Here’s What Investors Need To Know About The War Between These Athletic Apparel Giants

Key takeaways

• Nike sued Lululemon on January 30, 2023, over allegations that Lululemon’s shoe line infringes on their patent for Flyknit
• The Flyknit patent’s validity has been under legal scrutiny since the year it was issued in a case lodged against Nike by Adidas
• Lawsuits over IP rights are common in the footwear space and can take years to resolve, so it’s not necessarily something that would have an immediate impact on either of these large-cap stocks

If you feel like you’re having deja vu as news breaks of Nike suing Lululemon, you’re not imagining things. On January 30, 2023, Nike filed another lawsuit against the athletic gear company. This time, it’s for the use of knitwear in its new shoe line.

The shoe line in question is Lululemon’s first. It was more popular than anyone expected, and Nike believes its success is cutting in on their business.

Litigation over IP rights is common in this field, particularly for Nike. Since these cases can drag on and are sometimes settled out of court, it’s unclear what the impact on either company’s stock will be. For now, neither company seems to be suffering.

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Under question: Patented Flyknit technology

Nike is claiming ‘economic harm and irreparable injury,’ alleging that Lululemon stole its Flyknit technology for use in some sneakers in their footwear line.

In the briefs, Nike alleges four different Lululemon athletica shoes infringe on their Flyknit patent. These include:

• Chargefeel Mid
• Chargefeel Low
• Blissfeel
• Strongfeel

Nike describes Flyknit as a fabric it engineered to “fit like a sock, with the support and durability for sport.” The technology is currently featured on shoes like Nike Infinity React 3, Nike Phantom GT2 Elite FG and LeBron 18.

Lululemon has indicated it will defend itself against these claims.

This isn’t the first time Nike has sued Lululemon

In January 2022, Nike sued Lululemon over its Mirror product and app, which helps users exercise at home through a combination of augmented reality and various health monitoring metrics.

Nike alleged that this violated a patent they had filed back in 1983 for a device that measured things like how fast you were running, how far you had ‘traveled’ during your workout and how many calories you had burned.

Lululemon has been defending itself in court and recently asked the judge to pause the case.

This isn’t the first time Nike has sued over Flyknit

Not only has Nike sued multiple companies over its Flyknit technologies, but it has also sued some of those companies multiple times.

In November 2021, Nike settled several suits it had with Skechers. The oldest case dates back to 2016. In this suit, there were eight different patents it claimed were infringed upon, including the Flyknit technology.

A month later, it lodged a suit against Adidas, with whom the company has had many ongoing battles, also over infringement on the Flyknit patent. The two companies settled that particular case in August 2022, but there’s ongoing litigation between them on other issues.

Of note, when Flyknit was initially patented in 2013, Adidas opened a lawsuit proposing that Nike shouldn’t be the only company with the rights to use the technology. The court sided with Adidas. However, the case remains ongoing since Nike is drawing out the process to allow itself to maintain the patent under different wording.

This isn’t the first time Nike has recently sued

On January 25, 2023, Nike lodged a case against Japanese streetwear brand BAPE (A Bathing Ape). It alleges that many shoes, including products in BAPE’s primary line, BAPE STA, directly copy Nike’s designs.

Specifically, it alleges that:

• BAPE STA is a copy of Nike Air Force 1
• BAPE STA Mid is a copy of Nike Air Force 1 Mid
• Sk8 STA is a copy of Nike Dunk
• COURT STA High is a copy of Nike’s Air Jordan 1

BAPE STA originally hit shelves in 2000. Nike says it is lodging this suit now because, while the company temporarily altered some of its shoes, it returned to selling a silhouette similar to Nike’s designs in 2021.

Why is Nike so litigious?

While they come in iterations, Nike’s lawsuits are nothing new. Litigation over IP rights is common in the footwear industry, and Nike is known to be particularly litigious.

Suing over IP rights is a way to dampen the competition and encourage other companies to purchase licenses from Nike in some situations. For example, the Lululemon shoe line in question was more popular than anyone was expecting. When this happens, it cuts in on Nike’s business.

Whether or not Nike’s patents are specific enough to truly be defensible in court is a matter for debate, as evidenced by the decade-old case with Adidas. However, litigation is a routine business practice for the industry, particularly Nike.

How this is affecting Lululemon’s stock

Depending on how things go, there might be further impacts on Lululemon’s stock down the line. For now, the stock value hasn’t responded negatively to the news. In fact, on the day the suit was filed (January 30, 2023), it closed at $302.59. As of close on February 3, 2023, it has increased to $319.42.

The stock did take a dive in early December 2022 after Lululemon posted strong Q3 2022 results but offered limited guidance regarding Q4, even amidst an increase in inventory. It never really recovered in January, and even the most recent rise over the last few days does not make up for the fall from $385.99 on December 2, 2022.

How this is affecting Nike’s stock

Nike’s stock has remained steady amid its litigation announcement against Lululemon. On the day the suit was filed, Nike closed at $126.37. As of close on February 3, 2023, the value had climbed by just over a dollar to $127.61.

Even the litigation against BAPE had a minimal impact on Nike’s stock. This seems to indicate that the simple announcement of taking a competitor to court over IP rights doesn’t cause Nike’s value to sway much.

What investors should know

Both Lululemon and Nike are large-cap stocks. These types of stocks are a key part of any portfolio. However, when you invest in them, you need to understand that you’re probably not going to see skyrocketing growth in the short term. The tradeoff to that is that large cap stocks tend to provide more stability in the long run.

It’s impossible to predict the future, but you can start investing in these types of larger companies with the Large Cap Kit from Q.ai. This way, you don’t have to keep track of every lawsuit, since artificial intelligence does it for you.

The bottom line

If Nike’s case against Lululemon’s Mirror is any indication, this case is likely to be long and drawn out. While it could be a problem for Lululemon if Nike wins, there’s a chance that the case settles out of court like many of the other recent cases concerning Flyknit technology.

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