Supreme Court Rules Willfulness Not Required for Profits Awards in Trademark Infringement Cases
On April 23, 2020, in Romag Fasteners, Inc. v. Fossil Group, Inc., the U.S. Supreme Court ruled that a trademark owner need not prove willful infringement to recover an award of the infringer’s profits. This unanimous decision settles a long-running split among federal courts of appeal and replaces a bright-line rule followed by certain courts with a more amorphous inquiry as to when an infringer’s mental state rises to the level where recovery of that infringer’s profits becomes appropriate.
The case arose from a dispute between Romag Fasteners, Inc., which sells magnetic snap fasteners used in leather goods, and Fossil Group, Inc., which designs, markets and distributes a wide range of fashion accessories. Romag and Fossil were parties to an agreement allowing Fossil to use Romag’s fasteners in its handbags and other products. In 2010, after learning that factories hired by Fossil to make its products were using counterfeit Romag fasteners, Romag sued Fossil for trademark infringement in the U.S. District Court for the District of Connecticut.
On the question of trademark infringement, the jury found in favor of Romag and awarded Romag $6.7 million of Fossil’s profits. The jury found that Fossil had acted “in callous disregard” of Romag’s trademark rights, but also that Fossil had not acted “willfully” when it sold the infringing products.
Despite the jury verdict, the District Court refused to award Fossil’s profits on the basis that Second Circuit precedent requires a finding of willfulness for an award of a defendant’s profits. Romag appealed to the Federal Circuit, which affirmed the District Court’s decision, prompting Romag to petition for certiorari to the U.S. Supreme Court.
Justice Gorsuch, writing for a unanimous U.S. Supreme Court, held that while mental state can be considered in deciding whether to award profits, there is no bright line rule that a plaintiff need prove willfulness as a prerequisite. The Court’s reasoning was basically one of statutory construction. The federal Trademark Act (the Lanham Act) is filled with references to the mental state of the infringer, and willfulness is an express precondition to a profits award in suits for trademark dilution under Section 1125(c). Yet, there is no reference to mental state regarding recovery of profits for trademark infringement under Section 1125(a), so, in the Court’s judgment, there is no such requirement.
The Court refused to read such an “inflexible precondition” into the meaning of the statute. The Court noted that Section 1117(a) of the Lanham Act, which provides that remedies for trademark violations are “subject to the principles of equity,” is insufficient to impose a willfulness requirement for recovery of profits. The clause suggests that the mental state of the infringer should be considered, but that is as far as it goes. Examining case law under the Trademark Act of 1905, Justice Gorsuch stated that courts historically were split in awarding profits without willfulness. Ultimately, the Court vacated the judgment and remanded the case to the Federal Circuit.
By removing willfulness as the gateway for recovering an infringer’s profits, Romag may give potential trademark infringement plaintiffs throughout the United States greater incentive to litigate their claims. The ruling may also give trademark owners leverage in enforcing their rights outside of litigation, as the prospect of a profits award may sway defendants to settle claims they might otherwise defend in court.
It remains unclear, however, what specific mental state is required to recover an infringer’s profits. The Court in Romag has made clear that “callous disregard” by an infringer, in additional to willful infringement, subjects the infringer to disgorgement of its profits. Yet, it is not clear whether an infringer who acts with a mental state less culpable than “callous disregard”—for example, a negligent disregard of a trademark owner’s rights—can be subject to loss of its profits. The majority opinion in Romag suggests, however, and Justice Sotomayor’s concurrence affirmatively states, that innocent infringers still should not be subject to loss of profits.
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The case is Romag Fasteners, Inc. v. Fossil Group, Inc., No. 18-1233 (U.S. Apr. 23, 2020). The opinion is available here.
If you have any questions or would like to discuss this Client Alert, please contact one of the lawyers listed above or any member of Sullivan’s Trademark Group.