Under Armour Sued by Gravity Defyer: Should Investors Be Worried?
Just weeks after Under Armour announced trademark infringement litigation against industry behemoth Nike , the performance-apparel specialist just received a taste of its own medicine in the form of a similar lawsuit from a privately-held shoemaker, Gravity Defyer Corporation.
In Under Armour's own suit late last month, the smaller company claimed Nike was creating confusion by illegally using variations of Under Armour's "I will" catchphrase.
Sure enough, and as I noted at the time, as Under Armour offered phrases in its advertising like "Protect this House. I will," Nike's recent campaigns had taken to using similar statements like "I will finish what I started," and "I will protect my home court."
Now, in its press release this morning, Gravity Defyer is claiming Under Armour "has intentionally created a sound-alike product name in order to mislead consumers and substitute its product for that sought by consumers through search engines and in various online and social media outlets."
In any case, I'll have to admit that before today's lawsuit was announced, I'd never even heard of Gravity Defyer -- let alone its trademarked, spring-enabled G Defy line of sports shoes. Meanwhile, I proudly stand as a longtime Under Armour shareholder, especially after The Motley Fool recently ranked it 10th in its list of the 25 best companies in America.
Of course, that doesn't mean Under Armour shouldn't have to play by the rules like everyone else. While the young company has offered a variety of footwear featuring its patented Micro G foam, a simple Web search for "Under Armour defy" does display links with a few so-named shoes on its website. What's more, when you put it all together, consumers could certainly be confused if they were to try to distinguish between Gravity Defyer's Pro-Sport G Defy products and Under Armour's similar-sounding Micro G Defy line of running shoes.
Curiously enough, when I clicked on a search engine link titled "Men's UA Defy Reflective Running Shoes," the product title on Under Armour's website omitted the word "Defy," and instead simply read, "Men's UA Reflective Running Shoes."
In fact, a search of Under Armour's entire website for the word "defy" resulted in a grand total of zero results, indicating they may no longer be marketing these products by the Defy name. In the end, either cached Web search results haven't caught up with Under Armour's recently changed product names, or Gravity Defyer may actually have some validity to its claims that Under Armour has indeed been less than honest by manipulating search engine results.
In any case, after Under Armour's fourth-quarter footwear revenues gained 43% from the year-ago period, it's no mystery why the company is counting on footwear as one of its big growth drivers going forward. After all, as I pointed out last month, Nike achieved a staggering $3.3 billion in sales from its footwear segment during its most recent quarter alone, so you can't blame smaller companies like Gravity Defyer and Under Armour for wanting to increase their own slices of the massive pie.
The silver lining
As a result, it's safe to say any setbacks in Under Armour's footwear segment wouldn't be taken kindly by Mr. Market, especially considering that the stock currently trades at a lofty 41.6 times trailing earnings. If Under Armour can prove it has done no wrong, though, of course that'd be all well and good. However, when all's said and done, current Under Armour shareholders might even have reason to be relieved that this particular lawsuit arrived so early in the company's growth story.
Why? Even if Gravity Defyer's lawsuit does have merit, remember that footwear sales still only accounted for 9% of Under Armour's net revenue last quarter. What's more, it's also important to remember that Under Armour has barely scratched the surface of its potential for international operations, as domestic revenue still accounted for 94% of its total sales in 2012.
In the end, then, it's hard to imagine a scenario where rebranding a single line of running shoes would have a significant negative effect on Under Armour's results over the long term. To the contrary, whether the offense was intentional or not, this may serve as a chance for Under Armour to learn a valuable lesson in trademark infringement before its footwear business grows large enough to have truly substantial repercussions.
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The article Under Armour Sued by Gravity Defyer: Should Investors Be Worried? originally appeared on Fool.com.Fool contributor Steve Symington owns shares of Under Armour. The Motley Fool recommends Nike and Under Armour. The Motley Fool owns shares of Nike and Under Armour. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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