Better Luck Next Time—Supreme Court Unanimously Rejects Defense Preclusion in Lucky Brand Trademark Row
Better Luck Next Time—Supreme Court Unanimously Rejects Defense Preclusion in Lucky Brand Trademark Row

On May 14, 2020, the Supreme Court unanimously ruled in favor of denim company Lucky Brand Dungarees, Inc. (“Lucky Brand”) in its decades-long trademark dispute with Marcel Fashions Group, Inc. (“Marcel”), holding that Lucky Brand was not precluded from asserting an unlitigated defense from a prior lawsuit with Marcel.  In Lucky Brand Dungarees, Inc., et al. v. Marcel Fashions Group, Inc., 590 U.S. ___ (2020), the Supreme Court rejected the Second Circuit’s application of the so-called “defense preclusion” doctrine and confirmed that any preclusion of a litigant’s defenses must comply with traditional res judicata principles.

On May 14, 2020, the Supreme Court unanimously ruled in favor of denim company Lucky Brand Dungarees, Inc. (“Lucky Brand”) in its decades-long trademark dispute with Marcel Fashions Group, Inc. (“Marcel”), holding that Lucky Brand was not precluded from asserting an unlitigated defense from a prior lawsuit with Marcel.  In Lucky Brand Dungarees, Inc., et al. v. Marcel Fashions Group, Inc., 590 U.S. ___ (2020), the Supreme Court rejected the Second Circuit’s application of the so-called “defense preclusion” doctrine and confirmed that any preclusion of a litigant’s defenses must comply with traditional res judicata principles.

The dispute arises from nearly 20 years of trademark litigation between Lucky Brand and Marcel, each of whom use the word “Lucky” as part of their trademarks.  Lucky Brand and Marcel have faced-off in their “Lucky” trademark fight in three rounds.  The first round began in 2001 when Marcel sued Lucky Brand for infringing Marcel’s “Get Lucky” trademark.  In 2003, the parties settled Marcel’s claims, with Lucky Brand agreeing to stop using the “Get Lucky” phrase in exchange for Marcel’s release of any claims regarding Lucky Brand’s use of its own “Lucky” trademarks.

In 2005, Lucky Brand commenced the second round by filing suit, alleging that Marcel and its licensee unlawfully copied Lucky Brand’s designs and logos.  Marcel counterclaimed, alleging Lucky Brand continued to use the “Get Lucky” mark in violation of the parties’ 2003 settlement agreement.  Lucky Brand moved to dismiss the counterclaims, arguing that they were barred by the release provision in the settlement agreement.  The District Court denied Lucky Brand’s motion and Lucky Brand did not re-invoke the settlement agreement defense at trial or any other time after the initial responsive pleadings.  The 2005 action concluded when the District Court permanently enjoined Lucky Brand from using Marcel’s “Get Lucky” mark and a jury found for Marcel on the remaining counterclaims.

Believing the third time would be a charm, the third round began in 2011 when Marcel sued again, alleging that Lucky Brand’s continued use of its own Lucky Brand marks infringed Marcel’s “Get Lucky” mark.  On remand after the parties’ first trip to the Second Circuit Court of Appeal in the 2011 action, Lucky Brand moved to dismiss by raising the settlement agreement defense for the first time since its motion to dismiss and answer in the 2005 action.  The District Court granted the motion, rejecting Marcel’s argument that Lucky Brand was precluded from reviving the defense because Lucky Brand chose to forgo it at trial in the 2005 action.

The Second Circuit vacated and remanded, however, concluding that the “defense preclusion” doctrine prohibited Lucky Brand from raising an unlitigated defense that it should have raised earlier.  As luck would have it, the Second Circuit’s “defense preclusion” decision created a split with prior decisions from the Federal, Eleventh, and Ninth Circuits.  The Supreme Court granted certiorari to resolve the split “regarding when, if ever, claim preclusion applies to defenses raised in a later suit.”

In its unanimous decision authored by Justice Sotomayor, the Supreme Court explained that it “has never explicitly recognized ‘defense preclusion’ as a standalone category of res judicata.”  Instead, any preclusion of defenses must satisfy one of the two established res judicata doctrines:  issue preclusion or claim preclusion.  Because issue preclusion did not apply, the Court conducted a claim preclusion analysis where “a defense can be barred only if the ‘causes of action are the same’ in the two suits” and “share a ‘common nucleus of operative facts.’”

The Supreme Court ultimately found that Lucky Brand was not barred from asserting the release defense because “the two suits here were grounded on different conduct, involving different marks, occurring at different times.  They thus did not share a ‘common nucleus of operative facts.’”  The Court observed that in the 2005 action, Marcel complained of Lucky Brand’s use of the “Get Lucky” phrase.  In contrast, the 2011 suit did not involve any alleged use of the “Get Lucky” phrase.  Furthermore, the allegedly infringing conduct in the 2011 action occurred after the conclusion of the 2005 lawsuit.  Thus, because the two suits lacked a “common nucleus of operative facts,” Lucky Brand was not barred from asserting its settlement agreement defense in the 2011 action.

While the Court’s decision does not address any substantive trademark issues, the Court noted that the correct application of res judicata principles “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.”  The Court commented that ever-changing marketplace realities uniquely impact trademark infringement disputes, which may be why the Second Circuit held that Marcel’s 2011 claims were not barred by the 2005 action.  Accordingly, the Court found that the 2005 action could not bar Lucky Brand’s defenses in the 2011 action because the two actions did not share an identity of claims.

Although the Court intentionally stopped short of “determin[ing] when (if ever) applying claim preclusion to defenses may be appropriate, because a necessary predicate—identity of claims—[was] lacking,” the decision was not a complete happy-go-lucky sidestep of the dividing issue.  Rather, the Court definitively reinforced its precedential ruling that any “preclusion of defenses must, at a minimum, satisfy the strictures of issue preclusion or claim preclusion.”  But the lingering question remains whether a doctrine of “defense preclusion” can ever apply, especially in the trademark context.  Will your invocation of a defense preclusion affirmative defense be successful?  In the words of Clint Eastwood’s iconic Dirty Harry character, “You have to ask yourself one question: Do I feel lucky?”

AALRR has a dedicated group of attorneys in its Commercial and Complex Litigation Group and on its Intellectual Property Team with the experience and expertise to vigorously enforce your trademarks and defend you against claims of trademark infringement and other business disputes.  Attorneys on the Firm’s Intellectual Property Team can also assist you with registration of your trademarks with the United States Patent and Trademark Office.  Contact the authors for assistance with your trademark and other intellectual property needs.

This AALRR publication is intended for informational purposes only and should not be relied upon in reaching a conclusion in a particular area of law. Applicability of the legal principles discussed may differ substantially in individual situations. Receipt of this or any other AALRR publication does not create an attorney-client relationship. The Firm is not responsible for inadvertent errors that may occur in the publishing process. 

©2020 Atkinson, Andelson, Loya, Ruud & Romo

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