Ruling could be used to validate successive trademark suits over time

Ruling could be used to validate successive trademark suits over time

On May 14, the U.S. Supreme Court unanimously reversed the 2nd U.S. Circuit Court of Appeals' application of res judicata to bar Lucky Brand's assertion of a defense in a 2011 lawsuit where it failed to litigate that same defense in a separate lawsuit in 2005. Lucky Brand Dungarees, Inc. v. Marcel Fashions Group, Inc., 2020 DJDAR 4589. The court held that Lucky Brand's defense in the 2011 suit could not be precluded because the two suits were "grounded on different conduct, involving different marks, occurring at different times."

This decision came after nearly two decades of litigation between the parties concerning their respective uses of "LUCKY" in connection with jeans and other clothing products. In 1986, Marcel registered the mark "GET LUCKY." In 1990, Lucky Brand began using the mark "LUCKY BRAND" and other marks that include the word "Lucky." The litigation rally began in 2001, when Marcel sued Lucky Brand for trademark infringement arising from Lucky Brand's use of "GET LUCKY" in advertisements. The parties reached a settlement agreement in 2003, pursuant to which Lucky brand agreed to stop using the phrase "GET LUCKY," and Marcel released any claims relating to Lucky Brand's use of the "LUCKY BRAND" mark and/or any other mark registered or used by Lucky Brand as of the date of the agreement.

A short time later, in 2005, Lucky Brand filed suit against Marcel and its licensees for trademark infringement arising from Marcel's appropriation of Lucky Brand's designs and logos in a new clothing line for young men. Marcel filed counterclaims against Lucky Brand, alleging that Lucky Brand continued using "GET LUCKY" in violation of the 2003 settlement agreement, and that the use of "GET LUCKY" together with Lucky Brand's other LUCKY-formative marks constituted trademark infringement. Lucky Brand filed a motion to dismiss the counterclaims alleging, among other things, that they were barred by the release provision of the settlement agreement. The motion was denied, and Lucky Brand did not raise the release defense again. Ultimately, a jury found that Lucky Brand's use of "GET LUCKY" as a catchphrase alongside its other LUCKY-formative marks infringed Marcel's trademark, and Lucky Brand was permanently enjoined from using "GET LUCKY."

In 2011, Marcel once again filed suit against Lucky Brand, this time alleging that Lucky Brand's use of LUCKY-formative marks constituted an infringement of Marcel's "GET LUCKY" marks (though importantly, Marcel did not allege that Lucky Brand continued to use the phrase "GET LUCKY"). Marcel requested that Lucky Brand be enjoined from using any mark that includes the word "LUCKY." Following a summary judgment ruling in Lucky Brand's favor and a reversal on appeal, Lucky Brand argued -- for the first time since it's motion to dismiss the 2005 counterclaims -- that Marcel's claims had been released in the 2003 settlement agreement. Marcel responded that Lucky Brand could not raise the release defense because it failed to do so in the 2005 action. The district court sided with Lucky Brand in holding that the settlement agreement barred Marcel's claims. The 2nd Circuit disagreed, reasoning that "defense preclusion" bars a party such as Lucky Brand from raising a defense where "(i) a previous action involved an adjudication on the merits"; "(ii) the previous action involved the same parties"; "(iii) the defense was either asserted or could have been asserted, in the prior action"; and "(iv) the district court, in its discretion, concludes that preclusion of the defense is appropriate." 898 F.3d 232, 241 (2d Cir. 2018) (emphasis added).

Recognizing that there may be valid reasons why a litigant might raise a defense in one action but not another (including, for example, "the smallness of the amount or the value of the property in controversy, the difficulty of obtaining the necessary evidence, the expense of the litigation, and [a party's] own situation"), a defense can only be barred where the causes of action in both cases are the same (quoting Cromwell v. County of Sac, 94 U.S. 351, 356 (1877).

In the present case, the court concluded that the 2005 and 2011 actions "were grounded on different conduct, involving different marks, occurring at different times," and therefore did not share a "common nucleus of operative facts." Specifically, the 2005 action alleged that Lucky Brand's use of "GET LUCKY" alone and alongside other LUCKY-formative marks constituted trademark infringement. By contrast, the 2011 action made no allegation that Lucky Brand continued using "GET LUCKY." Thus, Lucky Brand was free to assert the release defense based on the parties' 2003 settlement agreement.

Aside from the clear procedural implications of this opinion concerning the applicability of "defense preclusion," this decision is also notable in that it recognizes that "the enforceability of a mark and likelihood of confusion between marks often turns on extrinsic facts that change over time. ... [L]iability for trademark infringement turns on marketplace realities that can change dramatically from year to year." While not central to the court's ultimate decision, this dicta could be used to validate successive trademark infringement lawsuits as market conditions evolve. 