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Justices Toss New Defense Preclusion in Lucky’s Trademark War (2)

May 14, 2020, 2:21 PM

The Supreme Court nixed a win for Marcel Fashions in its decades-long dispute with Lucky Brand, tossing a novel “defense preclusion” backed by the New York-based U.S. Court of Appeals for the Second Circuit.

Lucky Brand, a jeans maker, can invoke a defense it didn’t in a prior infringement lawsuit because the trademarks at issue and time frame of alleged infringement were different, the high court ruled unanimously.

Res judicata, also known as claim preclusion, prevents a party from relitigating a claim that it did raise or could have raised in earlier litigation. The court declined to say whether claim preclusion could apply to defenses, but said the defense would at least have to satisfy the usual requirements for claim preclusion, including involving a common set of facts.

A rule going the other way would be unfair in that it could allow plaintiffs to sue for new claims but wouldn’t allow defendants to defend against them, Justice Neil Gorsuch said during oral argument in January.

The decision, involving a dispute over Marcel’s “Get Lucky” trademark, had the potential to affect litigation across all civil cases.

Trademark attorneys generally supported the ruling, which they said undid an anomalous Second Circuit decision on the parties’ settlement of an earlier lawsuit.

“My initial thought is ‘that’s a relief,’” trademark attorney Monica Riva Talley of Sterne Kessler Goldstein & Fox PLLC said. “If you have to raise all your defenses initially, it could be very difficult to litigate.”

The opinion, written by Justice Sonia Sotomayor, included a footnote leaving open the possibility that defenses stand on even weaker ground. It said “there may be good reason to question any application of claim preclusion to defenses.” But the court didn’t need to answer the question to decide the case, it said.

“That footnote’s a little confusing, but seems to be the Supreme Court doing what it often does: deferring an issue that wasn’t supported by the facts of the case,” trademark attorney Robert J. Kenney of Birch Stewart Kolasch & Birch LLP said.

Issue preclusion, which bars relitigating questions a court has already decided, can apply to defenses. But like claim preclusion, the court said the core question is whether raising the issue would nullify an existing judgment.

Precedents that Marcel cited as supporting its position didn’t involve comparable situations, the court said. They also didn’t establish “anything more than that more traditional claim- or issue-preclusion principles may bar defenses raised in a subsequent suit,” the court said.

Third Time Charm?

Marcel and Lucky were involved in three lawsuits, which were filed 2001, 2005 and 2011.

Marcel’s 2001 lawsuit, alleging that Lucky Brand infringed its trademark, resulted in a settlement two years later.

In 2005, Lucky Brand sued Marcel for copying its line, and Marcel countersued. That resulted in a 2010 injunction that barred Lucky Brand from using “Get Lucky.”

Marcel sued again in 2011, arguing that Lucky had again infringed its “Get Lucky” trademarks in violation of the injunction through use of its Lucky Brand trademarks. The Second Circuit blocked Lucky Brand from raising the 2003 agreement because it chose not to fully litigate it in the 2005 lawsuit.

But the 2011 suit only alleges infringement through use of “Lucky Brand,” not use of “Get Lucky,” according to the opinion.

The 2011 lawsuit stemmed from Lucky Brand’s alleged actions after the prior suit ended in 2010, further separating the claims. The principle of not barring defenses to new claims “takes on particular force in the trademark context” because enforceability of a mark and likelihood of confusion between marks can vary substantially over time, the court said.

That the competitors were able to register such similar Lucky-based marks at the U.S. Patent and Trademark Office is “a little questionable,” said Kenney, adding he hasn’t reviewed the history of how they were secured. He said a main takeaway is that crafting coexistence agreements too broad “might come back and bite you.”

“If I’m Marcel in this case, I would probably look back on that original settlement agreement with some regret,” Kenney said. “The situation is rife for continuing problems in the marketplace.”

Kirkland & Ellis LLP represented Lucky Brand. McDermott Will & Emery represented Marcel.

The case is Lucky Brands Dungarees, Inc. v. Marcel Fashions Grp., Inc., U.S., No. 18-1086.

To contact the reporter on this story: Kyle Jahner in Washington at kjahner@bloomberglaw.com; Kimberly Strawbridge Robinson in Washington at krobinson@bloomberglaw.com

To contact the editors responsible for this story: Tom P. Taylor at ttaylor@bloomberglaw.com; Andrew Harris at aharris@bloomberglaw.com; Roger Yu at ryu@bloomberglaw.com

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