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Intellectual Property Alert >> Who is “Lucky” and Will “Willfulness” Rule? Two Trademark Supreme Court Cases Will Decide

July 26, 2019

On the final day of its last term, the U.S. Supreme Court granted certiorari in two trademark cases, agreeing to weigh in on a circuit split on willful infringement that has plagued the lower courts, and to review a procedural question in a longstanding battle between Lucky Brand Dungarees Inc. and Marcel Fashions Group over rights in the “Lucky” trademark. These cases are unrelated, but both present important procedural questions that could affect future trademark litigation.

“Willful” Infringement
Romag Fasteners, Inc. v. Fossil, Inc. (Romag) involves a question under the federal Lanham Act relating to a successful plaintiff’s ability to recover profits from a trademark infringer.

Under section 43(a) of the Lanham Act, a plaintiff may recover a trademark infringer’s profits “subject to the principles of equity” for a violation. The circuit courts have long been split as to whether willful infringement is a prerequisite to the recovery of profits, or if the willful nature of the infringement is only one element to be considered in the principles of equity analysis.

The District of Connecticut held that trademark owner Romag, must first prove that the infringer acted willfully in order to be entitled to recover defendant’s profits under Section 35. The U.S. Court of Appeals for the Federal Circuit affirmed the District of Connecticut’s decision, concluding that the ruling was consistent with governing precedent from the U.S. Court of Appeals for the Second Circuit, which is one of the six circuit courts (along with the First, Eighth, Ninth, Tenth and D.C. circuits) that requires a finding of willful infringement in order for a plaintiff to receive the trademark infringer’s profits.

For the circuit courts on the other side of the split (the Third, Fourth, Fifth, Sixth, Seventh and Eleventh circuits), in addition to the infringer’s willfulness, the courts also consider whether sales have been diverted, the adequacy of other remedies, and the public interest of making the misconduct unprofitable.

After the Federal Circuit’s ruling, Romag appealed the case to the Supreme Court, which granted Romag’s petition, and in doing so, will settle the question of whether willfulness must be found in order to recover profits, or if it is merely one of several considerations in determining the principles of equity and restitution of profits.

Claim Preclusion
The other trademark case that the Court will hear in the fall, Lucky Brand Dungarees, Inc. (Lucky Brand) v. Marcel Fashions Group, Inc. (Marcel Fashions), involves a question of claim preclusion.

Both parties in this case have been asserting their respective rights to certain “Lucky” trademarks for nearly two decades. Marcel Fashions has most recently alleged that Lucky Brand infringed on Marcel’s “Get Lucky” trademark through Lucky Brand’s use of “Lucky” on its merchandise, and that Lucky Brand did so in violation of an injunction entered in 2005 following litigation between the parties. The U.S. District Court for the Southern District of New York dismissed this action, and instead agreed with Lucky Brand’s contention that Marcel had released its claims for stopping all uses of Lucky Brand’s “Lucky” marks (vs. “Get Lucky”) through a 2003 settlement agreement.

Marcel appealed, and the Second Circuit ruled that the district court erred, holding that Lucky Brand was precluded from raising its release defense based on the 2003 settlement. In reaching that result, the Second Circuit reasoned that, under certain conditions, parties may be barred by the doctrine of claim preclusion from litigating defenses that they could have — but did not — assert in earlier litigation. According to the Second Circuit, Lucky Brands could have asserted that Marcel was precluded from bringing these claims when it litigated related issues in the 2005 action, and Lucky Brands’s failure to do so precludes it from raising the defense in subsequent litigation (i.e. the SDNY case). The Second Circuit defended this reasoning by explaining that when sophisticated parties litigate claims and counterclaims for nearly two decades, applying defense preclusion will “hardly ever be unfair.”

Lucky Brand disagreed with the Second Circuit, and petitioned the Supreme Court claiming that it was “absurd” to permit a plaintiff such as Marcel to raise new claims that were not previously litigated (as it did in the SDNY action) but to bar a defendant, such as Lucky Brands, from providing a defense to these new claims. The Supreme Court granted the petition to hear the case, and its decision will affect the future of litigation defense strategy.

The Bottom Line

Arguments in Romag and Lucky Brand likely will be held in the fall, followed by the Court’s decisions, which will have significant implications for trademark cases moving forward.