U.S. Supreme Court Rejects 'Defense Preclusion' in Trademark Suit

In 2018, the U.S. Court of Appeals for the Second Circuit reversed, finding that Lucky Brand was precluded from asserting the release defense under a doctrine it called "defense preclusion." The Second Circuit described this doctrine as a corollary to the well-known doctrine of issue preclusion that defendants may assert against plaintiffs, and noted that it bars a defendant from asserting an unlitigated defense that it raised or could have raised earlier. In doing so, the Second Circuit created a split with prior decisions from the Ninth, Eleventh and Federal Circuits. In 2019, the Supreme Court granted certiorari to resolve this split regarding "when, if ever, claim preclusion applies to defenses raised in a later suit."

The Supreme Court's Ruling

In a unanimous decision, the U.S. Supreme Court found that Lucky Brand was not barred from asserting its defense because the 2011 suit and the 2005 suit did not share a common nucleus of operative facts.

Writing for the Court, Justice Sonia Sotomayor explained that the Supreme Court has never recognized "defense preclusion" as an independent principle. Rather, any preclusion of defenses must satisfy the requirements of either of the two res judicata doctrines: issue preclusion or claim preclusion. Because issue preclusion was not relevant in the case, the Court conducted a claim preclusion analysis.

The Court clarified that a defense can only be barred under claim preclusion if the "causes of action are the same in the two suits — that is, where they share a common nucleus of operative facts." In this case, Lucky Brand was not barred from asserting its release defense because the two suits at issue were "grounded on different conduct, involving different marks, occurring at different times."

The Court noted that in the 2005 suit, Marcel alleged that Lucky Brand had infringed on Marcel's "Get Lucky" trademark by using the phrase "Get Lucky." The 2011 suit, however, only alleged that Lucky Brand's uses of its own marks containing the word "Lucky" were infringing. Thus, because the suits involved different trademarks, the Court found that there was no risk that "a different judgment in the second action would impair or destroy rights or interests established by the judgment entered in the first action." The Court also observed that the allegedly infringing conduct in the 2011 suit occurred after the conclusion of the 2005 suit. Accordingly, because the 2011 suit and the 2005 suit lacked a common nucleus of operative facts, the Court found that claim preclusion could not bar Lucky Brand from asserting its defense that Marcel had released its trademark claims in the 2003 settlement agreement.

The Court also explained that claim preclusion does not prevent claims that are predicated on events that postdate the filing of the initial complaint, noting that this principle is particularly important 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." The Court further noted that the Second Circuit found that Marcel's claims in the 2011suit were not barred by its claims in the 2005 suit. Accordingly, because "liability for trademark infringement turns on marketplace realities that can change dramatically from year to year," the Court found that the 2005 suit could not bar Lucky Brand's defenses in the 2011 suit.

Looking Ahead

Going forward, litigants who consider asserting an argument that the opposing party is precluded from putting forth a particular defense must be sure that the argument satisfies the requirements of issue preclusion or claim preclusion.

In the trademark context specifically, the Court's discussion of the importance of claim preclusion on trademark infringement actions, and focus on the "extrinsic facts that change over time," presents something of a double-edged sword for trademark owners. On one hand, this discussion reinforces the principle that trademark owners may bring subsequent suits against repeat infringers, even when the facts and circumstances surrounding the later-filed lawsuit appear, at first blush, similar to those in the earlier lawsuit. On the other hand, the Court's ruling allows for the possibility that serial infringers can take multiple bites at the apple with respect to defenses in subsequent litigation, even when those same defenses may have been available in earlier lawsuits.

To avoid this result, trademark owners may consider seeking broader injunctions in their initial suits or as part of a settlement agreement, as well as attempting to enforce prior judgments against repeat infringers, rather than filing new complaints that could be vulnerable to previously unasserted defenses.

*****

Anthony J. Dreyer is a Partner in the New York office of Skadden, Arps, Slate, Meagher & Flom LLP. He can be reached at [email protected].