Supreme Court Determines No Claim Preclusion of Defense in Trademark Infringement Suit

By Jessica D. Kemper and David G. Barker

Today, a unanimous Supreme Court held in Lucky Brand Dungarees, Inc. v. Marcel Fashions Group., Inc. that claim preclusion did not prevent Lucky Brand from asserting a defense it failed to fully litigate in a prior lawsuit with Marcel.  The Court did not strictly endorse “defense preclusion”—a doctrine that would prevent litigants from asserting defenses in new litigation that were asserted or could have asserted in prior litigation; it decided the case on general claim preclusion principles.

The case has a complicated history.  In 2001, Marcel sued Lucky for trademark infringement of Marcel’s “Get Lucky” mark.  The parties resolved that suit through a settlement agreement in 2003.  In 2005, Lucky sued Marcel for trademark infringement, with Marcel asserting an infringement counterclaim.  Moving to dismiss the counterclaim, Lucky argued that a release in the settlement agreement barred Marcel’s infringement claim.  The district court denied the motion to dismiss on other grounds.  Lucky again raised the defense in its answer but did not raise it again or litigate the defense on the merits in the suit.  The case was resolved by a jury verdict in favor of Marcel’s infringement counterclaim, and the district court enjoined Lucky from using the “Get Lucky” mark.

In 2011, Marcel sued Lucky, claiming it violated the injunction.  Lucky did not assert the release as an affirmative defense in its answer or motion for summary judgment.  Upon remand after an appeal, Marcel filed a second amended complaint, which Lucky moved to dismiss solely on the basis that the release precluded Marcel’s claims.  The district court granted Lucky’s motion to dismiss.  On appeal, the Second Circuit held that Lucky was precluded from raising the release defense by the doctrine of “defense preclusion.”  The court reasoned that claim preclusion encompasses both claims and defenses that were raised or could have been raised and litigated in an earlier action between the same parties, and Lucky was so precluded because it should—and could—have fully litigated the release defense in the prior litigation.  Lucky appealed the Second Circuit’s decision.

With Justice Sotomayor delivering the opinion, the unanimous Court held that claim preclusion did not preclude Lucky’s release defense because the two suits were not based on the “same claim.”  The 2005 litigation arose out of allegations that Lucky infringed Marcel’s “Get Lucky” trademark.  The 2011 litigation, on the other hand, arose out of allegations that Lucky committed infringement by using its own marks containing the word “Lucky.”

Although the Court in a footnote declined to determine whether—and in what circumstances—claim preclusion could apply to defenses specifically, the Court recognized that considerations “other than actual merits” may affect whether a litigant decides to assert a defense.  The Court also recognized that such considerations might be especially significant in trademark infringement suits, where liability often turns on market conditions constantly in flux.  In the end, the “different conduct” and “different claims” meant claim preclusion did not apply, and Marcel could not preclude Lucky from raising “new defenses.”

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