Marcel Fashions Group did not “get lucky” with the doctrine of defense preclusion

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Eversheds Sutherland (US) LLPOn May 14, 2020, in a unanimous opinion authored by Justice Sotomayor, the US Supreme Court overturned the “defense preclusion” doctrine proposed by the Second Circuit, upholding the requirement that preclusion of a defense under res judicata meet, at a minimum, the strictures of issue preclusion or claim preclusion. The trademark owner argued for a preclusion theory that required little more than identity of parties between the two actions. This decision affirms traditional res judicata standards, holding that failure to raise a defense in a first suit does not preclude the ability to raise the same defense in a subsequent suit if the claim to relief is different. Trademark owners have a unique interest in preclusion, as conflicts with owners of similar marks do recur, while marketplace realities change from year to year, and unique infringements of the same trademark can arise. Thus, where a subsequent trademark infringement suit is permitted to proceed, all defenses that were previously available likely can be asserted again, regardless of whether they were raised in the preceding suit.

Background on Lucky Brand Dungarees, Inc. v. Marcel Fashions Group, Inc.

Marcel Fashions Group, Inc. (Marcel) owns a registered trademark for the phrase GET LUCKY®, while Lucky Brand Dungarees, Inc. (Lucky Brand) owns numerous registered trademarks including the word “lucky,” such as the eponymous LUCKY BRAND® trademark. After a first infringement lawsuit in 2003, Marcel and Lucky Brand entered into a settlement agreement (Agreement) where Lucky Brand agreed to cease use of the phrase “Get Lucky” and Marcel released claims against Lucky Brand for use of its own “LUCKY” trademarks. 

In a second infringement lawsuit in 2005, Marcel successfully enjoined Lucky Brand from continued use of the phrase “Get Lucky.” In a third infringement lawsuit in 2011, Marcel argued that Lucky Brand’s use of its own “lucky” trademarks infringed on Marcel’s GET LUCKY trademark, and Lucky Brand argued that Marcel released this claim in the 2003 Agreement. The Second Circuit held that Lucky Brand was precluded from raising this defense for failure to raise it in the 2005 lawsuit, thereby creating a “defense preclusion” doctrine that was previously unrecognized.

The Supreme Court granted certiorari to resolve a circuit split on the issue of “defense preclusion.”

Supreme Court: No Standalone “Defense Preclusion” Doctrine; Res Judicata Still Applies 

The Supreme Court vacated the Second Circuit’s decision and held that “defense preclusion” must, at a minimum, satisfy the strictures of issue preclusion or claim preclusion. Thus, when a specific issue has not yet been litigated, a defense can be barred only if the causes of action are the same in the two suits, i.e., where they share a common nucleus of operative facts. Because the 2005 and 2011 suits focused on different conduct, that involved different marks, and that occurred at different times—the 2005 suit focused on use of “get lucky,” whereas the 2011 suit did not involve any alleged use of the “get lucky” phrase—the Court held issue preclusion did not apply to Lucky Brand’s defense that the Parties’ 2003 Agreement barred Marcel’s 2011 claim. Since Marcel’s 2011 suit was not barred under claim preclusion by the 2005 action, so too was Lucky Brand’s 2011 defense not barred by the 2005 action.

The Court further explained in a footnote that courts often assume that the defendant may raise defenses in the second action that were not raised in the first, even though they were equally available and relevant, because various considerations other than actual merits, e.g., monetary concerns and/or availability of evidence, may govern. 
 
Potential Impact of the Court’s Decision

In large part, the doctrine of res judicata remains unchanged and supersedes the Second Circuit’s novel approach to “defense preclusion.”

Litigants in a trademark suit would be well advised to raise, and vigorously pursue, all available defenses. Even though “the enforceability of a mark and likelihood of confusion between marks often turns on extrinsic facts that change over time” and “marketplace realities can change dramatically from year to year,” it would be imprudent for mark-holder and alleged infringers to rely on this decision as guarantee that all prior possible defense could be raised by a repeat infringer in a second suit involving the same mark. It is possible that a court would reject a subsequent defense if raised by a repeat-infringer, even if the defense was available in the preceding suit, when the trademark is infringed in the same manner as in the preceding suit, albeit at a different point in time. 

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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