The Second Circuit ruled last week in favor of Plaintiff Marcel Fashion Group Inc. (“Marcel”), vacating the trial court’s grant of summary judgment in favor of Defendant Lucky Brand Dungarees, Inc. (“Lucky Brand”), which had dismissed Plaintiff’s claims of trademark infringement, false designation of origin and unfair competition under the doctrine of res judicata.  Since at least as early as 1986, Marcel has sold a line of apparel under its federally registered trademark GET LUCKY. In 1990, Lucky Brand launched its brand of jeans and casual apparel under the mark LUCKY BRAND, and other formatives of the word LUCKY. Lucky Brand quickly became an enormously successful clothing line, operating nearly 200 of its own retail stores in the United States, with hundreds of millions of dollars in annual sales.

In 2001, Marcel filed a trademark infringement and unfair competition suit against Lucky Brand, which resulted in a 2003 settlement agreement. This, however, did not resolve the disagreements between the parties, and in 2005, Lucky Brand sued Marcel for trademark infringement after Marcel launched a GET LUCKY line of jeans and sportswear. Marcel counterclaimed against Lucky Brand’s use of GET LUCKY, asserting infringement and breach of the 2003 settlement, and also sought to enjoin Lucky Brand from using the trademarks GET LUCKY, LUCKY BRAND, and other LUCKY formatives. That trial resulted in a jury finding that Lucky Brand infringed Marcel’s GET LUCKY mark by using GET LUCKY, LUCKY BRAND, and “any other marks including the word ‘LUCKY’ after May 2003,” and awarding  Marcel monetary damages.

Following the verdict, the parties negotiated and jointly drafted a Final Order and Judgment. While Marcel initially proposed the inclusion of a paragraph stating: “Lucky Brand Dungarees, Inc. and Liz Claiborne, Inc. [the parent corporation] … are permanently enjoined from further use of GET LUCKY, the LUCKY BRAND trademarks and any other trademarks using the work ‘Lucky,’ ” Lucky Brand refused to agree to those terms. Marcel’s counsel removed the paragraph and resubmitted the proposed order without the paragraph. The Final Order and Judgment came to include an injunction against Lucky Brand using the trademark GET LUCKY, and affirming that “the Lucky Brand Parties infringed Marcel Fashion’s GET LUCKY trademark by using GET LUCKY, the LUCKY BRAND trademarks, and any other trademarks including the word “LUCKY” after May 2003.”

Two years later, the parties ended up in court again when Marcel filed a complaint against Lucky Brand, alleging that Lucky Brand infringed Marcel’s GET LUCKY trademark “by using the Lucky Brand marks in the identical manner and form and on the same goods for which they were found liable for infringement [in the 2005 Action].” The trial court granted Lucky Brand’s motion for summary judgment on res judicata grounds, holding that: (1) Marcel’s claims were precluded by the 2005 Action; and (2) Marcel waived its right to seek injunctive relief against Lucky Brand’s use of LUCKY BRAND by failing to seek such relief in the 2005 Action. The trial court reasoned the Marcel could have, and indeed did, seek injunctive relief directed against use of the LUCKY BRAND marks in the 2005 Action, but then abandoned any such demand. Furthermore, Marcel had been awarded damages for such of the marks “after May 2003,” which was deemed to be compensation for any future infringing use of its marks. The Second Circuit reversed and remanded.

The appellate court first addressed the district court’s ruling that Marcel’s 2011 suit was precluded by res judicata. “Winning a judgment based on the defendant’s violation of the plaintiff’s rights does not deprive the plaintiff of the right to sue the same defendant again for the defendant’s further subsequent similar violations.” The Court explained that claim preclusion requires a showing that: (1) the earlier action involved an adjudication on the merits; (2) the previous action involved the same adverse parties or those in privity with them; and (3) the claims asserted in the subsequent action were, or could have been, raised in the prior action. The first two elements were present in this case: the 2005 action was between the same parties as the parties to the instant suit, and that case was adjudicated on the merits. However, the claims asserted by Marcel in the 2011 case were not, and could not have been, raised in the prior action. In the 2005 action, Marcel sought, and won, damages for infringements that occurred after May 2003, but prior to the filing of the complaint. Therefore, the jury verdict could not be construed as awarding damages for infringements that had not yet occurred and might never occur. In fact, such an award could not have been granted because there was no showing that Lucky Brand would infringe the GET LUCKY mark in the future.

The Second Circuit also held that Marcel’s failure to obtain an injunction in the 2005 action covering more than use of the mark GET LUCKY did not shield Lucky Brand from liability for future infringements for use of the LUCKY BRAND trademarks, and any other trademarks using the word “LUCKY”. Indeed, the Court characterized as “illogical” the proposition that a winning plaintiff’s failure to seek or obtain an injunction “immunizes” the losing defendant from liability for future infringements. The Court reasoned that denials of requests for injunctive relief are common for various reasons unrelated to plaintiff’s claim for damages, such as when monetary damages are deemed adequate to compensate for injury or when there is insufficient evidence of likelihood of future violations:

A plaintiff’s entitlement to an injunction is more clearly established where the defendant has persisted in the infringement conduct in spite of a prior damages award. The plaintiff may plausibly deem it both strategically and economically preference to advance only claims it is confident of winning.

The Court noted that a plaintiff should not be compelled to seek a remedy that is not to its advantage, on pain of losing its entitlement to protect its rights from future violations. Accordingly, the Second Circuit concluded that the district court erred in ruling that Marcel’s 2011 suit was precluded by its having sued Lucky Brand in 2005 for infringement of its GET LUCKY mark, and receiving an injunction only against use of mark GET LUCKY and not against the LUCKY BRAND trademarks, and any other trademarks using the word “LUCKY.” The grant of summary judgment in favor of the defendants was vacated, and the case remanded.

This ruling may be seen as a blow to parties who reasonably believe they are negotiating an arms-length agreement avoiding injunctions against particular trademark use. While the Second Circuit’s general proposition that a trademark plaintiff does not lose the right to a future injunction simply by virtue of its failure to obtain one in prior action, the facts suggest that Lucky Brand considered that the terms of the jointly prepared Judgment and Order allowed it to continue to sell its successful LUCKY BRAND apparel. That protection was only against contempt, however. If Lucky Brand wanted an agreement that its use of the mark LUCKY BRAND or other “LUCKY” formatives did not infringe GET LUCKY, it should have negotiated for one. It did not do so. Future trademark defendants should be aware of that lesson when negotiating settlements.