The Supreme Court has granted certiorari to two cases that could have significant impacts on trademark litigation. In Lucky Brands Dungarees, Inc., et al. v. Marcel Fashions, Inc., the Court will address whether new, un-litigated defenses in response to newly asserted claims are permissible with federal preclusion principles. Meanwhile, in Romag Fasteners, Inc. v. Fossil, Inc. et al., the Court hear arguments on whether willfulness is required for awarding infringing profits for false designation of origin of false descriptions.
Lucky Brands Dungarees, Inc. et al. v. Marcel Fashions, Inc.
For Lucky Brands, the dispute at issue arose when Marcel Fashion Group, Inc. (“Marcel”) sued Lucky Brand Dungarees, Inc. and affiliates (“Lucky Brand”) under the Lanham Act in 2011. Marcel alleged that Lucky Brand infringed their mark for “Get Lucky” with their use of the word “Lucky” on apparel, but the district court dismissed the claim as previously settled per a 2003 agreement. On appeal, the Federal Circuit ruled that the district court erred because Lucky Brand was precluded from bringing the defense.
After the settlement agreement in 2003, Marcel had brought another suit in 2005 for Lucky Brand’s use of “Get Lucky”. Lucky Brands asserted the settlement defense multiple times early on in the litigation, but failed to do so in its Motion for Summary Judgment or to the jury. The jury found for Marcel, which Lucky Brands did not appeal.
In 2011, Marcel then filed the present lawsuit, asserting their “Lucky” trademark. After initially winning with other defenses before it was remanded after appeal, Lucky Brands was dealt a second amended complaint by Marcel. In response, Lucky Brands asserted the affirmative 2003 settlement defense for the first time in this litigation. Marcel argued Lucky Brands’ argument was precluded res judicata due to the 2005 disposition. The judge ruled that issue preclusion did not apply because the issue was not actually litigated and resolve by the 2005 action. Similarly, the judge found that claim preclusion did not apply because Lucky Brand was not asserting a claim against Marcel.
On appeal, the Second Circuit reversed the district court ruling. The Second Circuit relied on the fact that Lucky Brands could have raised the defense in the 2005 lawsuit. This created a circuit split with the Eleventh and Ninth Circuits, which had ruled the opposite way in similar cases.
In its petition for certiorari, Lucky Brands argued that no Supreme court precedent allows for issue or claim preclusion for defenses which were not resolved in previous litigation, emphasizing the different cause of action as particularly noteworthy. Additionally, Lucky Brands points out that the inconsistency of relying on preclusion for purposes fairness and efficiency. To the efficiency argument, this precedent would require defendants to raise any and all defenses in every single lawsuit for fear of additional unrelated lawsuits that may overlap with a defense that could have been used in that case, resulting in more litigation. On the fairness angle, Lucky Brands argues that the ruling raises the requirements of defenses even higher than that of counterclaims, because counterclaims must only be brought when arising from the same transaction or occurrences of the initial claims, which is not the case here since the trademark being asserted is not the same one.
The Supreme Court ruling here will be of significant interest to both plaintiffs and defendants since it would have profound impact on the arguments being made, anticipated, and precluded in the course of litigation.
Romag Fasteners, Inc. v. Fossil, Inc. et al.
In Romag, Romag Fasteners, Inc. (“Romag”) sued Fossil, Inc. et al (“Fossil”) for both patent and trademark infringement in the District of Connecticut. The jury found that Fossil liable for both, but that the trademark infringement was merely “callous”, not “willful. Based on this finding, the district court ruled against awarding profits for the trademark infringement. After being appealed and remanded on grounds relating to the patent infringement award and a new relevant Supreme Court decision coming down, the case was again appealed to the Second Circuit to challenge the willfulness requirement.
Romag argued that the precedent relied upon for the decision, George Basch Co. v. Blue Coral, Inc., 968 F.2d 1532, 1540 (2d Cir. 1992), was no longer good law. They based this argument on the amendments to the Lanham Act that occurred in 1999, seven years after the relevant precedent.
The Federal Circuit found no reason to discuss what it viewed as settled law again, citing that “when a court decides upon a rule of law, that decision should continue to govern the same issues in subsequent stages in the same case” (citing to, among others, Arizona v. California, 460 U.S. 605, 618 (1983).
However, contrary to the assertion of it being settled law, the decision results in a 6-6 Circuit split. The Third, Fourth, Fifth, Sixth, Seventh, and Eleventh Circuits have no willfulness requirement for an award of profits, while the First, Second, Eighth, Ninth, Tenth and D.C. Circuits fall in line with the Federal Circuit ruling.
The highly divided circuit split and how the Supreme court resolves it, especially with its significant implications for damage awards, bare watching moving forward.
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