In a unanimous decision on April 23, the US Supreme Court resolved a decades-long circuit split regarding the availability of disgorgement of infringer’s profits in trademark cases, holding that willfulness is not a precondition for disgorgement.
Section 35 of the Lanham Act, 15 USC § 1117(a) provides that a successful party in a trademark, false advertising, or unfair competition cause of action is entitled to recover infringer’s profits “subject to the principles of equity.” For decades, there has been a circuit split as to whether the principles of equity limited the remedy of disgorgement of an infringer’s profits to cases in which the infringement was willful, and the Supreme Court accepted this case to address that circuit split.
Plaintiff Romag Fasteners, Inc. (Romag) sells magnetic snap fasteners for use in leather goods. After years of licensing the use of its trademarked ROMAG snap fasteners to Fossil, Inc. (Fossil) for use on handbags, Romag discovered that Fossil hired factories in China that were using counterfeit Romag fasteners. Among other relief, Romag sought disgorgement of Fossil’s profits unlawfully earned by violating Romag’s trademark rights. Following trial, a jury found that although Fossil had not willfully infringed Romag’s trademark it acted “in callous disregard” of Romag’s trademark rights.[1] The district court held that under Second Circuit precedent, an award of profits was not justified because the jury failed to find willfulness. The US Court of Appeals for the Federal Circuit, applying Second Circuit precedent, affirmed.[2]
The Supreme Court first analyzed the text of the Lanham Act, holding that a cause of action for trademark infringement has “never required a showing of willfulness to win a defendant’s profits.”[3] Finding that such a showing was unnecessary, the Court explained that to otherwise hold would read into the statute “words that aren’t there.”[4] The Court further reasoned that the Lanham Act is replete with references to mental states to establish liability or to increase or decrease monetary awards based on an infringer’s relative culpability.[5] The Court thus rejected Fossil’s argument that “subject to the principles of equity” implicitly limits disgorgement of profits to cases involving willful infringement.[6]
Although the Court rejected the argument that willfulness was a prerequisite to disgorgement, it also made clear that “a trademark defendant’s mental state is a highly important consideration in determining whether an award of profits is appropriate.”[7] Thus, the degree to which the infringement reflects gross negligence or disregard for the trademark rights of others will still play a role in determining whether to disgorge an infringer’s profits.
In circuits that previously required a showing of willfulness, this decision removes a significant barrier to obtaining disgorgement awards for trademark infringement. The ability to seek disgorgement is particularly important for rights holders because proving infringing conduct caused actual damages in trademark cases can be difficult, especially when the parties are not competitors and the defendant’s sale of an infringing product may not result in a lost sale by the plaintiff. The decision also highlights the importance of appropriately assessing and managing risks when adopting new trademarks, expanding existing offerings or to new geographies, and adequately monitoring suppliers.
If you have any questions or would like more information on the issues discussed in this LawFlash, please contact any of the following Morgan Lewis lawyers:
Washington, DC
Kristin H. Altoff
Rebecca E. McDougall
Anita B. Polott
San Francisco
Brent A. Hawkins
Carla B. Oakley
Boston
Joshua M. Dalton
Rachelle A. Dubow
[1] Romag Fasteners, Inc. v. Fossil, Inc., 590 U.S. __, No. 18–1233, Op. at 2 (2020).
[2] Romag’s appeal from the district court was heard by the Federal Circuit because Romag brought both patent infringement claims in addition to its trademark infringement claims. The Federal Circuit applies the law of the circuit of the district court when addressing non-patent issues.
[3] Id. at 3 (emphasis original) (contrasting Section 1117(a)’s text for causes of action under Section 1125(a) with causes of action under Section 1125(c) requiring a finding of willfulness for an award of defendant’s profits for trademark dilution).
[4] Id.
[5] Id. (comparing, inter alia, Section 1117 (b) requiring treble profits or damages and awarding attorneys’ fees when a defendant acts intentionally and with specified knowledge with Section 1114 which limits remedies to injunctive relief for certain innocent infringers).
[6] Id. at 5 (debating both the meaning of the term “principles of equity” and Fossil’s historical argument about willfulness requirements by courts of equity).
[7] Id. at 7.