Arent Fox

Earlier this month, the Supreme Court unanimously sided with fashion brand Lucky Brand Dungarees, Inc. (LB) resolving its decades-old dispute with Marcel Fashion Group, Inc. (Marcel).

The victory came on technical grounds, as, the Supreme Court ruled that LB could invoke a defense[1] that it hadn’t used in a prior lawsuit because the current lawsuit “involved different marks, different legal theories, and different conduct.”

The Parties

Marcel is a Miami-based apparel manufacturer that received a trademark registration for the phrase GET LUCKY covering apparel in 1986. LB is a Los-Angeles based apparel manufacturer that subsequently registered the trademark LUCKY BRAND and other LUCKY-formative marks for apparel.

The Litigation History

There are three separate lawsuits between the parties. The first dates back to the late 1990s, when Marcel alleged that LB’s use of the phrase “Get Lucky” in advertisements infringed on Marcel’s GET LUCKY trademark. The parties resolved the dispute via a settlement agreement (the 2003 Settlement Agreement) in which LB agreed to stop using the phrase “Get Lucky,” and in exchange, Marcel released any claims regarding LB’s use of its own trademarks (i.e. LUCKY BRAND and its other LUCKY-formative marks).

Next, LB sued Marcel in 2005, alleging that Marcel infringed LB’s trademarks by copying LB’s designs and logos (the 2005 Action). Marcel in turn filed several counterclaims, alleging that LB continued to use Marcel’s GET LUCKY mark in violation of the 2003 Settlement Agreement and that LB’s continued use of “Get Lucky” in combination with LUCKY BRAND infringed Marcel’s trademark rights. Notably, Marcel’s claim was contingent on LB using the phrase “Get Lucky” together with LUCKY BRAND; Marcel did not allege that LB’s use of LUCKY BRAND (or its other LUCKY-formative marks) was otherwise infringing. In a motion to dismiss Marcel’s counterclaims, and in an answer to the counterclaims, LB asserted that Marcel’s counterclaims were barred by the 2003 Settlement Agreement. However, LB did not invoke this defense later in the proceeding, so it was never fully litigated. In the end, LB was enjoined from copying or imitating Marcel’s GET LUCKY mark, but LB was not enjoined from using any other marks or phrases containing the word “Lucky.”

Finally, Marcel filed the third lawsuit in 2011 (the 2011 Action), alleging that LB’s post-2010 use of its own marks, including LUCKY BRAND, infringed Marcel’s GET LUCKY mark in a manner that was previously found infringing. Marcel sought an injunction preventing LB from using any of LB’s marks containing the word “Lucky.” LB filed a motion to dismiss, raising for the first time since its motion to dismiss and answer in the 2005 Action, that Marcel had released its claims in the 2003 Settlement Agreement. In response, Marcel argued that LB was precluded from raising that defense because LB did not invoke the defense fully in the 2005 Action. The District Court granted LB’s motion to dismiss, but the Second Circuit vacated and remanded, relying on “defense preclusion.” According to the Second Circuit, the doctrine of “defense preclusion” prohibited LB from raising an unlitigated defense that it could have raised earlier.

The Supreme Court Decision

LB appealed to the Supreme Court on the grounds that its claims were not barred by so-called “defense preclusion.” The Supreme Court granted certiorari to determine when, if ever, claim preclusion[2] applies to defenses raised in a subsequent lawsuit.

The Supreme Court explained that it has never explicitly recognized “defense preclusion” as a standalone category separate from claim preclusion and issue preclusion[3]. Therefore, any preclusion of defenses would need to satisfy the strictures of either issue preclusion or claim preclusion. The parties agreed that issue preclusion did not apply. Therefore, in accordance with the principals of claim preclusion, LB’s defense could only be barred if the two lawsuits shared “a common nucleus of operative facts.”

The Supreme Court then ruled unanimously in favor of LB, finding that the 2005 Action and the 2011 Action were grounded in different conduct occurring at different times and involving different marks, and therefore, did not share “a common nucleus of operative facts.” In the 2005 Action, Marcel’s claims depended on LB’s use of “Get Lucky” alongside LB’s other marks, contrary to the 2011 Action where the alleged infringement involved only LB’s use of its own LUCKY-formative marks and not any use of “Get Lucky.” Additionally, LB’s alleged conduct in the 2011 Action occurred after the 2005 Action. The Supreme Court noted that claim preclusion generally does not bar claims predicated on events that postdate the filing of the initial complaint and that this principle “takes on particular force in the trademark context” as the “enforceability of a mark and likelihood of confusion between marks often turns on extrinsic facts that change over time.” Justice Sonia Sotomayor, who wrote the unanimous opinion, noted that trademark liability infringement “turns on marketplace realities that can change dramatically from year to year.”

The Takeaway

In addition to providing clarity over the treatment of so-called “defense preclusion,” this ruling is particularly important for defendants in trademark litigation who find themselves frequently litigating against the same entity or person. This ruling also highlights the importance of preparing settlement agreements, particularity involving trademarks, with an eye towards the future, as marketplace conditions can be challenging to predict, and are constantly evolving.

The Supreme Court’s opinion can be found here.

[1] LB asserted that Marcel’s claims were barred by the terms of a prior settlement agreement.

[2] Claim preclusion, sometimes known as res judicata, prevents a party form religitating a claim that it did or could have raised in prior litigation.

[3] Issue preclusion is another legal doctrine concerning the preclusive effects of prior litigation.