Supreme Court Dismisses ‘Defense Preclusion’ in Designer Jeans Trademark Fight
Written May 14, 2020
On May 14, 2020, the US Supreme Court reversed and remanded the US Court of Appeals for the Second Circuit's decision in Marcel Fashions Grp., Inc. v. Lucky Brand Dungarees, Inc., et al. No. 2017-0361, (2nd. Cir.), ruling that federal preclusion principles do not bar Lucky Brand Dungarees, Inc. (Lucky Brand) from raising a defense it failed to litigate in an earlier suit between it and Marcel Fashions Group, Inc. (Marcel). Lucky Brands Dungarees, Inc. v. Marcel Fashions Grp., Inc., U.S., No. 18-1086.
Background
Marcel sued Lucky Brand in 2001, alleging that Lucky Brand’s use of the phrase “Get Lucky” in advertisements infringed Marcel’s trademark. In a 2003 settlement agreement, Lucky Brand agreed to stop using the phrase “Get Lucky,” while Marcel agreed to release any claims regarding Lucky Brand’s use of its own trademarks.
In 2005, Lucky Brand sued Marcel for copying its designs and logos in a new clothing line. Marcel filed several counterclaims that all turned on Lucky Brand’s alleged continued use of “Get Lucky.” In response, Lucky Brand argued that the counterclaims were barred by their settlement agreement. The court permanently enjoined Lucky Brand from copying or imitating Marcel’s “Get Lucky” mark, and a jury found against Lucky Brand on Marcel’s remaining counterclaims.
In 2011, Marcel sued Lucky Brand for continuing to infringe the “Get Lucky” mark, but it did not reprise its 2005 allegation about Lucky Brand’s use of the “Get Lucky” phrase. After protracted litigation, Lucky Brand moved to dismiss, arguing that Marcel had released its claims in the settlement agreement. Marcel countered that Lucky Brand could not invoke the release defense because it could have pursued that defense in the 2005 Action but did not. The District Court granted the motion to dismiss, holding that Lucky Brand could assert its release defense and that the settlement agreement indeed barred Marcel’s claims. However, the Second Circuit vacated and remanded, concluding that a doctrine it termed “defense preclusion” prohibited Lucky Brand from raising the release defense in the 2011 Action.
Opinion of the Court
Writing for a unanimous court, Justice Sotomayor explained that the Supreme Court has never recognized ‘defense preclusion' as a standalone category of res judicata. Instead, she said, "such preclusion of defenses must, at a minimum, satisfy the strictures of issue preclusion or claim preclusion." As the parties agreed that issue preclusion did not apply, Lucky Brand's defense could only be barred under claim preclusion, which requires that the causes of action share a "common nucleus of operative fact[s].”
The cases, Sotomayor explained, did not share this "common nucleus" as the two suits were "grounded on different conduct, involving different marks, occurring at different times." The 2005 claims depended on Lucky Brand’s alleged use of “Get Lucky.” But in the 2011 Action, Marcel alleged that the infringement was Lucky Brand’s use of its other marks containing the word “Lucky,” not any use of “Get Lucky” itself. Further, she said, the conduct in the 2011 Action occurred after the conclusion of the 2005 Action, an additional fact which did not support claim preclusion.
Finally, Justice Sotomayor rebutted Marcel's argument that treatises and the Supreme Court’s cases supported a version of “defense preclusion” that extended to the facts of this case, finding that none of the sources described scenarios that were applicable.