Legal Alert: Supreme Court Rules Willful Infringement Is Not a Prerequisite to an Award of Infringers' Profits under the Lanham Act

In a unanimous decision, the Supreme Court ruled in Romag Fasteners, Inc. v. Fossil, Inc., 590 U. S. ____ (2020) that plaintiffs in a trademark infringement suit can obtain an award of the defendant's profits even without a showing of willful infringement. The Court's ruling resolves a longstanding circuit split[1] over whether willfulness is a prerequisite to winning profits and eliminates a bright-line rule that previously prevented trademark owners who succeeded in proving infringement but not willful infringement from disgorging the infringer's profits.

The case involved Romag Fasteners, a business that sells magnetic fasteners for leather goods under its registered trademark, ROMAG, and Fossil, a fashion accessories company that uses ROMAG fasteners in its products. Romag sued Fossil for trademark infringement, among other claims, when it discovered that factories Fossil had contracted to manufacture its products were using counterfeit ROMAG fasteners. After a seven-day trial, the jury found Fossil liable for trademark infringement. The jury also found that Fossil "demonstrated a callous disregard" of Romag's trademark rights and awarded Romag $6.7 million of Fossil's profits to deter future infringement. However, the district court held that Romag was not entitled to any award of profits because Romag failed to prove that Fossil's trademark infringement was willful. Romag appealed and the Federal Circuit, applying Second Circuit law, affirmed.

The Supreme Court vacated the Federal Circuit's decision and remanded to the district court. On appeal, the issue was whether, under section 35 of the Lanham Act, 15 U.S.C. § 1117(a), a plaintiff must prove that the defendant's infringing conduct was willful to recover profits for a violation of section 43(a), 15 U.S.C. § 1125(a).

The Court first addressed the statutory language in § 1117(a), which states in relevant part:

The Court stated that this language "immediately . . . spells trouble for Fossil." While Congress included willfulness as a precondition to a profits award for trademark dilution ("a willful violation under section 1125(c)"), it did not reference willfulness when addressing "a violation under section 1125(a)" in the very same statutory provision. The Court then turned to the broader context of the Lanham Act and found that other provisions, such as those concerning treble damages/profits, attorneys' fees, and injunctive relief, "speak[] often and expressly about mental states" and that "[t]he absence of any such standard in the provision [at issue], thus seems all the more telling."

The Court also rejected Fossil's position that the willfulness requirement is found in the portion of § 1117(a) that makes a recovery of profits "subject to the principles of equity." Fossil had argued that because equity courts have long required a showing of willfulness for a profits award in trademark disputes, the requirement had become a "principle of equity." Calling Fossil's contention a "curious suggestion," the Court explained it is unlikely Congress intended to incorporate a willfulness requirement obliquely for violations under section 1125(a) while doing so expressly in the same provision for violations under section 1125(c). According to the Court, it is also unlikely that Congress intended the term "principles of equity" to be directed at a narrow rule in trademark law rather than broader, fundamental rules. As to the historical treatment of willfulness, the Court found that "[m]ens rea figured as an important consideration in awarding profits in pre-Lanham Act cases," but that it was "far from clear" whether trademark law required willfulness before allowing a profits remedy.

While the Supreme Court's decision makes clear that willfulness is not a precondition to disgorgement of profits, it remains to be seen whether Romag will ultimately recover Fossil's profits on remand. Notably, the majority opinion acknowledged that "a trademark defendant's mental state is a highly important consideration in determining whether an award of profits is appropriate." The concurring opinion and concurring in judgment opinion also underscored the continued role of the infringer's mental state in awarding profits.

According to Romag, Fossil had reason to believe that its manufacturer in China was using counterfeit components to manufacture Fossil handbags even before Romag sued in 2010, but "did nothing to guard against the known risk of counterfeiting."[2] It will be interesting to see how the lower courts treat facts like this and an infringer's mental state generally when weighing the equities. Although Romag Fasteners v. Fossil concerned only trademark infringement under § 1125(a), the Court's ruling also appears to eliminate the Second Circuit's decades-long rule[3] that willful deception is a prerequisite to awarding profits for the second type of "violation under section 1125(a)"—false advertising. Thus, plaintiffs in trademark infringement and false advertising litigation will be wise to stay appraised of how lower courts exercise their discretion in applying the Supreme Court's decision.

[1] The First, Second, Ninth, and Tenth Circuits have required a showing of willful infringement as a prerequisite to awarding the defendant's profits, while the Third, Fourth, and Fifth Circuits have held that willfulness is not essential, though often a factor for courts to consider.  See Romag Fasteners, Inc. v. Fossil, Inc., 817 F.3d 782, 788 (Fed. Cir. 2016), cert. granted, judgment vacated, 137 S. Ct. 1373 (2017) (discussing circuit split after the 1999 amendment to 15 U.S.C. § 1117(a) and citing cases).

[2] https://www.supremecourt.gov/DocketPDF/18/18-1233/115716/20190913120727028_Romag%20Opening%20Brief_9.13.19.pdf.

[3] See Merck Eprova AG v. Gnosis S.p.A., 760 F.3d 247, 261 (2d Cir.2014) (quoting George Basch Co. v. Blue Coral, Inc., 968 F.2d 1532, 1537 (2d Cir.1992).

Author: Vivian Cheng