Defendant Gets “Lucky” with US Supreme Court Claim Preclusion Decision

On May 15, 2020, the US Supreme Court ruled in favor of Lucky Brand Dungarees, Inc., in an ongoing 20-year trademark tussle with Marcel Fashions Group, Inc. The Supreme Court unanimously overturned the Second Circuit’s 2018 decision that res judicata precluded Lucky Brand from raising a defense that it “could have pursued … fully in the 2005 Action but had neglected to do so.”

Although the doctrine of res judicata applies to every lawsuit, the Justices emphasized that the doctrine “takes on particular force in the trademark context, where the enforceability of a mark and likelihood of confusion between marks often turns on extrinsic facts that change over time.” Because “liability for trademark infringement turns on marketplace realities that can change dramatically from year to year,” more trademark litigants may be looking backwards for previously unexplored defenses.

Background

Marcel and Lucky Brand both sell jeans and other clothing. Both entities use the word “Lucky” as part of their marks on clothing. In 1986, Marcel received a federal trademark registration for “GET LUCKY,” and in 1990, Lucky Brand began selling clothing using the registered trademark “LUCKY BRAND.”

Round 1: In 2001, Marcel sued Lucky Brand and alleged that Lucky Brand’s use of the phrase “Get Lucky” in advertisements infringed Marcel’s trademark registration. The parties settled in 2003.

Round 2: In 2005, Lucky Brand filed suit and alleged that Marcel and its licensee violated Lucky Brand’s trademarks by copying its designs and logos in a new clothing line. Marcel filed several counterclaims that alleged that Lucky Brand’s continued use of “Get Lucky” was in violation of the earlier settlement agreement and infringed upon Marcel’s “GET LUCKY” trademark registration.

Lucky Brand moved to dismiss the counterclaims, alleging that they were barred by the release provision of the settlement agreement. After the district court denied the motion without prejudice, Lucky Brand raised the release provision in answer to Marcel’s counterclaims but never again invoked the release defense.

The district court concluded that Lucky Brand violated the settlement agreement, and Lucky Brand was permanently enjoined from copying or imitating Marcel’s “GET LUCKY” trademark.

Round 3: In 2011, Marcel filed suit maintaining that Lucky Brand continued to infringe Marcel’s “GET LUCKY” trademark and, in doing so, contravened the judgment issued in 2005. The district court granted Lucky Brand’s motion for summary judgment, concluding that Marcel’s claims were essentially the same as its counterclaims in the earlier 2005 action.

Marcel appealed to the Second Circuit, and the Second Circuit concluded that Marcel’s 2011 claims were distinct from the counterclaims in 2005 because the claims at issue were “for earlier infringements.”

On remand, Lucky Brand moved to dismiss, arguing—for the first time since its motion to dismiss and answer in the 2005 lawsuit—that Marcel had released its claims by entering the settlement agreement. Marcel countered that Lucky Brand was precluded from invoking the release defense because it could have pursued the defense fully in 2005 but neglected to do so.

The district court granted Lucky Brand’s motion to dismiss, holding that it could assert its release defense and that the settlement agreement indeed barred Marcel’s claims.

Marcel again appealed to the Second Circuit, and the Second Circuit vacated and remanded. The panel held that “defense preclusion” prevented Lucky Brand from raising the release defense in the 2011 action.

Supreme Court’s Decision

The Supreme Court reversed, holding that res judicata did not bar Lucky Brand’s claim. In particular, the Court held that Marcel’s 2011 claims challenged different conduct and raised different issues from the 2005 lawsuit. Moreover, the complained-of conduct in the 2011 lawsuit occurred after the conclusion of the 2005 case. Generally, claim preclusion does not “bar claims that are predicated on events that postdate the filing of the initial complaint.”

As a result of this decision, Lucky Brand cannot be precluded from raising the release defense, and the case has been remanded back to the Second Circuit.

With any luck, this battle between Lucky Brand and Marcel will soon be coming to an end.

What Does the Future Hold for Trademark Litigants?

In protracted trademark litigation made up of a series of distinct lawsuits, parties should be careful to recognize the differences in the claims, and timing of those claims, to determine whether previously unsuccessful or unexplored defenses should be raised.