This article by Greene Espel attorney Holley Horrell first appeared on Law.com on October 28, 2019.

During the upcoming term, the U.S. Supreme Court will consider Romag Fasteners v. Fossil, No. 18-1233, a trademark case that presents the Court with a question that has puzzled the federal courts of appeals for years. Does the Lanham Act entitle a trademark owner to an award of the infringer’s profits as a remedy for infringement under §1125(a) only if the infringement was willful?

The Third, Fourth, Fifth, Sixth, Seventh, and Eleventh Circuits say no, willfulness is not a brightline requirement to recover profits in such a case. See Banjo Buddies v. Renosky, 399 F.3d 168, 171 (3d Cir. 2005); Synergistic Int’l v. Korman, 470 F.3d 162, 175 (4th Cir. 2006); Quick Technologies v. Sage Group PLC, 313 F.3d 338, 339 (5th Cir. 2002); Laukus v. Rio Brands, 391 F. App’x 416, 424 (6th Cir. 2010); Roulo v. Russ Berrie & Co., 886 F.2d 931, 941 (7th Cir. 1989); Optimum Techs. v. Home Depot U.S.A., 217 F. App’x 899, 902 (11th Cir. 2007). According to these circuit courts, willfulness is simply one factor that courts should weigh when assessing whether recovery of the infringer’s profits is warranted.

The Second, Ninth, Tenth, and District of Columbia Circuits, however, require a willfulness finding. See Merck Eprova AG v. Gnosis S.p.A., 760 F.3d 247, 261 (2d Cir. 2014); Stone Creek v. Omnia Italian Design, 875 F.3d 426, 439-41 (9th Cir. 2017); W. Diversified Servs. v. Hyundai Motor Am., 427 F.3d 1269, 1272 (10th Cir. 2005); ALPO Petfoods v. Ralston Purina, 913 F.2d 958, 968 (D.C. Cir. 1990).

The First Circuit also requires such a finding, but only when the trademark owner and infringer are not direct competitors. Fishman Transducers v. Paul, 684 F.3d 187, 191 (1st Cir. 2012).

This circuit split over willfulness has long been simmering, but it developed an added layer of complexity after Congress amended §1117 of the Lanham Act in 1999. Implemented in the wake of Congress’s creation in 1996 of a cause of action for trademark dilution (§1125(c)), the 1999 damages-related amendment specified that an award of defendant’s profits would be available for “a violation under section 1125(a) or (d) of this title, or a willful violation under section 1125(c) of this title … .” See Stone Creek, 875 F.3d at 440 (discussing the legislative amendment and other circuit courts’ analyses of the import of the change) (citing 15 U.S.C. §1117(a) (1999)) (emphasis in original).

Although the Eighth Circuit is often mentioned as one of the circuit courts that imposes a willfulness requirement, this appellate court has not reached a clear conclusion on this issue. See, e.g., Pet. Br. 19, Romag Fasteners v. Fossil (U.S. Sept. 13, 2019) (No. 18-1233). A 1994 decision is sometimes cited for its statement that “If a registered owner proves willful, deliberate infringement or deception, ‘an accounting of profits may be based upon 1) unjust enrichment, 2) damages, or 3) deterrence of a willful infringer.’” Minnesota Pet Breeders v. Schell & Kampeter, 41 F.3d 1242, 1247 (8th Cir. 1994) (citing Banff, Ltd. v. Colberts, 996 F.2d 33, 35 (2d Cir. 1993) (emphasis added)). But in Masters v. UHS of Delaware, decided after the 1999 amendment, the court acknowledged the circuit split over the question of a willfulness requirement in awarding profits for §1125(a) infringement, and chose to “assume, without deciding,” that a finding of willful trademark infringement is required. 631 F.3d 464, 471 n.2 (8th Cir. 2011); see also Safeway Transit v. Disc. Party Bus, 334 F. Supp. 3d 995, 1008 (D. Minn. 2018) (“The Eighth Circuit has acknowledged a circuit split over whether willful infringement is a prerequisite for monetary relief given a 1999 amendment to the Lanham Act, assuming without deciding that it is.”).

In Romag, the Supreme Court presumably will resolve the divide on this issue.

History of the Dispute

The petitioner in this case is Romag Fasteners, a company that sells patented magnetic snap fasteners under a registered trademark. In 2002, Romag entered into a contract with Fossil, a fashion accessories designer. Under this contract, Fossil agreed to use Romag’s magnetic snap fasteners in Fossil’s products and instructed its manufacturers to procure Romag fasteners accordingly.

Romag eventually discovered that some of the fasteners in Fossil products were counterfeit Romag fasteners. Just before Black Friday 2010, Romag sued. In April 2014, a jury found that Fossil had infringed Romag’s trademark (and patent) rights, but not willfully, and awarded over $6 million in damages for the trademark infringement. After a bench trial on damages, the court held as a matter of law that, because the jury had found that Fossil’s trademark infringement was not willful, Romag was not entitled to an award of Fossil’s profits.

On appeal, applying Second Circuit law, the Federal Circuit affirmed the district court’s rejection of damages for trademark infringement as a matter of law in light of the lack of willfulness. Romag petitioned the Supreme Court for review of the Federal Circuit’s decision, and the high court granted certiorari in June 2019. Romag filed its merits brief in September, and a number of industry groups weighed in on the issues as amici curiae. Fossil’s (and the other Respondents’) opposition brief is due at the end of November. It appears that argument for the case will not be held until 2020.

The Parties’ Primary Legal Arguments

Romag and Fossil disagree on the proper interpretation of §1117(a). As noted, since 1999, §1117(a) has stated that, “subject to the principles of equity,” a trademark owner may recover an infringer’s profits when “a violation under section 1125(a) or (d) of this title, or a willful violation under section 1125(c) of this title, shall have been established.” Section 1125(a) refers to the Lanham Act’s infringement provision, §1125(d) refers to its cyberpiracy provision, and §1125(c) refers to its dilution provision.

Romag relies primarily on the plain text and statutory structure to argue that Congress’s insertion of the word “willful” next to the dilution reference, but not next to the infringement and cyberpiracy references, is dispositive. Romag also urges that “the principles of equity,” which have traditionally allowed courts discretion and flexibility, are not well served by a brightline willfulness requirement. Moreover, it maintains, the jurisprudence at common law was not so clear as Fossil has argued.

Fossil, on the other hand, contends that the “subject to the principles of equity” language in §1117(a) incorporated the common law willfulness requirement that existed prior to the Lanham Act’s enactment. In addition, diving into the related 1990s legislative history, Fossil argues that Congress added the word “willful” next to the dilution reference because it wanted to limit all monetary relief—that is, both damages and profit awards—for dilution to instances of willful misconduct. Fossil maintains that it was already accepted that damages awards for violations of §1125(a) (infringement) and §1125(d) (cyberpiracy) are not subject to a willfulness requirement.

Practical Considerations

Injunctive relief is often meaningful in trademark cases, but the likelihood of a financial recovery can be significant to a plaintiff or potential plaintiff. And though Fossil argued to the Supreme Court in its brief opposing the petition for certiorari that this question does not represent a serious divide and in any event has not had practical significance for trademark owners (see Resp. Br. Opp. Cert. 24-27, Romag Fasteners v. Fossil (U.S. May 22, 2019) (No. 18-1233)), the Supreme Court was apparently not persuaded.

If the Supreme Court agrees with those circuits that require a finding of willfulness for a plaintiff to recover defendant’s profits from §1125(a) infringement, mark owners might discount their chances of financial recovery in the usual case. Indeed, Romag (and amicus curiae INTA) suggests that proving the plaintiff’s damages is so difficult that the likelihood of a financial recovery if the defendant’s profits are unavailable may be prohibitively low. See Pet. Br. 5, 19, 44-45; Brief for INTA as Amicus Curiae in Support of Neither Party, at 4, 34, Romag Fasteners v. Fossil (U.S. Sept. 20, 2019) (No. 18-1233). The primary takeaway is that, particularly in the absence of a strong case for willfulness, a mark-owner plaintiff should put care into developing proof of its own damages.

 

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