Nike for trademark infringement in 2021, but Nike appealed provisions on how much the company should pay the lawyers who defended Nathan.

The report and recommendations by Jane Cutler Greenspan, a retired Pennsylvania Supreme Court justice, if adopted by the court, could result in a payment of millions of dollars — rare in a civil trademark case — to Sweat It Out’s lawyers in Philadelphia and California.

Greenspan wrote that Nike tried to discourage Nathan from pursuing the case by burying Lontex in expensive litigation that ran his legal bills into the millions.

Nike’s “reckless indifference” to trademark-protected Sweat It Out sleeves and other products offering “Cool Compression” to help ease athletes’ practice and recovery justifies an “exceptional” award to the lawyers who convinced the Philadelphia jury in 2021 that Nike had unfairly copied technology used in Lontex’s products, Greenspan wrote in the report, filed Wednesday in federal court in Philadelphia.

“In the world of sports apparel, with the same customer base, Lontex’s trademark was an edge that Nike did not see fit to respect,” Greenspan added.

“Nike’s incivility, bad behavior, blatant willful infringement, and recklessly indifferent conduct” once it was warned it was infringing on trademarked designs “are rare qualities” that justify more than the usual modest penalties, she found.

Nike spokespeople and six lawyers from national corporate law firm DLA Piper plus one for Philadelphia-based Saul Ewing, all of whom represented Nike, didn’t respond to inquiries seeking comment on the decision or whether Nike plans to object to Greenspan’s findings.

“Lontex appreciates” Greenspan’s report, “and looks forward to bringing a close to this long-standing dispute,” said Ben L. Wagner, a lawyer at the Troutman Pepper firm who represents Lontex.

Reached at his office and workshop in Norristown’s Schuylkill industrial district, founder Efrain Nathan, 76, said he couldn’t comment on the case pending its final outcome.

Nathan, a native of Israel who studied engineering at Philadelphia College of Textiles & Science, has lined the stone walls with posters celebrating endorsements from Sixers star Charles Barkley and Eagles Brian Dawkins and Randall Cunningham, a long list of head trainers, and other famous clients.

District Judge Michael Baylson had ordered Nike to pay the lawyers $4.6 million, plus an inflation adjustment that could bring it to nearly $7 million, after the jury upheld Lontex’s trademark infringement complaint. Nike appealed the lawyers’ payment. It’s far more than the $791,000 in actual and punitive damages that Lontex was awarded by the jury — money that Nike paid into escrow pending final resolution of the case. It costs a lot of money to fight a big corporation, Baylson noted in his decision.

That award to Lontex is itself larger than usual in a damages case, though a fraction of the $100 million-plus in estimated knockoff gear sales that Nike recorded, according to briefs filed in the case.

In her report, Greenspan noted the jury found Nike committed “willful infringement” and had shown “reckless indifference in its refusal to cease” selling confusingly similar garments even when confronted with its illegality.

Baylson had taken the unusual step of adding extra damages. The Third Circuit appeals court upheld the larger-than-usual payments to Lontex “because of Nike’s willful and reckless conduct.” That supported an award of “punitive” damages as punishment, she added.

But the Third Circuit in its July ruling also called for a “special master” to review the larger cash award for attorney’s fees because Baylson hadn’t justified that unusually large payment in detail. Greenspan was appointed to make recommendations.

To justify millions in lawyer fees in such cases, it’s not enough, the appeals court noted, that the guilty company is much larger and wealthier than its victim.

Greenspan in her decision said: “Nike would not even speak with Lontex, much less negotiate, in order to find a reasonable compromise to avoid the expense of a trial,” she wrote. She found that Nike’s “lack of civility goes to the heart of the attorney fee expense and signals an improper desire to simply cause increased attorney costs,” which a small competitor would have a tough time paying.

Indeed, evidence showed Nike “threatened ‘to kill Lontex’s business’ with litigation,” according to Greenspan’s report. Such a threat “by the larger company to ruin the smaller” meets the standard for a higher payout, she added. Overall, Nike’s “bad behavior” is what “makes this case exceptional.”

In the 2000s, Nathan employed as many as 60 garment makers at a plant in Perkasie, along with his Norristown office and design center. He now operates a smaller plant in Allentown. He says his garments, while more expensive, are of better quality than Nike’s, incorporating a large proportion of DuPont Lycra thread and other high-quality materials.

Besides Nike mass-producing unauthorized versions of his garments, copying his claims (including the “Cool Compression” description), and undercutting sales, Nathan has said the company’s deals with pro and college teams have made it harder for him to get access to the coaches, trainers and players who bought Sweat It Out products in the past. Those deals were not among the issues addressed in the trademark case.

Nathan said he still has customers among the NFL’s Raiders, Saints, Buccaneers, and Steelers, and the NHL’s Islanders, among others.

The two sides have until mid-October to respond to Greenspan’s findings. The case will then return to federal court to enforce or modify Baylson’s original award to the lawyers.