By:  Matt Lubozynski

The Supreme Court recently decided another intellectual property case in Lucky Brand Dungarees, Inc. v. Marcel Fashions Grp., Inc., No. 18-1086, 2020 WL 2477020, at *2 (U.S. May 14, 2020) (“Lucky Brand”). Although the case concerned trademark infringement, the issue before the Supreme Court went to whether to recognize a separate res judicata doctrine titled “defense preclusion.” Justice Sotomayor provided the opinion of a unanimous Court.

In the end, the Supreme Court found that there is not a separate aspect of res judicata known as “defense preclusion.” Instead, when determining whether a certain defense is precluded, a court looks to the two distinct doctrines under res judicata that already exist – issue and claim preclusion. In the end, the Supreme Court analyzed the case under claim preclusion and found that “[b]ecause the parties agree that, at a minimum, the preclusion of such a defense in this context requires that the two suits share the same claim to relief—and because we find that the two suits here did not—Lucky Brand was not barred from raising its defense in the later action.” Lucky Brand, 2020 WL 2477020, at *2.

The instant case is the third round of twenty years of litigation involving trademarks using the term “Lucky” to sell jeans. Id. Back in 1986, Marcel received a federal trademark registration for “Get Lucky.” Id. Then, in 1990, Lucky Brand started selling apparel with the registered trademark “Lucky Brand.” It also utilized other marks that included the term “Lucky.” Id. The first round of litigation, initiated in 2001, involved Marcel suing Lucky Brand for trademark infringement of Marcel’s “Get Lucky” trademark. Id. The parties settled that case in 2003 with Lucky Brand agreeing to cease its use of “Get Lucky.” Id. Marcel, on the other hand, “agreed to release any claims regarding Lucky Brand’s use of [Lucky Brand’s] own trademarks.” Id.

2005 saw the second round of litigation. In that case, Lucky Brand sued Marcel alleging it violated Lucky Brand’s trademarks. Marcel counterclaimed, all of which were related to Lucky Brand’s alleged continued use of “Get Lucky.” However, Marcel did not allege that any of Lucky Brand’s own marks alone, “i.e. independent of any alleged use of ‘Get Lucky,’” infringed upon the “Get Lucky” mark. Id. In response to these counterclaims, Lucky Brand moved to dismiss on the basis of the release provision in the settlement agreement. Id. at *3. The Court denied the motion to dismiss, Lucky Brand asserted the release defense in its answer, but then never again invoked the defense in that action. Id.

Then, in 2011, Marcel filed suit against Lucky Brand alleging Lucky Brand continued to infringe on its “Get Lucky” mark. Id. However, Marcel did not allege that Lucky Brand continued to use the “Get Lucky” phrase, as it asserted in the 2005 action. Instead, Marcel argued that Lucky Brand’s use of its own marks, including some that contained the word “Lucky,” infringed on the “Get Lucky” mark. Id. The District Court sided with Lucky Brand, granted summary judgment, and “concluded that Marcel’s claims in the 2011 Action were essentially the same as its counterclaims in the 2005 Action.” Id. at *3. The Second Circuit, however, “concluded that Marcel’s claims in the 2011 Action were distinct from those it had asserted in the 2005 Action, because the claims at issue in the 2005 Action were ‘for earlier infringements.’” Id. The Second Circuit thus vacated the prior judgment by the District Court and remanded the case for further proceedings.

Once the case was remanded, Lucky Brand then “moved to dismiss, arguing—for the first time since its motion to dismiss and answer in the 2005 Action—that Marcel had released its claims by entering the settlement agreement.” Id. at *4. The District Court granted the motion to dismiss, but the Second Circuit again vacated and remanded “concluding that a doctrine it termed ‘defense preclusion’ prohibited Lucky Brand from raising the release defense in the 2011 Action.” Id. The Second Circuit, relying on “issue preclusion” “held that ‘defense preclusion’ bars a party from raising a defense where: ‘(1) 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.’” Id. (quoting Marcel Fashions Grp., Inc. v. Lucky Brand Dungarees, Inc., 898 F.3d 232, 241 (2d Cir. 2018), cert. granted, 139 S. Ct. 2777, 204 L. Ed. 2d 1156 (2019), and rev’d and remanded, No. 18-1086, 2020 WL 2477020 (U.S. May 14, 2020)). The Second Circuit found all of these factors were satisfied and vacated the District Court’s judgment. The Supreme Court granted certiorari “to resolve differences among the Circuits regarding when, if ever, claim preclusion applies to defenses raised in a later suit.” Id.

In this case, the Supreme Court tackled the question of “whether so-called ‘defense preclusion’ is a valid application of res judicata[.]” Id. The Supreme Court recognized that it has never recognized “defense preclusion” “as a standalone category of res judicata[.]” Id. at *5. The Supreme Court, instead, stated that precluding any defenses “must, at a minimum, satisfy the strictures of issue preclusion or claim preclusion[, the two distinct doctrines regarding the preclusive effect of prior litigation.]” Id. at *4-5.

As issue preclusion did not apply in the case, the Supreme Court turned to claim preclusion and stated that “a defense can be barred only if the causes of action are the same in the two suits-that is, where they share a common nucleus of operative facts.” Id. at *5 (internal punctuation and citations omitted). The Supreme Court made clear that the two cases did not share a common nucleus of operative facts. See id. (“Put simply, the two suits here were grounded on different conduct, involving different marks, occurring at different times. Thus, they did not share a ‘common nucleus of operative facts.’”). The Supreme Court then went through the facts of the case to illustrate why the cases did not share the requisite common nucleus of operative fact. Some of these facts included that the most recent action did not involve the use of the “Get Lucky” phrase, and that the complained of conduct occurred after the 2005 Action concluded. See id. at *5-6.

The Supreme Court noted that the principle that “[c]laim preclusion generally does not bar claims that are predicated on events that postdate the filing of the initial complaint[,] . . . takes on particular force in the trademark context, where the enforceability of a mark and likelihood of confusion between marks often turns on extrinsic facts that change over time.” Id. at *6 (citation and internal punctuation omitted). “At bottom, the 2011 Action involved different marks, different legal theories, and different conduct-occurring at different times. Because the two suits thus lacked a ‘common nucleus of operative facts,’ claim preclusion did not and could not bar Lucky Brand from asserting its settlement agreement defense in the 2011 Action.” Id.

The Supreme Court also distinguished Marcel’s arguments based on the facts of this specific case. See id. at *7. In sum, the Supreme Court found that “Marcel’s 2011 Action challenged different conduct—and raised different claims—from the 2005 Action [and u]nder those circumstances, Marcel cannot preclude Lucky Brand from raising new defenses.” Id.

Thus, in the end, the Supreme Court retained the existing framework for whether a defendant is precluded from asserting a defense, essentially, determined by looking at factors required for the two distinct res judicata doctrines—issue and claim preclusion—and did not institute a new prong of res judicata.