The Supreme Court yesterday issued its second trademark decision of this term.
In Lucky Brand Dungarees, Inc. v. Marcel Fashions Group, Inc., Case No. 18-1086 (S. Ct. May 14, 2020), the ultimate question before the Court was the applicability of “defense preclusion.” Specifically, the Court considered whether and under what circumstances a defense may be barred in subsequent litigation between two parties. In a unanimous decision, the Court held that any preclusion of defenses must, at a minimum, satisfy the strictures of issue preclusion or claim preclusion. Namely, the causes of action must share a “common nucleus of operative facts” for a defense to be precluded.
This case was the latest twist in nearly 20 years of trademark litigation between Lucky Brand and Marcel Fashions Group involving the parties’ “Lucky” trademarks. In the first case, brought in 2001, Marcel sued Lucky Brand alleging that Lucky Brand’s use of the phrase “Get Lucky” infringed its registered trademark for GET LUCKY. That case resulted in a settlement agreement in which Lucky Brand agreed to cease use of the phrase “Get Lucky,” while Marcel agreed to release any claims regarding Lucky Brand’s use of its own trademarks.
In the second case, brought in 2005, Lucky Brand sued Marcel for infringement of various of its trademarks. Relevant here, Marcel counterclaimed that Lucky Brand violated the settlement agreement by continuing to use the phrase “Get Lucky,” and also that Lucky Brand’s use of the phrase “Get Lucky” and “Lucky Brand” together infringed Marcel’s GET LUCKY mark. None of Marcel’s counterclaims alleged that Lucky Brand’s use of its trademarks alone constituted infringement – it was alleged only that their use in concert with the phrase “Get Lucky” constituted infringement.
In 2011 Marcel brought another lawsuit, this time alleging that Lucky Brand’s use of certain of its trademarks infringed on Marcel’s GET LUCKY mark. This complaint did not reprise Marcel’s earlier allegation that Lucky Brand continued to use the phrase “Get Lucky” in its advertising. Lucky Brand moved to dismiss, arguing that Marcel had released its claims by entering the settlement agreement in the 2001 case. Marcel countered that Lucky Brand was precluded from invoking the release, because it could have pursued the defense in the 2005 action but had not done so. The U.S. Court of Appeals for the 2nd Circuit agreed, concluding that “defense preclusion” prohibited Lucky Brand from raising the release defense in the 2011 action.
The unanimous Supreme Court overturned, concluding that “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 noted that in the 2005 action, Marcel’s claims were based on a combination of Lucky Brand trademarks and the use of the phrase “Get Lucky.” In contrast, the 2011 action did not involve any use of the “Get Lucky” phrase. Moreover, the conduct at issue in the 2011 action occurred after the conclusion of the 2005 action, and claim preclusion generally “does not bar claims that are predicated on events that postdate the filing of the initial complaint” (citations omitted).
Of particular note to trademark practitioners is the Court’s observation that claim preclusion principles are particularly susceptible in trademark litigation, which “often turns on extrinsic facts that change over time.” The Court also agreed with Lucky Brand that “liability for trademark infringement turns on marketplace realities that can change dramatically from year to year.” In short, brand owners and practitioners must carefully analyze the full factual landscape in determining whether a defense may be barred under claim preclusion principles. Small differences in facts, claims, and defenses may substantially affect the outcome.