Baker Donelson - USA
The US Supreme Court has recently accepted certiorari for Lucky Brand Dungarees, Incorporated v Marcel Fashions Group, Incorporated (18‑1086 (2019)), depicting the parties as “hotly contesting” their respective trademark rights “for nearly two decades” (Marcel Fashions Group v Lucky Brand Dungarees, Incorporated (898 F3d 232 (2nd Cir 2018)). The case focuses on ‘defence preclusion’, also known as ‘claim preclusion’, which usually refers to claims that reach final judgment and that are not subject to appeal this doctrine. However, the Second Circuit has flipped the script on this, with ‘defence preclusion’ now preventing a defendant from raising a defence that was not litigated when the claims were at issue, including new claims that were never litigated, in a prior dispute.
The path to the Supreme Court began when Marcel Fashion Group, a fashion wholesaler, obtained a registered trademark in 1986, GET LUCKY, for jeans and other apparel. In 1990, Lucky Brand Dungarees began selling men’s jeans and shirts under the trademarks LUCKY BRAND DUNGAREES, LUCKY BRAND and others, including LUCKY. In 2001, Marcel filed suit for unfair competition and trademark infringement against Lucky Brand and its licensees for the unauthorised use of Marcel’s GET LUCKY trademark. The parties settled this action in May 2003, pursuant to a release and settlement agreement providing that the Lucky Brand defendants “shall desist henceforth from use of “GET LUCKY” and acknowledging that the Lucky Brand defendants have the rights to use, license, and/or register the trademark LUCKY BRAND and/or any other trademarks registered or used by Lucky Brand” (Marcel Fashion Group, Inc v Lucky Brand Dungarees, Inc (779 F3d 102, 105 (2nd Cir 2015)).
In 2005 Lucky Brand sued Marcel alleging that it and its licensees engaged in unfair competition and that Marcel’s Get Lucky fashion line infringed the LUCKY BRAND trademarks. Marcel counterclaimed that Lucky Brand and its licensees infringed GET LUCKY, breaching the 2003 settlement agreement, and sought to enjoin Lucky Brand’s use of GET LUCKY or any similar mark. While the 2003 settlement agreement provided that Lucky Brand retained the right to the use of its LUCKY BRAND mark, Marcel’s 2005 counterclaim sought to enjoin Lucky Brand’s use of LUCKY BRAND and/or mark. In 2009, the district court enjoined Lucky Brand from using Marcel’s GET LUCKY mark, violating the 2003 settlement agreement. Following trial, the jury awarded Marcel and its licensees compensatory and punitive damages. After this verdict, the parties negotiated and jointly drafted a final order and judgment at the request of the district court. Lucky Brand refused to allow a paragraph in the final order stating that Lucky Brand Dungarees, Inc and Liz Claiborne, Inc are permanently enjoined from further use of GET LUCKY, the LUCKY BRAND trademarks and any other trademarks using the word ‘lucky’. Nevertheless, the final order and judgment included the language of the 2009 injunction.
Lucky Brand did not appeal the 2005 action but the dispute reignited in 2011 when Marcel sought relief from Lucky Brand’s allegedly continued use of its LUCKY BRAND mark following the 2009 injunction. Lucky Brand could have pled the 2003 settlement release during the 2005 action, in the initial complaint of the 2011 matter or at the following summary judgment. However, it chose not to. Instead, Lucky Brand moved for summary judgment as a basis for dismissal because Marcel’s claims were precluded by res judicata – specifically claim preclusion arising from the 2005 action. The district court sided with Lucky Brand but the Second Circuit reversed this decision in 2013. On remand, Marcel filed a second amended complaint and Lucky Brand filed a motion to dismiss, arguing that the 2003 settlement release bars Marcel’s claims. The district court agreed with Lucky Brand and granted the motion, rejecting Marcel’s claim preclusion argument that claim preclusion was not available to preclude a defence, as opposed to a “claim” under res judicata. Nevertheless, on 2 August 2018 the Second Circuit reversed the district court again, absurdly (according to Lucky Brand) holding that defence preclusion barred Lucky Brand’s 2003 settlement release defence.
Lucky Brand petitioned for certiorari because the Second Circuit case law regarding res judicata is far from straightforward. The Supreme Court accepted certiorari on 28 June 2019, noting the split among the Supreme Court and three circuit courts (the Federal Circuit, Eleventh Circuit, and Ninth Circuit). The Second Circuit invented a new and confusing version of the res judicata defence – ‘defense preclusion’. The settled law in the other courts all holds that in a subsequent case between the same parties involving different claims from those litigated in the earlier case, the defendant is free to raise defences that were not litigated in the earlier case, even though they could have been. Traditional claim preclusion does not bar such defences, because the claims in the second case arise from different transactions and occurrences from the first case. Issue preclusion does not bar them either, because they were never actually litigated.
The certiorari petition filed by Lucky Brand notes that in serial litigation between two parties, trial-tested principles of claim preclusion and issue preclusion govern when parties may or may not litigate issues that were, or could have been, litigated in a prior case.
We shall see what happens in October 2019. Marcel and Lucky Brands could have avoided 20 years of serial disputes, TTAB proceedings, and lawsuits, simply by using trademark professionals to order and review search reports and clear the trademarks so as to avoid conflicts with competitors and to make timely use, registration and maintenance of the cleared trademarks.