15 May 2020TrademarksRory O'Neill

SCOTUS tosses Second Circuit’s blanket TM defence rule

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.

The Supreme Court’s ruling brings the 20-year legal battle between  Lucky Brand Dungarees and  Marcel Fashions Group over various trademarks featuring the term ‘lucky’ closer to an end.

The decision is an  expected reversal of the US Court of Appeals for the Second Circuit, which in a controversial 2018 ruling introduced the concept of a broad “defence preclusion”, by holding that Lucky Brand should have raised certain defence claims in prior litigation.

That’s primarily because separate 2005 and 2011 lawsuits between the parties dealt with different issues, so Lucky Brand could not be barred from raising a new defence. The cases “involved different marks, different legal theories, and different conduct—occurring at different times,” wrote Justice Sonia Sotomayor on behalf of the Supreme Court.

“Trademark litigation plaintiffs must appreciate that asserting new claims will open the door for defendants to assert new defences,” commented Andrew Avsec, co-chair of Brinks Gilson & Lione’s trademark practice group.

In the third round of litigation between the parties in 2011, Lucky Brand successfully argued that Marcel had released its trademark claims in a 2003 settlement agreement.

But the Second Circuit reversed Lucky Brand’s win, based on Marcel’s argument that Lucky Brand could have raised that defence in prior litigation between the parties. The settlement defence had come up briefly during previous litigation, but Lucky Brand did not pursue it through to judgment.

The Second Circuit effectively introduced defence preclusion as a standalone category under the traditional principle of res judicata. This means that parties cannot religitate issues already decided in previous cases, and also that they cannot raise new issues that could have been raised and decided in a prior action.

Marcel argued that the Second Circuit’s rule was the proper application of res judicata to defence claims, while Lucky Brand said it had been unfairly barred from raising a defence that had not been previously litigated.

Yesterday’s Supreme Court judgment, while clarifying that the res judicata principle does apply to defence claims, rejected the Second Circuit’s broad defence preclusion doctrine.

The ruling means defence preclusion can only apply in cases dealing with the same issues and facts, said Josh Reisberg, partner at Axinn, Veltrop & Harkrider.

“The Second Circuit’s decision would have mandated a defendant to not just raise a defence in a pleading, but actually litigate that defence in order to preserve it in a later action, even one based on different facts and different legal theories,” Reisberg explained.

The case will now be sent back to the Second Circuit for proceedings in line with the Supreme Court’s judgment.

As well as a win for Lucky Brand, the ruling will also likely come as a relief for defendants in trademark litigation. “The Supreme Court expressed concerns during oral argument that such a blanket application of ‘defence preclusion’ would create uncertainty and pressure litigants to press all defences for fear of waiving them,” said Brian Michalek, partner at Saul Ewing Arnstein & Lehr.

“The court also questioned the symmetry of such a rule that would allow the plaintiff to bring new claims but the defendant to be blocked,” Michalek added.

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