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IP Alert UPDATE: Supreme Court Clarifies Issue Preclusion Principles in Nearly 20-Year Trademark Dispute

May 26, 2020

On May 14, in Lucky Brand Dungarees, Inc., et al. v. Marcel Fashion Group, Inc., the U.S. Supreme Court held the principles of claim preclusion did not prevent Lucky Brand from asserting defenses that could have been raised in an earlier action. The Court’s holding resolves the differences among the circuit courts concerning the applicability of preclusion principles to defenses asserted in litigation.

Since 2001, Lucky Brand and Marcel have filed three rounds of lawsuits against each other, claiming infringement of their respective marks. In 2003, the parties reached a settlement agreement in which Lucky Brand agreed to stop using the phrase “Get Lucky” and Marcel agreed to release any claims pertaining to Lucky Brand’s use of its own trademarks. Soon thereafter, though, Lucky Brand filed a lawsuit in 2005, accusing Marcel and its licensee of copying its designs and logos, thus violating its trademarks.

In response, Marcel filed several countersuits complaining of Lucky Brand’s continued use of the “Get Lucky” mark. Lucky Brand filed a motion to dismiss the counterclaims, alleging they were barred due to the release provision outlined in the 2003 settlement agreement. After the district court denied the motion to dismiss, it concluded that Lucky Brand violated the 2003 settlement agreement and permanently enjoined the apparel company from using Marcel’s “Get Lucky” mark. The jury also found against Lucky Brand on Marcel’s remaining counterclaims.

In 2011, Marcel sued Lucky Brand and asserted that Lucky Brand’s continued use of its own marks, some of which implemented the term “Lucky,” infringed Marcel’s “Get Lucky” mark in a manner that was previously found infringing. The district court granted Lucky Brand summary judgment, determining that Marcel’s claims in the 2011 action were substantially similar to its counterclaims in the 2005 lawsuit. However, the Court of Appeals for the Second Circuit disagreed with the district court’s decision and concluded that Marcel’s claims in the 2011 action were distinguishable from those it had alleged in the 2005 lawsuit. The Second Circuit also denied Marcel’s request to hold Lucky Brand in contempt for violating the injunction issued in the 2005 action.

On remand to the district court, Lucky Brand moved to dismiss the action, arguing that according to the 2003 settlement agreement, Marcel had released its claims. Marcel contended that Lucky Brand was barred from raising this defense because it did not invoke it in the 2005 action. The district court granted Lucky Brand’s motion to dismiss. As previously reported, the Second Circuit then vacated and remanded the case, concluding that the doctrine of “defense preclusion” barred Lucky Brand from raising the release defense in the 2011 action.

After granting certiorari in 2019, the Supreme Court considered whether Lucky Brand’s failure to litigate its defense in the 2005 suit barred the apparel company from invoking its argument in the 2011 action. The Court concluded that because Marcel’s 2011 lawsuit involved different conduct and raised different claims than did the 2005 action, Marcel could not preclude Lucky Brand from raising new defenses. In its analysis of the Second Circuit’s “defense preclusion” doctrine, the Court reasoned that a defense can only be barred if the “causes of action are the same” in the two suits, or where they share “a common nucleus of operative fact[s].” Here, the Court found the two suits were grounded on different conduct, involved different marks, and occurred at different times. Specifically, in 2005, Marcel alleged that Lucky Brand infringed its “Get Lucky” mark. However, the 2011 lawsuit only involved allegations of Lucky Brand’s use of its own marks containing the word “Lucky” and not the “Get Lucky” mark. Furthermore, the conduct alleged in the 2011 action occurred after the conclusion of the 2005 lawsuit. Thus, the Court asserted that events that take place after the plaintiff files suit “often give rise to new ‘[m]aterial operative facts’ that “in themselves, or taken in conjunction with the antecedent facts,’ create a new claim to relief.”

Additionally, the Court provided that causes of action may be the same if “a different judgment in the second action would impair or destroy rights or interests established by the judgment entered in the first action.” In the case at hand, the 2011 lawsuit did not threaten the judgment of the 2005 action because both suits involved different conduct and different trademarks. Therefore, the Court held that the 2005 and 2011 actions did not share “a common nucleus of operative facts.” Thus, Lucky Brand was not precluded from asserting its defense in the 2011 lawsuit. The Supreme Court ruled unanimously in favor of Lucky Brand and reversed the judgment of the Second Circuit.

The Court’s analysis of the “defense preclusion” doctrine will help guide other courts in determining the applicability of res judicata in future trademark litigation.

For more information on this case, please contact Fitch Even attorney Kerianne A. Strachan, author of this alert.

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