IP Law Daily Willfulness showing not required to recover infringer’s profits under Lanham Act
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Thursday, April 23, 2020

Willfulness showing not required to recover infringer’s profits under Lanham Act

By Thomas Long, J.D.

Resolving a circuit split, the High Court held that a mark owner should not have been denied a disgorgement remedy on the ground that the defendant acted only with "callous disregard" and did not infringe the mark willfully.

A plaintiff in a trademark infringement suit is not required to show that a defendant willfully infringed the plaintiff’s trademark in order to recover an award of the defendant’s profits under Section 35 of the Lanham Act, the U.S. Supreme Court has decided. The Court vacated and remanded a decision of the U.S. Court of Appeals for the Federal Circuit, holding that magnetic fastener maker Romag Fasteners, Inc., was not entitled to an award of $6.8 million in profits derived from fashion accessories designer Fossil Group, Inc.’s use of counterfeit ROMAG-brand snaps on handbags because Fossil’s infringement was not willful. Although mental state was a relevant factor in deciding whether to disgorge profits, the Court found no support in the statute or pre-Lanham Act common law for Fossil’s suggested "inflexible precondition" of a willfulness showing. All nine Justices agreed with the result reached by the majority, with Justice Sonia Sotomayor writing separately to concur in the judgment (Romag Fasteners, Inc.v. Fossil Group, Inc., April 23, 2020, Gorsuch, N.).

Romag sold magnetic snap fasteners for wallets, purses, handbags, and other products under its registered trademark, ROMAG. The fasteners were also covered by the claims of a patent held by Romag. Fossil designed, marketed, and distributed fashion accessories, including handbags and small leather goods, and contracted with independent businesses to manufacture its products. In 2002, Fossil and Romag entered into an agreement to use ROMAG magnetic snap fasteners in Fossil products. In 2010, Romag learned that one of Fossil’s authorized manufacturers was using counterfeit ROMAG fasteners in Fossil’s handbags. Romag filed suit against Fossil on November 22, 2010, alleging, among other things, patent infringement and trademark infringement.

On April 4, 2014, after a seven-day trial, the jury returned a verdict finding Fossil liable for patent and trademark infringement. The jury awarded damages for patent infringement based on a reasonable royalty. With respect to trademark infringement, the jury made an advisory award of nearly $6.8 million of Fossil’s profits under a deterrence theory. However, despite determining that Fossil had acted with "callous disregard" for Romag’s trademark rights, the jury found that Fossil’s patent and trademark infringement was not willful. Applying Second Circuit precedent, the district court held as a matter of law that, because Fossil’s trademark infringement was not willful, Romag was not entitled to an award of Fossil’s profits.

Romag appealed to the Federal Circuit, which affirmed the district court’s decision. 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)" (Lanham Act Section 43(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. Romag filed a petition for certiorari, asking the Supreme Court to resolve a circuit split on the issue, which the Court granted.

Writing for the majority, Justice Neil Gorsuch noted that, whereas Section 35(a) did make a showing of willfulness a precondition to a profits award in a case brought under Section 43(c), Romag alleged and proved a violation of Section 43(a), which established a cause of action for the false or misleading use of trademarks. "And in cases like that," Justice Gorsuch said, "the statutory language has never required a showing of willfulness to win a defendant’s profits." Although profits awards are subject to a registration requirement set forth by Section 15 (15 U.S.C. §1111) and a knowledge requirement for counterfeiting cases set forth by Section 32 (15 U.S.C. §1114), no one had suggested that those provisions created a rule that "willfulness" be established.

Justice Gorsuch also noted that the Lanham Act contained several express references to mental states, including intent and knowledge standards for enhanced damages and attorney fees awards under Section 35(b). In addition, Section 36 permitted courts to order that infringing items be destroyed if the plaintiff proves any violation of Section 43(a) or a "willful" violation of Section 43(c). Other parts of the Lanham Act specified mental states required for liability, even before reaching the question of remedies. "Without doubt, the Lanham Act exhibits considerable care with mens rea standards," Justice Gorsuch wrote. "The absence of any such standard in the provision before us, thus, seems all the more telling."

Fossil pointed to statutory language indicating that a Section 43(a) violation can trigger an award of the defendant’s profits "subject to the principles of equity." According to Fossil, equity courts historically required a showing of willfulness before authorizing a profits remedy in trademark disputes. Calling the suggestion "curious," Justice Gorsuch stated that accepting Fossil’s contention would require the Court to assume that Congress intended to incorporate a willfulness requirement "obliquely" while it prescribed mens rea conditions expressly elsewhere in the Act. Justice Gorsuch also reasoned that the phrase "principles of equity" didn’t readily suggest a substantive rule about mens rea from a discrete domain like trademark law. "In the context of this statute," the Justice wrote, "it more naturally suggests fundamental rules that apply more systematically across claims and practice areas."

Moreover, it was far from clear whether trademark law historically required a showing of willfulness for a profits remedy. The most that could be said with certainty, according to Justice Gorsuch, was that mens rea figured as an important consideration in awarding profits in pre-Lanham Act cases. "This reflects the ordinary, transsubstantive principle that a defendant’s mental state is relevant to assigning an appropriate remedy," Justice Gorsuch said. "That principle arises not only in equity, but across many legal contexts." Accordingly, while the Court did not doubt that mental state was a relevant factor in determining whether a profits award was appropriate, the Court declined to find in the law an "inflexible precondition" of willfulness.

Justice Alito’s concurring opinion. Justice Samuel Alito wrote a brief concurring opinion that was joined by Justices Stephen Breyer and Elena Kagan. "The relevant authorities, particularly pre-Lanham Act caselaw, show that willfulness is a highly important consideration in awarding profits under §1117(a), but not an absolute precondition," Justice Alito wrote. "I would so hold and concur on that ground."

Justice Sotomayor’s opinion concurring in the judgment. Justice Sotomayor agreed that Section 35(a) did not impose a willfulness prerequisite for awarding profits in trademark infringement actions. However, she disagreed with the majority’s suggestion that pre-Lanham Act courts of equity were as likely to award profits for "willful" infringement as for "innocent" infringement. In Justice Sotomayor’s view, the weight of authority indicated that profits were rarely, if ever, awarded for innocent infringement. Therefore, she opined that a district court’s award of profits for good-faith or innocent trademark infringement would not be consistent with the principles of equity. "Because the majority is agnostic about awarding profits for both ‘willful’ and innocent infringement as those terms have been understood, I concur in the judgment only," Justice Sotomayor wrote.

This case is No. 18–1233.

Attorneys: Lisa Schiavo Blatt (Williams & Connolly LLP) for Romag Fasteners, Inc. Neal Kumar Katyal (Hogan Lovells US LLP) and Jeffrey Evan Dupler (Gibney, Anthony & Flaherty, LLP) for Fossil Group, Inc. f/k/a Fossil, Inc.

Companies: Romag Fasteners, Inc.; Fossil Group, Inc. f/k/a Fossil, Inc.

MainStory: TopStory Trademark GCNNews

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