Last week, the U.S. Supreme Court decided Lucky Brand Dungarees Inc. v. Marcel Fashions Group Inc., No. 18-1086, 2020 WL 2477020 (U.S. May 14, 2020), a trademark case involving the scope of claim preclusion as the doctrine applies to defenses. Although recognizing that claim preclusion can apply to bar defenses, the Court explained that the so-called “defense preclusion” is an invalid application of res judicata when the earlier suit involved different trademarks, different legal theories, and different conduct occurring at different times.
Three Lawsuits and Nearly Twenty Years of Litigation
Lucky Brand and Marcel Fashions Group are competitors in the apparel industry who have been battling each other for decades. The first lawsuit began in 2001, when Marcel, the owner of the trademark “Get Lucky,” accused Lucky Brand of violating trademark law by using the phrase “Get Lucky” in advertisements. That litigation resulted in settlement, in which Lucky Brand agreed to stop using the words “Get Lucky” in their branding in return for Marcel Fashion’s release of certain claims against Lucky Brand. The second lawsuit between the parties began in 2005, when Lucky Brand accused Marcel Fashions of copying its designs and logos for a new clothing line. Marcel Fashions responded with counterclaims, alleging that Lucky Brand had continued to use Marcel’s “Get Lucky” mark in violation of the settlement agreement. Notably, Marcel had not claimed that Lucky Brand’s use of its own marks alone—that is, independently of any use of “Get Lucky”—infringed on Marcel’s “Get Lucky” mark. Marcel ultimately prevailed in the 2005 lawsuit, permanently enjoining Lucky Brand from using a catchphrase “Get Lucky.”
In April 2011, the Parties found themselves in court again, when Marcel brought its new lawsuit, now demanding that Lucky Brand stop using its marks containing the word “Lucky” because they infringed Marcel’s “Get Lucky” mark. This third lawsuit was the subject of several district court rulings and appeals to the Second Circuit. First, the lower court granted summary judgment in favor of Lucky Brand, concluding that Marcel’s claims in the 2011 Action were the same as its counterclaims in the previous action. The Second Circuit reversed, holding the 2005 Action was about earlier infringements, while the claims in the 2011 Action were substantially distinct. On remand to the District Court, Lucky Brand successfully moved to dismiss, invoking the “release defense” for the first time and arguing that Marcel had released its claims by entering the settlement agreement. Again, the Second Circuit reversed, concluding that Lucky Brand could not invoke an “unlitigated” defense that it should have raised earlier. In other words, the Second Circuit held that the doctrine of claim preclusion barred Lucky Brand’s defense.
In a unanimous opinion authored by Justice Sotomayor, the U.S. Supreme Court reversed the Second Circuit’s ruling. It acknowledged that the Supreme Court had never recognized “defense preclusion” as a “standalone category of res judicata.” Therefore, any preclusion of defenses must also satisfy the requirements of issue or claim preclusion. As a general rule, claim preclusion prevents parties from raising legal issues that could have been decided in a prior action, unless a new lawsuit involves a new claim or cause of action. Emphasizing the identity of claims as a necessary predicate, the Supreme Court explained a defense is barred only where causes of actions in the two suits are the same, which is that they share “a common nucleus of operative facts.”
Finding that the issues in the 2011 cases differed from those in the 2005 case, the Court held that “defense preclusion” did not bar Lucky Brand from asserting a defense, grounding its reasoning on the fact that two lawsuits involved “different marks” and “different conduct occurring at different times.” The Court observed that the 2005 Action depended on Lucky Brand’s use of the “Get Lucky” mark. By contrast, the 2011 Action did not challenge any use of that phrase. Instead, the second action depended on Lucky Brand’s use of its own marks containing the word “Lucky” independently of the “Get Lucky” mark. The Court also emphasized that the “complained-of” events alleged in the 2011 Action occurred after the conclusion of the 2005 Action, and therefore, such new conduct “cannot be given the effect of extinguishing claims” that did not exist and that therefore could not have been raised. Thus, Lucky Brand’s defenses were not precluded where, asymmetrically, claim preclusion did not prevent Marcel from pursuing this lawsuit despite the prior litigation between the parties.
As the Supreme Court noted, liability for trademark infringement often depends on “marketplace realities” where “the likelihood of confusion between marks often turns on extrinsic facts that change over time.” The Lucky Brand ruling is thus particularly important in trademark cases, which often involve repeat litigation. Whether the decision will have any impact on litigation outside the trademark world is yet to be seen. Serial litigants in cases between the same parties, involving different facts and post-judgment conducts, might be able to distinguish their claims. However, in individualized cases, a defense preclusion is rarely going to be an issue, and the decision will likely apply narrowly.