Last week, in Romag Fasteners, Inc. v. Fossil Group, Inc., Docket 18-1233, Slip Op. (U.S. April 23, 2020), the Supreme Court issued a long-awaited decision holding that proof of willfulness was not a necessary precondition to permit a federal court to award a plaintiff the profits made by an infringer. At the same time, the Supreme Court did not entirely remove the defendant's state of mind from a court's consideration whether to award profits when applying "principles of equity" as required by the statute. This client alert addresses the significance of the Romag decision for both plaintiffs and defendants in cases brought under the U.S. trademark and false advertising statute known as the Lanham Act.
Prior to this decision, cases brought by plaintiffs in the federal district courts covered by the Second Circuit Court of Appeals (New York, Connecticut, and Vermont) and in courts in five other circuits (including courts in California) had refused to award profits unless there had been a factual finding that a defendant acted willfully by infringement or other conduct subject to claims under the Lanham Act. Six other federal circuit jurisdictions, including courts located in New Jersey, considered whether the defendant acted willfully, but did not require such a showing. Consequently, a plaintiff's ability to recover a defendant's profits varied depending on the court chosen for suit. This was an unwarranted inconsistency on an important issue in applying a federal statute with national scope.
From the plaintiff's side, the ability to recover the defendant's profits in trademark infringement cases is critical. While an injunction can be issued to prevent further infringement, the recovery of the plaintiff's actual damages is often difficult to prove. For example, many courts require a plaintiff to show actual consumer confusion or deception. Proving actual confusion among specific purchasers, arising from a product or component with an infringing trademark, and in a particular amount, is usually a very difficult factual undertaking, especially if the two products do not directly compete. So, as Romag's petition to the Supreme Court observed, an "award of the infringer's profits, therefore, can be the difference between a meaningful recovery for trademark infringement and no recovery at all."
Taking Romag's case as an example, Romag proved that the magnetic clasps used on handbags manufactured for Fossil in China (and subsequently sold to retailers) were counterfeits of Romag's clasps and therefore infringed Romag's trademark. The jury made a substantial "advisory" award of over $6 million against Fossil, not based on Romag's damages but on Fossil's profits under theories of unjust enrichment and deterrence. The trial judge, in applying the required principles of equity, noted that the jury found only that Fossil acted with "callous disregard" for Romag's rights but this was not sufficient to meet the requirement of a "willful infringement." Applying the Second Circuit rule requiring "willfulness" to recover profits, the trial court ruled it could not grant Romag any of the jury's award for trademark infringement. 1 The district court's ruling was affirmed on appeal by the Federal Circuit. 2 The Supreme Court then granted a writ of certiorari to review the requirement of willfulness for recovery of profits.
While the Romag decision is generally viewed as making plaintiff's recovery of profits easier, the oral argument, the majority decision and concurrences discuss a wide range of defendants' possible levels of culpability. These range from "willful" including "recklessness" or "willful blindness" but not including "callous disregard," negligence, mistake, or ignorance. And "good faith" is likely to be viewed as avoiding a willfulness finding. As Justice Sotomayor observed in her concurrence only in the judgment vacating and remanding the case, "a district court's award of profits for innocent or good-faith trademark infringement would not be consonant with the 'principles of equity' referenced in [the statute] and reflected in the cases the majority cites." As even the majority observed, while willfulness is no longer a precondition to recovering profits, "we do not doubt that a trademark defendant's mental state is a highly important consideration in determining whether an award of profits is appropriate." (Slip Op. at 7). Therefore, counsel for plaintiffs and defendants will still be put to the task of gathering and presenting significant evidence to convince the factfinder of defendants' state of mind, including requesting appropriate jury instructions on that issue in jury cases. The Romag case bears watching on remand.
1 Romag Fasteners, Inc. v. Fossil, Inc., 29 F. Supp. 3d 85, 111 (D. Ct. 2014)
2 Romag Fasteners, Inc. v. Fossil, Inc., 817 F.3d 782, 791 (Fed. Cir. 2016) (the Federal Circuit applying Second Circuit law on the trademark claims).
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