14 January 2020TrademarksRory O'Neill

‘Defence preclusion’ line falls flat at SCOTUS, say lawyers

Marcel Fashion Group could face an “uphill battle” at the US Supreme Court in its long-running dispute with Lucky Brand Dungarees, lawyers have told WIPR.

The court yesterday, January 13 heard oral arguments in the case, which centres on whether the claim preclusion rule bars Lucky Brand from raising defence claims that were not litigated through to judgment in a previous dispute between the parties.

Lucky Brand won a victory over Marcel in 2011 at the US District Court for the Southern District of Florida after both accused each other of trademark infringement. At the heart of its argument was that a 2003 settlement agreement between the parties released Marcel’s trademark-specific claims.

Marcel argues that Lucky failed to raise this ‘release defence’ in an earlier suit that led to a 2005 judgment in Marcel’s favour.

After Marcel appealed the 2011 district court ruling, the US Court of Appeals for the Second Circuit ultimately found that Lucky Brand should have raised the release defence during the earlier proceedings.

Lucky Brand’s claims were thus barred under the ‘claim preclusion’ rule, the Second Circuit found.

The denim garment maker has now asked the Supreme Court to clarify that claim preclusion does not apply to defence claims.

Marcel argues that all of the previous proceedings between the parties result from the “same transaction”, and that the Second Circuit was justified in requiring Lucky Brand to have raised its claims earlier.

Danielle Johnson, senior associate at Goldberg Kohn, followed oral arguments at the Supreme Court yesterday and predicted that Marcel could face a struggle to convince the justices.

“Though Marcel tried to make the ‘defence preclusion’ rule articulated by the Second Circuit seem like the mirror image of claim preclusion, the oral arguments made clear that the rule is winding, confusing, and applied only in certain odd factual circumstances,” Johnson said.

“Marcel's position is, therefore, harder to follow on its face than Lucky Brand's, which is that that a defence not previously litigated to judgment cannot be barred in a case involving new claims,” she explained.

David Martinez, partner at Robins Kaplan, agreed that Marcel’s arguments had been met with a “fair degree of scepticism” by the Supreme Court justices.

“The questions raised by the justices suggest that they do not view the underlying cases as meeting the standard for claim preclusion, and that the court is therefore inclined to overturn the Second Circuit,” Martinez said.

The Second Circuit’s reasoning in grouping ‘defence preclusion’ in with claim preclusion came under intense scrutiny from the justices.

“Justice Breyer noted that he could not find a single case that was in line with the Second Circuit's ‘defence preclusion’ rule,” Johnson said.

“Although Marcel's counsel was able to point out two analogous cases, based on the line of questioning, it seems the case may be an uphill battle for Marcel,” she added.

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More on this story

10 January 2020   The US Supreme Court is set to hear arguments next week in a key dispute that is likely to have ramifications for what remedies courts can apply for trademark infringement.
1 July 2019   The US Supreme Court has agreed to rule on two trademark cases, including a dispute over whether plaintiffs must establish wilful infringement in order to be awarded profits.
15 May 2020   Defendants cannot be barred from raising defence claims that weren’t litigated through to judgment in previous cases on different issues, the US Supreme Court has ruled.