27 May 2020 in Newsletter
“Willfulness” No Longer a Prerequisite for Recovery of Trademark Infringer’s Profits
In April, the U.S. Supreme Court ruled that a trademark owner in a lawsuit for infringement may recover the infringer’s profits as an element of money damages, without needing to prove that the infringement was willful. In Romag Fasteners, Inc. v. Fossil, Inc., the Court eliminated a rule that had served for decades to limit the categories of remedies available under the federal Lanham Act. The Romag decision, by removing a barrier to recovering an infringer’s profits, should provide trademark proprietors with greater incentive to file trademark infringement lawsuits.
The United States Supreme Court has ruled on a damages issue in Romag Fasteners, Inc. v. Fossil, Inc., a decision that is sure to have a significant impact on currently pending and future trademark infringement litigation. By ruling that a plaintiff can recover an infringer’s profits without proving that the infringement was “willful,” the court significantly expanded the potential monetary relief available to plaintiffs. By removing barrier to recovering a defendant’s profits, this decision provides plaintiffs more incentive to file trademark infringement lawsuits.
Federal trademark law is governed by the Lanham Act, 15 USC § 1051 et seq. Certain provisions of the Lanham Act allow trademark owners to recover an infringer’s profits in some circumstances. Proof of willfulness is a prerequisite to awarding an infringer’s profits in a suit under §1125(c) for trademark dilution. However, the section of the Lanham Act governing actions for infringement, 15 USC § 1125(a), does not contain the same explicit requirement. For decades, lower courts were nonetheless split as to whether “willfulness” was an implied requirement for disgorgement of the infringer’s profits in all types of cases filed under § 1125 of the Act. The Supreme Court has now answered: “no.”
In the Romag case originally filed in federal district court in New York, Romag, a magnetic fastener company, partnered with Fossil, a seller of watches and leather handbags, to use Romag’s magnetic fasteners in Fossil’s products. When Romag discovered Fossil’s overseas manufacturers were using counterfeit fasteners with Fossil’s knowledge, they filed suit against Fossil for trademark infringement under § 1125 of the Lanham Act. At trial, a jury found that Fossil had acted “in callous disregard” of Romag’s trademark rights, but rejected Romag’s claim that Fossil had acted willfully.
In trademark law, “willfulness can be established by evidence of knowing conduct or by evidence that the defendant acted with ‘an aura of indifference to plaintiff’s rights’—in other words, that the defendant willfully blinded himself to facts that would put him on notice that he was infringing another’s trademarks, having cause to suspect it.” Philip Morris USA Inc. v. Liu, 489 F. Supp. 2d 1119, 1123 (D. Cal. 2007). Here, Romag argued that Fossil met the willfulness element because Fossil knew the fasteners were counterfeit, but allowed their continued use, damaging Romag’s brand.
The U.S. Court of Appeals for the Second Circuit (which includes New York) had for decades required plaintiffs seeking the remedy of disgorgement of a defendant’s profits to prove that the infringement was willful. Therefore, Romag’s request for a disgorgement award of $6.8 million, that is, Fossil’s profits derived from the infringement, was thus denied by the New York trial court, and that ruling was affirmed on appeal to the Court of Appeals for the Second Circuit.
On further appeal to the U.S. Supreme Court, Fossil argued that a finding of willful infringement was an essential element of the principles of equity required to be considered by a trial court when determining damages under the Lanham Act. The Supreme Court rejected that argument, pointing out that Congress could not have intended to silently imply a willfulness requirement in certain parts of the Lanham Act, while making it an express requirement elsewhere in the Act. This reasoning is consistent with many other Supreme Court decisions finding that lower courts have improperly imposed conditions or created limitations of one type or another in federal statutes notwithstanding that such conditions and limitations do not appear anywhere in the actual provisions of the federal statutes under consideration.
Notwithstanding the Supreme Court’s decision, Justice Neal Gorsuch noted that “a trademark defendant’s mental state is a highly important consideration in determining whether an award of profits is appropriate.” Justice Alito concurred, stating “the relevant authorities, particularly pre-Lanham Act case law, show that willfulness is a highly important consideration in awarding profits under §1117(a), but not an absolute precondition.” It remains to be seen, as a result of these comments, whether trial courts will continue to deny disgorgement of profits as a remedy for trademark infringement in the absence of willfulness.
While the Court noted that a defendant’s mental state is still an important consideration, removing the “willfulness” requirement will necessarily make recovering an infringer’s profits easier in some cases. Proving “willfulness” is difficult and a heavy burden on the plaintiff trademark owner. With that burden removed, it is likely that there will be an increase in trademark infringement lawsuits, as the financial risks to accused infringers are necessarily increased.
 Romaq Fasteners, Inc. v. Fossil, Inc., 140 S.Ct. 1492 (2020)