Case Study: How Much are adidas's Three Stripes Worth?
New York, NY, December 7, 2009--There is a saying that tigers cannot change their stripes, but in 2006, Payless ShoeSource learned the hard way that it had to change its own stripes. A new case study authored by Professor Michel Tuan Pham of Columbia Business School explains how premium brand adidas proved in court that discount retailer Payless was confusing shoppers with two- and four-stripe “knock-offs” of adidas’ signature three-stripe sneaker. In the groundbreaking ruling, Payless was found guilty of both trademark infringement and dilution, and adidas was awarded over $300 million in restitution by the jury.
Founded in 1948 in Herzogenaurach, Germany, adidas is no stranger to conflict. The company was born out of a feud between two brothers, Adi and Rudi Dassler who divided their Dassler Brothers Shoe Company into adidas and Puma respectively. Over the past half century, adidas built its brand so effectively that it was valued in the 2006 BusinessWeek/Interbrand study at $4.3 billion--an amount comparable to other premier brands such as Rolex, Audi and Motorola.
Since starting in 1956, Payless Shoes grew from a single Topeka, Kansas location to be the largest specialty shoe chain in the world. Claiming to be a “democratizer of fashion and design,” Payless provides a no-frills shopping experience to the masses, selling discount shoes at its nearly 5,000 locations.
In the lawsuit, adidas did not argue that consumers in a Payless store were confused about the brand of shoes they were buying at the point of purchase. Instead, adidas’s complaint was that consumer confusion, and dilution of the adidas brand, was created in the pre-purchase phase when consumers saw the Payless shoes in ads or window displays with similar stripes. Adidas also argued that its brand was diluted post-sale, when consumers then saw the striped Payless sneakers being worn in the marketplace.
After a 14-day trial the jury ruled in adidas’s favor and awarded the company about $305 million in damages. While this verdict was subsequently reduced to $65.3 million by the presiding judge, discounters who have historically straddled the line between brand inspiration and imitation must be aware of this precedent and tread carefully as they develop their own product designs and features.
* Michel Pham, "How Much are adidas's Three Stripes Worth?: adidas vs. Payless and its $300 Million Verdict," Columbia CaseWorks, November 29, 2009.
To request copies of this case for academic purposes, please e-mail ColumbiaCaseWorks@gsb.columbia.edu.
Michel Pham is Kravis Professor of Business at Columbia Business School. He teaches in the MBA, EMBA, PhD and Executive Education Programs and is the faculty director of Strategic Marketing Management, a flagship program for business executives.
This case was sponsored by the Center on Global Brand Leadership at Columbia Business School as part of the BRITE Case Series. The Center is the leading forum worldwide for executives and researchers addressing the challenges of building and sustaining strong brands. It provides today's leaders with innovative branding solutions and a global perspective through a network of partner centers at leading schools in China, Germany, Korea, Spain, and Singapore.
Columbia CaseWorks: www4.gsb.columbia.edu/caseworks
Center on Global Brand Leadership: www.gsb.columbia.edu/globalbrands
Assistant Director, Center on Global Brand Leadership
Columbia Business School