The outdated pair of acid washed jeans that your dad wears to mow the lawn seem brand new in comparison to the nearly 20 years of litigation between Lucky Brand and Marcel over the use of various “Lucky” trademarks. Last week, however, Lucky Brand got a break when the Supreme Court issued a new opinion in the ongoing trademark battle between the two clothing companies. In Lucky Brand Dungarees, Inc. v. Marcel Fashions Group, Inc., the Supreme Court addressed the issue of so-called “defense preclusion” among related but different trademark infringement claims. In a unanimous opinion, the Supreme Court held that Lucky Brand was not prevented from raising a “new” release defense that it had initially raised but not argued in earlier but separate proceedings.
The long and confusing course of litigation between Marcel and Lucky Brand is important to understanding the preclusion issues at play here. Both companies sell jeans and other apparel, and both companies use the word “Lucky” in some form as part of their marks on clothing.
The first round of litigation occurred in 2001, when Marcel alleged Lucky Brand’s use of the phrase “Get Lucky” in advertisements infringed Marcel’s trademark. The 2001 suit resulted in a settlement agreement requiring Lucky Brand to stop using the phrase “Get Lucky.” Marcel released any claims regarding Lucky Brand’s use of its own trademarks.
In 2005, Lucky Brand kicked off the second round of litigation, alleging that Marcel violated its trademarks in a new clothing line. Marcel filed several counterclaims that turned on Lucky Brand’s continued use of “Get Lucky.” Importantly here, none of these counterclaims alleged that Lucky Brand’s use of its own “Lucky” marks alone infringed Marcel’s “Get Lucky” mark. Lucky Brand moved to dismiss the counterclaims because of the release provision of the settlement agreement. The court denied the motion and Lucky Brand noted the release defense once more in its answer to the counterclaims, but never again raised it in the 2005 action. The court concluded that Lucky Brand violated the settlement agreement by continuing to use “Get Lucky” and permanently enjoined Lucky Brand from copying or imitating that mark, but did not enjoin or mention Lucky Brand’s use of any other marks or phrases containing the word “Lucky.”
The third round of litigation began in 2011 when Marcel filed another action against Lucky Brand alleging that it continued to infringe their “Get Lucky” mark in contravention of the judgment in the 2005 action. Notably, Marcel’s complaint did not reprise the same allegations as the 2005 action, but instead argued that Lucky Brand’s continued post-2010 use of Lucky Brand’s own marks infringed Marcel’s “Get Lucky” mark. The district court granted summary judgment, but the Second Circuit concluded that Marcel’s claims in this action were distinct from the 2005 action. Then on remand, for the first time since its motion to dismiss and answer in the 2005 action, Lucky Brand argued that Marcel released its claims by entering the settlement agreement. Marcel argued that Lucky was precluded from invoking this defense because it could have pursued the defense fully in the 2005 action. The district court granted Lucky Brand’s motion to dismiss, but the Second Circuit disagreed, concluding that the “defense preclusion” prohibited Lucky Brand from raising the defense in this action.
This procedural history brings us to this unanimous opinion holding that Lucky Brand was not precluded from raising its release defense. The Supreme Court has never explicitly recognized “defense preclusion” as a standalone doctrine. Therefore, any such preclusion of a defense “must satisfy the strictures of issue preclusion or claim preclusion.” The parties agreed that issue preclusion did not apply. Therefore, the Supreme Court analyzed whether the defense was barred by the doctrine of claim preclusion.
Claim preclusion prevents parties from raising issues that could have been raised and decided in a prior action, even if they were not litigated, so long as the later suit involves the same claim between the same parties. Claim preclusion thus raises the issue in this case of whether the 2005 and 2011 causes of action were the same, i.e., do they share a “common nucleus of operative fact[s].”
Here the Supreme Court decided that claim preclusion did not apply. Because the two suits involved different conduct and different marks occurring at different times, they did not share a common nucleus of operative facts. The 2005 action was specifically about Lucky Brand’s use of “Get Lucky” in violation of Marcel’s mark. But the 2011 action did not involve any alleged use of the “Get Lucky” phrase, but instead alleged that Lucky Brand committed infringement by using its own marks containing the word “Lucky.” Further, the conduct giving rise to the 2011 action occurred after the conclusion of the 2005 action and claim preclusion does not bar claims arising after the filing of the first action. Thus, the Supreme Court concluded that Marcel could not preclude Lucky Brand from raising new defenses in this action.
This case is important because it reaffirms and clarifies principles of claim preclusion. As the Supreme Court noted here, these principles take on “particular force” in the trademark context. Events that occur after the plaintiff files suit can give rise to new material operative facts that create new claims to relief. The enforceability of a mark and likelihood of confusion between marks often turns on changing extrinsic facts, such as marketplace realities that change from year to year. Therefore, it is important for a trademark owner to carefully consider all potential claims prior to filing suit in order to avoid issues such as the ones raised here. Further, from a defense perspective, if not all marks are challenged in the first action, a defendant may be able to differentiate the claims in the subsequent action enough to successfully raise a defense that was available but not raised in earlier litigation.