IP Law Daily Supreme Court hears dispute over standard for awarding an infringer’s profits under the Lanham Act
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Tuesday, January 14, 2020

Supreme Court hears dispute over standard for awarding an infringer’s profits under the Lanham Act

By Cheryl Beise, J.D.

The Justices are asked to decide whether an award of an infringer’s profits under Section 35 of the Lanham Act requires a trademark owner to show willful infringement for a violation of Section 43(a).

The Supreme Court heard oral arguments in a case asking whether Section 35 of the Lanham Act, 15 U.S.C. §1117(a), requires a trademark owner to show willful infringement in order to recover a defendant’s profits for a violation of Section 43(a), 15 U.S.C. § 1125(a). Counsel for petitioner Romag Fasteners, Inc., and respondent Fossil, Inc., debated judicial interpretation of the phrase "subject to principles of equity" in Section 35, including whether precedent has required a showing of "willfulness" for application of the equitable remedy of disgorgement of profits. A few Justices pressed counsel to distinguish "willfulness" from similar behavior, including knowing infringement, recklessness, gross negligence, and, as the jury found in the underlying case, "callous disregard" of a trademark owner’s rights.

The facts of the underling case are not in dispute. A Connecticut jury found that Fossil infringed Romag’s unregistered trademarks related to a magnetic snap because its Chinese handbag manufacturer had purchased counterfeit Romag snaps from an unauthorized source in China. The jury decided Fossil infringed Section 43(a) of the Lanham Act, 15 U.S.C. § 1125(a), which prohibits false representations regarding the origin, endorsement, or association of goods through the use of another’s distinctive mark. Finding that Fossil’s infringement was in "callous disregard" of Romag’s rights, the jury made an advisory award of $90,759 of Fossil’s profits for trademark infringement under an unjust enrichment theory and $6,704,046 of Fossil’s profits for trademark infringement under a deterrence theory. The district court granted Fossil’s motion for judgment as a matter of law, concluding that because the jury found that Fossil’s trademark infringement was not willful, Romag was not entitled to an award of Fossil’s profits under Second Circuit precedent. The Federal Circuit, applying Second Circuit law, affirmed that the lack of willful trademark infringement precluded an award of Fossil’s profits under the Lanham Act. According to the Federal Circuit, a 1999 amendment to Section 35(a) of the Lanham Act, 15 U.S.C. §1117(a), which added the clause "or a willful violation under section 1125(c)"—the federal dilution provision—was made to correct a "drafting error" that inadvertently left out trademark dilution from the remedies provisions of the Act. The Federal Circuit held that the amendment did not alter the status of Second Circuit precedent requiring a showing of willfulness for disgorgement of profits.

Lisa S. Blatt, of Williams & Connolly, presented arguments for Romag Fasteners and Neal K. Kaytal, of Hogan Lovells, appeared on behalf of Fossil, Inc.

Petitioner’s argument. Blatt began by stating the disputed question as whether the phrase "principles of equity" requires trademark owners "to prove willfulness as an absolute precondition to profit awards." According to Blatt, the phrase "principles of equity" was used in the statute to signify a multifactor analysis where no one factor is controlling. While a defendant’s culpability is a weighty factor, it should not be controlling. Moreover, even assuming a willfulness requirement existed before the Lanham Act, the statutory text and structure reflect a congressional intent to supersede it. The 1999 amendment imposed a willfulness requirement for trademark dilution under 1125(c), but there is no comparable requirement for infringement violations under Section 1125(a) or any other cause of action under the Lanham Act.

Justice Sotomayor asked whether equity would consonance an award for other behavior, such as negligence or good faith. Blatt responded that in cases of counterfeiting or infringement of registered marks, a plaintiff can opt for an award of statutory damages. Blatt then cited common law pre-Lanham Act cases to support her argument that an infringer’s profits may be awarded absent a finding of willfulness.

Justice Ginsburg aksed Blatt to define willfulness. Blatt said that willfulness includes "intentional conduct and willful blindness, which is awareness of a high probability of harm and you take affirmative steps to avoid learning about it." She added that it usually includes recklessness, but the jury was instructed only on willfulness and not recklessness. Blatt said that callous disregard under Second Circuit case law is a function of willfulness.

Justice Breyer asked why the statute doesn’t simply allow discretion to the district court judge to award as much money or as little as the judge thinks is fair. Blatt said that six circuits have read the statute to mean that profits cannot be awarded if willfulness is not shown.

Justice Kagan asked Blatt whether it was possible to find an intermediate position. "For example, willfulness might not be a—an absolute necessity but it certainly should be entitled to very significant weight," she suggested. Upon further questioning, Blatt contended that the principals of equity should apply, adding that the factors are clearly defined already in the case law. "The only thing they’re disagreeing about is whether willfulness is a gateway on/off switch," Blatt said.

"Well, that’s a little strange," Chief Justice Roberts remarked. "I mean, equity either includes profits or it doesn’t. I don’t know why you would just sort of split the baby and so each side is a little happy."

Justice Breyer raised the question of what amount of profits are appropriate for a snap on a purse; the full $4 million Fossil made on sales of the purses? Why should Romag recover $4 million, when it’s unlikely that anybody or very few people were lured into buying the purse because of the infringing snap. The Chief Justice echoed this sentiment.

Blatt said that Fossil would argue that Romag is entitled to only $900 of its profits. She suggested that the amount of profits should rest within the court’s discretion, applying principals of equity.

Respondent’s argument. Katyal began by declaring that his opponent was attempting to "sweep both Congress’s words and two centuries of history under the rug." He said that Congress expressly made that Lanham Act’s monetary awards subject to the "principles of equity," and over many decades courts have developed a principle that governs cases like this one—requiring willfulness for the equitable remedy of profits awards, unlike for injunctions. He added that no court case actually supports a contrary rule. He also contended that Congress in 1999 didn’t repeal the textual hook for the willfulness requirement, which was the phrase "principles of equity." Rather, the amendment added a new cause of action, trademark dilution, one with no historical analogue and which did not depend on customer confusion.

Justice Sotomayor observed that the term "willfulness" over the centuries has been differently defined by different court. Some have included recklessness, while others haven’t. She asked why an award of profits is not simply a question of equity within the court’s discretion. Kaytal explained that after a plaintiff passes the threshold of getting a profits award, which is "subject to the principles of equity," then there’s discretion at the back end.

Justice Sotomayor pressed Kaytal on the meaning of willfulness. Kaytal said that the "lowest common denominator is that the defendants must be actually aware of the infringing activity." He stated that five treatises have set out knowledge as a hard and fast requirement and case after case has said willfulness meaning knowledge.

Justice Kavanaugh noted that "willfulness" is a vague, ambiguous word, sometimes covering recklessness. "What would be the policy objective achieved by excluding reckless infringement?" he asked. Kaytal responded by reiterating that court have always required subjective knowledge.

Justice Gorsuch asked Kaytal to explain under the statutory text how principles of equity might be an unusual way of saying willfulness?

Kaytal noted that Congress acts against the backdrop of the common law and is deemed to interpret it. "Profits is, after all, an equitable remedy in the first place. And so in order to decide whether that equitable remedy should be given, you would look to the tradition of equity. And that tradition has always been—the long-standing practice for two centuries is that—is that willfulness has been required." He again said that every single case that’s given profits awards in two centuries has required willfulness.

Justice Ginsburg also noted that there is no uniform agreement on what "willful" means. Why not include callous disregard or even recklessness. Kaytal said that there is no case before 1946 in which callous disregard was enough to award profits, "except for the theoretical possibility of Oakes."

Kaytal disagreed. "They have a statutory damages provision to deal with low damages awards. Willfulness cuts off the threat of very large profits awards. And this case is a perfect example. She sought $6 million, every dollar in profits for the sale of these handbags, and that’s what she was referring to with this attribution thing. And, indeed, they sought every dollar of Macy’s profits, $7 million. And Macy’s is an entity that, you know, nobody is arguing had any knowledge whatsoever, way—way, shape, or form, or even recklessness with respect to what was going on with these little snaps in the handbags. That’s the danger."

Chief Justice Roberts asked how much in profits could be awarded. "It doesn’t strike me as overreaching to ask for every dollar of the profits if you think you’re entitled to profits," he said. Kaytal agreed that that is the downside, especially because the statute puts the burden on the defendant to disprove any attribution. One purpose of the willfulness requirement is to "knock out and block circumstances in which high awards are threatened, and indeed settlements are forced, which happened in this very case." Kaytal said that the injunction alone in this case cost Fossil $4 million because it had to remove all of the infringing bags from its shelves. "And so in a world in which you have injunctions and damages and all the attendant consequences of pulling inventory, would Congress really have intended to disrupt a 200-year-long tradition?"

Justice Kagan asked Kaytal to address the tree cases cited by Blatt. Kaytal emphasized that five treaties and 37 of the 50 cited cases do set out the rule or say willfulness is the only factor. "So, look, at the end of the day, she’s got one case from Alabama in 1883, which was never actually resulted in an award of profits. You have five treatises on the other side. You have 37 of the 50 cases which do state a rule, and 13 cases which are fully consistent with the rule."

Justice Ginsburg asked Kaytal to explain the features of trademark that make it different from copyright and patent where a plaintiff can obtain profits without showing willfulness? Kaytal explained that trademark law is fundamentally different from those because it is about consumer confusion and protection of consumers, rather than ownership.

The case is No. 18-1233.

Attorneys: Lisa S. Blatt (Williams & Connolly LLP) for Romag Fasteners, Inc. Neal K. Kaytal (Hogan Lovells US LLP) for Fossil, Inc.

Companies: Romag Fasteners, Inc.; Fossil, Inc.

MainStory: TopStory Trademark

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