SCOTUS Willfully Unfastens Infringer’s Profits From Its Mental State

Foley Hoag LLP - Trademark, Copyright & Unfair Competition

Yesterday, the Supreme Court decided a trademark damages question that has long divided courts across the country.

For decades, a trademark owner’s chances of recovering an infringer’s profits in litigation varied depending on where the case was pending.  The Lanham Act allows an award of an infringer’s profits “subject to the principles of equity” – but what does that mean?  Can an unknowing infringer be on the hook for its profits, or is willfulness required before that is fair?  Several circuits insisted profits were wholly unavailable absent willfulness, including the Second Circuit,  where this dispute arose.

The Background

Romag Fasteners makes and sells magnetic snap fasteners, which it licensed to Fossil for use on handbags and other products.  But Fossil’s manufacturers in China began using counterfeit Romag fasteners, and Fossil did not take appropriate steps to keep them from doing so.  Romag sued, and a jury found that Fossil had infringed Romag’s trademark and patent, and acted “in callous disregard” of its rights.  It did not, however, find that Fossil acted willfully.

Since Fossil did not act willfully, the District Court for the District of Connecticut refused to award Romag the profits that Fossil had earned as a result of the trademark infringement.  The District Court’s ruling was consistent with controlling Second Circuit precedent – but Romag thought that precedent was wrong, and appealed to the Federal Circuit (which has nationwide appellate jurisdiction in trademark and patent cases).  The Federal Circuit affirmed, and Romag appealed to the Supreme Court.

Willfulness No Longer Required

Justice Gorsuch, writing for a unanimous bench, held that willfulness is not required for an award of damages.  The decision hinges on the words of the statute itself, where three categories of damages are available, subject to the principles of equity, when:

a violation under section 1125(a) [infringement] or (d) [cybersquatting] of this title, or a willful violation under section 1125(c) [dilution] of this title, shall have been established…

This specifies that willfulness is required for damages to be available for a claim of trademark dilution.  The preceding clause addresses trademark infringement, and is silent on willfulness.  Even though the dilution language was added later, and Fossil offered some arguments about what “equity” requires, the Court found this distinction (especially where other sections of the statute also deal expressly with state of mind) to be determinative, such that willfulness is not required for an award of the infringer’s profits.

Looking Forward

What does this mean?  Maybe not much.  It doesn’t even guarantee that Romag will be awarded profits.  The Supreme Court recognized that mental state is still “a highly important consideration in determining whether an award of profits is appropriate.”  Circuits that used to find it an “inflexible precondition” may still be very unlikely to award profits without it.  It seems unlikely that profits will be awarded against “innocent” infringers (those who were not willful or reckless); indeed, Justice Sotomayor chimed in with a concurrence to note that that would not be consistent with the principles of equity.

So the outcome of many cases will be unchanged – but trademark owners will now have at least a chance at profits even where willfulness is not a factor, no matter where in the country they bring their claims.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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