Lucky Brand Dungarees, Inc. won its latest legal battle against Marcel Fashions Group, Inc.—this time at the U.S. Supreme Court. Lucky Brand's victory allows it to mount a contractual defense based on a 17-year-old settlement agreement in its third round of litigation with Marcel over the companies' respective LUCKY-formative trademarks.
Res Judicata
The case tested a novel application of res judicata, a concept that generally comprises the following two doctrines regarding the preclusive effect of prior litigation:
- Issue preclusion (also known as collateral estoppel) precludes a party from relitigating an issue decided in a prior case and necessary to the judgment; and
- Claim preclusion precludes parties from raising claims that could have been raised and decided in a prior action—whether those claims were litigated or not.
Broadly, the issue presented was “whether so-called ‘defense preclusion' is a valid application of res judicata.” If claim preclusion, why not defense preclusion? The Supreme Court declined to answer the broader question, instead resolving the dispute on narrower grounds.
The Unlucky Dispute
The relevant portion of this nearly twenty-year dispute between Marcel Fashions and Lucky Brand began in 2003, when the parties settled Marcel's claims that Lucky Brand had infringed Marcel's GET LUCKY trademark. The 2003 Agreement required Lucky Brand to stop using the phrase GET LUCKY. In exchange, Marcel agreed to release any claims regarding Lucky Brand's use of its LUCKY trademarks, e.g. LUCKY BRAND.
In 2005, Lucky Brand sued Marcel for infringing Lucky Brand designs and logos, and Marcel counterclaimed for infringement arising from Lucky Brands' alleged continued use of GET LUCKY (1) in isolation and (2) alongside its own marks (the “2005 Action”). Lucky Brand moved to dismiss, claiming the 2003 Agreement barred Marcel's claims, which pleaded a similar affirmative when its motion was denied, but chose not to litigate the defense. Thereafter, as a sanction for discovery misconduct, the District Court found that Lucky Brand's use of GET LUCKY violated the 2003 Agreement and enjoined such use. At trial, a jury found that Lucky Brand's use of GET LUCKY alongside Lucky Brand's own marks also infringed Marcel's GET LUCKY trademark.
Because Marcel never claimed that its GET LUCKY trademark was infringed by Lucky Brand's LUCKY-formative marks used in isolation the jury did not consider that issue.
In 2011, Marcel sued Lucky Brand once again for infringing its GET LUCKY trademark, this time based on Lucky Brand's use of its LUCKY trademarks (e.g. LUCKY BRANDS) (the “2011 Action”). Lucky Brand moved to dismiss those claims, arguing they were released by the 2003 Agreement. The district court granted Lucky Brand's motion, but the U.S. Court of Appeals for the Second Circuit reversed, reasoning that “defense preclusion” from the 2005 Action barred Lucky Brand from asserting the 2003 Agreement “release” defense because it could have litigated that defense in the 2005 Action but decided not to. Among other arguments, Lucky Brand argued that any preclusive effect of the 2005 Action could not apply to the 2011 Action, which involved new claims based on conduct that post-dated the conclusion of the 2005 Action.
The SCOTUS Decision
Because the Supreme Court has “never explicitly recognized ‘defense preclusion' as a standalone category of res judicata,” and because issue preclusion clearly could not bar Lucky Brand's unlitigated defense, the question before the Court was whether the 2011 Action and the 2005 Action involved the same claim, i.e. a “common nucleus of operative fact.”
Justice Kagan, writing for a unanimous Court, reasoned that the claims did not arise from a common nucleus of operative fact, but rather from “different conduct, involving different marks, occurring at different times.” While the claims in the 2005 and 2011 Actions both involved (1) a claim by Marcel (2) against Lucky Brand (3) that Lucky Brand infringed Marcel's GET LUCKY trademark. In contrast, the 2011 Action did not involve any alleged use of GET LUCKY, but rather Lucky Brand's use of other LUCKY marks.
The Court also reasoned that the 2011 Action challenged conduct that postdated the 2005 Action entirely, and gave rise to new material operative facts:
This principle 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. As Lucky Brand points out, liability for trademark infringement turns on marketplace realities that can change dramatically from year to year. It is no surprise, then, that the Second Circuit held that Marcel's 2011 Action claims were not barred by the 2005 Action. By the same token, the 2005 Action could not bar Lucky Brand's 2011 defenses.
At oral argument, Marcel framed the issue as one of symmetry between claim preclusion and defense preclusion. But the Court did not ignore the clear asymmetry implicit in Marcel's argument that the 2005 Action barred Lucky Brand's defense, but not Marcel's claims. Ultimately, because Marcel would not be barred from suing Lucky Brand for infringing the same mark based on different infringing conduct, Lucky Brand could not be barred from raising a similar defense to different conduct.
The case is Lucky Brand Dungarees, Inc. v. Marcel Fashions Group, Inc., No. 18–1086 (May 14, 2020).
Originally published Finnegan, May 2020
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