Supreme Court Limits and Questions Preclusion of Defenses in TM Case

by Dennis Crouch

Lucky Brand Dungarees, Inc. v. Marcel Fashions Group, Inc. (Supreme Court 2020)

This case makes me sad because it reminds me that my walk-able grocery store, Lucky’s Market, has closed down. Colorado based Lucky’s had its own trademark dispute with California based Lucky Supermarket.

The case before the supreme court involved two other uses of LUCKY:

The parties in this case have been fighting in federal court over trademark rights for almost 20 years; and in three separate actions.

The petition before the U.S. Supreme Court involves “defense preclusion” –asking when a defendant in a subsequent action will be precluded from raising a defense that was or could-have been raised in the prior action.  In its decision, the Supreme Court explained that there is no special doctrine of defense preclusion, but rather the courts should apply the general rules of claim preclusion and issue preclusion.

The first litigation ended in a settlement.  During the second litigation, Lucky Brand raised the prior settlement as a reason to dismiss, but the court denied the motion-to-dismiss without prejudice (thus not “on the merits”).  The second litigation was then decided on other grounds.  In the third litigation Lucky Brand again raised the prior settlement as a defense, and Marcel argued that it was precluded.  In its analysis, the Supreme Court focused on whether the third litigation involved the “same claim” as the second; and whether it mattered.

Claim preclusion bars relititgation of an already decided claim between two parties.  Our notice pleading system encourages parties to join together in a single lawsuit all the claims that the parties have against one another.  Once the lawsuit ends, our claim preclusion will step-in to bar any further litigation between the parties relating to that transaction or occurrence.  If, for example, a patentee sues a manufacturer for infringing claim 1 of its patent (and wins).  The patentee will be barred from later filing a lawsuit asserting claim 2 of the same patent against the same manufacturer for the same infringing behavior.

Claim preclusion is thought to also precludes defenses that were raised or that could have been raised in the the first lawsuit.  However, a key limiting factor that the court found today is the “same transaction” or “common nucleus of operative facts” test — and that test is defined by the well pled complaint.

Here, the Supreme Court explained that the two lawsuits did not involve the same claims: “Put simply, the two suits here were grounded on different conduct, involving different marks, occurring at different times.”  Thus, no claim preclusion. [I believe that both cases involved assertion of the “get lucky” mark, and so I don’t know what the court is talking about regarding “different marks.” – DC]

Note here that the court also suggested a possibility of eliminating claim preclusion to defenses altogether: “There may be good reasons to question any application of claim preclusion to defenses.” That issue though is saved for another day.

Issue preclusion bars relitigation of an already decided issue.  However, issue preclusion requires that the issue be actually decided. Although the defense was raised in the original lawsuit, it was not actually decided but rather dismissed without prejudice. Thus, no issue preclusion.

Trademark Law: In his short post on the case, Eric Moran notes:

The Court specifically pointed out the risk in barring such claims in trademark cases, when “liability for trademark infringement turns on marketplace realities that can change dramatically from year to year.”

The court could have allowed more conflation between these various cases, but drew a tight line on the “same claim” element of claim preclusion.  One ongoing debate on this topic in patent law is the extent that a patentee should be required to assert all of its patents related to a defendant’s accused infringing content at the risk of beinig precluded. Or, may a patentee file a first lawsuit with a first patent; then later a second lawsuit with a second patent; etc. Current Federal Circuit rule is that allegations of infringement of two different patents involve the “same claim” only if the claim scopes are “essentially the same.” SimpleAir, Inc. v. Google LLC, 884 F.3d 1160, 1167 (Fed. Cir. 2018); See also Acumed LLC v. Stryker Corp., 525 F.3d 1319 (Fed. Cir. 2008) (same claim also requires infringing activity to be “essentially the same”).

Patent Infringement Claim Preclusion: Only When Accused Device is “Essentially the Same” as Prior Adjudicated Device