Supreme Court Suggests Claim Preclusion May Be Less Relevant to Trademark Cases and Questions Its Applicability to a Defense Rather than a Claim

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On May 14, 2020, the U.S. Supreme Court decided Lucky Brand Dungarees, Inc., et al. v. Marcel Fashions Group, Inc., No. 18-1086, addressing the subjects of claim and issue preclusion.  The Court held that claim preclusion (or res judicata) did not bar a defense that could have been raised in a prior case between the same parties, but was not.  The Court based its holding on the conclusion that the alleged conduct and trademarks at issue in each proceeding were different.  Although the Court’s holding is straightforward—claim preclusion did not apply because there was no common nucleus of operative facts between the current case and an earlier one between the same parties—the Court’s analysis is important to the issue of claim preclusion in trademark cases, and to the broader question of whether claim preclusion can apply to a defense at all. 

The case stemmed from a longstanding battle between Lucky Brand and Marcel, clothing companies that both use the word “Lucky,” involving two separate lawsuits between the parties, one filed in 2005 and a later one filed in 2011.  The Court found that claim preclusion could only bar Lucky Brand from asserting a release defense based on the parties’ prior settlement agreement (from a lawsuit filed in 2001) in the second action if the two causes of action involved the same claim, i.e., if they shared a common nucleus of operative facts.  The Court determined that although Marcel had claimed that Lucky Brand infringed its “Get Lucky” trademark in both the 2005 and 2011 cases, “the 2011 Action challenged different conduct, involving different marks.”  In part, the Court’s reasoning was premised on the conclusion that the 2005 case was based on Lucky Brand’s use of “Get Lucky” alone and also with Lucky Brand’s own marks, whereas the 2011 case was based only on Lucky Brand’s use of its own marks and no use of “Get Lucky.”

The Court also highlighted that Marcel’s 2011 claims were based on Lucky Brand’s conduct occurring after the conclusion of the 2005 case.  Quoting Whole Woman’s Health v. Hellerstedt, 579 U.S.___, ___ (2016), the Court explained that “[c]laim preclusion generally ‘does not bar claims that are predicated on events that postdate the filing of the initial complaint.’”  Significantly, the Court then held that “[t]his principle takes on particular force in the trademark context,” because “liability for trademark infringement turns on marketplace realities that can change dramatically from year to year.”  

In a footnote, the Court also raised, but did not decide, the question of whether claim preclusion ever applies to bar a defense.  Citing to Wright & Miller, §4414, the Court observed that “courts often ‘assum[e] 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 in both actions.’”  The Court pointed to Cromwell v. County of Sac, 94 U.S. 351, 356 (1877), to highlight various reasons—besides the merits—why defendants may choose not to assert a defense in a given litigation, including for example “the difficulty of obtaining the necessary evidence” and “the expense of the litigation.”  Because the Court found claim preclusion did not apply to Lucky Brand’s release defense, it did not resolve whether claim preclusion ever can bar a defense.  However, the Court’s statement that it “need not determine when (if ever) applying claim preclusion to defenses may be appropriate” suggests the Court may have more to say on this issue in the future, and may bear on possible avenues for defendants to pursue even outside the trademark context.   

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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