News
April 29, 2020

Trademark Users Watch Your Step: No Willfulness Necessary for Awarding an Infringer's Profits

Advisory

It's the small things—in this case a handbag fastener—that sometimes feature in the biggest cases.

On April 23, 2020, in Romag Fasteners, Inc. v. Fossil Grp., Inc., the US Supreme Court unanimously ruled that a trademark plaintiff need not demonstrate willful infringement to obtain an accounting of an infringer's profits. In so holding, the Court resolved a circuit split on the issue and also harmonized the standards for awarding profits remedies in trademark and copyright infringement suits.

The case had its underpinnings in a business deal between the parties. Romag had agreed to manufacture fasteners, which Fossil in turn would use in its popular handbags. Matters went awry, however, when Romag learned that Fossil had been using counterfeit Romag fasteners bearing the ROMAG mark in the production of Fossil handbags. Following a seven-day trial in Connecticut federal court, the jury found Fossil liable for trademark infringement under Section 1125(a) of the Lanham Act. Instructed to weigh in on damages, the jury also recommended an award of approximately $91,000 of Fossil's profits under a theory of unjust enrichment and approximately $6,700,000 of Fossil's profits in order to deter future infringement. Yet, while the jury found that Fossil had acted with "callous disregard" for Romag's trademark rights, it did not find that the infringement was willful. In the absence of a finding of willfulness, the district court held that Second Circuit precedent barred the award of a profits remedy. The Federal Circuit (which had appellate jurisdiction in light of patent claims Romag had also asserted in its lawsuit) affirmed.

In a brief opinion, the Supreme Court vacated and remanded the Federal Circuit's decision. Writing for the majority, Justice Gorsuch held that the Second Circuit's willfulness requirement could not be reconciled with the plain language of the Lanham Act. The Court pointed to Section 1117(a), which addresses monetary remedies for violations of the Lanham Act:

When a violation of any right of the registrant of a mark registered in the Patent and Trademark Office, a violation under section 1125(a) or (d) of this title, or a willful violation under section 1125(c) of this title, shall have been established . . . , the plaintiff shall be entitled, subject to the provisions of sections 1111 and 1114 of this title, and subject to the principles of equity, to recover (1) defendant's profits, (2) any damages sustained by the plaintiff, and (3) the costs of the action.

Notably, Section 1117(a), expressly requires a showing of willfulness for an award of damages for a violation of Section 1125(c), which prohibits trademark dilution. The same is not true, however, for violations of Section 1125(a), which was the provision at issue in the Romag case. To the Court, this distinction "spell[ed] trouble" for Fossil and the Second Circuit's precedent. Why would the Lanham Act expressly require a showing of willfulness to obtain a profits remedy for one type of violation and not for the other, if the requirement in fact applied to both? The Court, Justice Gorsuch wrote, does not usually read into statutes words that are not there, and was particularly unlikely to do so here. The Lanham Act, the Court explained, repeatedly addresses mens rea standards—including, for instance, in the awarding of statutory damages. In that context, the absence of an express mens rea standard for a profits remedy for violations of Section 1125(a) indicated that none applied.

Alternatively, Fossil argued that another clause in Section 1117(a) supported the Second Circuit's precedent applying willfulness as a prerequisite to a profits remedy: awards of a defendant's profits, including those arising from violations of Section 1125(a), are "subject to the principles of equity." Courts of equity, Fossil urged, had historically limited profits remedies to cases of willful trademark violations. The Supreme Court rejected this argument as well. While the Court recognized that "[m]ens rea figured as an important consideration in awarding profits in pre-Lanham Act cases," it could not discern any established "principle of equity" applied in those cases that strictly required a showing of willfulness. Indeed, the Court noted that courts of equity routinely awarded a profits remedy in patent cases absent a showing of willfulness.

Although the Court thus concluded that a trademark defendant's state of mind, including willfulness, is an important element for courts to consider in awarding damages for trademark infringement—including an accounting of an infringer's profits— the Lanham Act could not be interpreted to impose a bright line willfulness requirement for any award of a profits remedy. Justices Alito, Breyer and Kagan wrote a concurring opinion further emphasizing the importance of willfulness to damages awards, stating that "willfulness is a highly important consideration in awarding profits" even though it must not be applied as a bright-line rule.

Notably, the Supreme Court did not discuss the historical background of the circuit split concerning the willfulness prerequisite. Specifically, the phrase "or a willful violation under section 1125(c) of this title"—key to the Court's statutory interpretation—was not added to Section 1117(a) until 1999. Before the 1999 amendment, precedent in numerous circuit courts of appeal required a showing of willfulness before awarding a profits remedy, including for violations of Section 1125(a). Against that background, the circuits divided on the effect of the new language—was it meant to abrogate this line of authority, or simply to make doubly clear that the willfulness requirement applied in cases of trademark dilution under Section 1125(c)? The Third Circuit thought Congress intended abrogation; the Tenth Circuit did not; and still others—including the Second Circuit—avoided squarely addressing the question.

Beyond resolving the circuit split, the Court's decision also reconciles trademark and copyright remedies with respect to an infringer's profits. Under Section 504 of the Copyright Act, in an action for copyright infringement, a copyright owner is entitled to recover "any profits of the infringer that are attributable to the infringement and are not taken into account in computing the actual damages," regardless of whether the infringement was willful.

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Arnold & Porter represented Romag Fasteners, Inc. during previous proceedings before the Supreme Court in this dispute. Romag Fasteners, Inc. v. Fossil, Inc., No. 16-202 (petition filed August 12, 2016). The Supreme Court granted Romag's petition for writ of certiorari, vacated the judgment, and remanded the case for the Federal Circuit to reconsider its decision on Romag's separate patent award in light of new Supreme Court precedent.

© Arnold & Porter Kaye Scholer LLP 2020 All Rights Reserved. This Advisory is intended to be a general summary of the law and does not constitute legal advice. You should consult with counsel to determine applicable legal requirements in a specific fact situation.

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