On April 23, 2020, the U.S. Supreme Court unanimously clarified that the Lanham Act does not require a showing of willful trademark infringement as a statutory prerequisite for a plaintiff to recover a defendant’s profits connected to the infringement, while also stressing that a defendant’s mental state is “a highly important consideration in determining if an award of profits is appropriate.” After this decision, trademark owners may be more inclined to file suit, and mark users should continue to exercise caution before using a mark in commerce. Indeed, trademark attorneys should take this holding into account when advising clients on all trademark matters – from adoption through enforcement.
Background on Romag Fasteners, Inc. v. Fossil, Inc.
Romag Fasteners, Inc. (Romag) sued Fossil, Inc. (Fossil) in the District of Connecticut over use of allegedly counterfeit magnetic fasteners in Fossil’s leather goods. The jury found not only that Fossil had infringed Romag’s trademarks, but also that Fossil had acted “in callous disregard” of Romag’s trademark rights, while stopping short of finding that the infringement was willful as defined in the district court’s instructions. The district court then denied Romag’s request for Fossil’s profits that were attributable to its trademark infringement, citing Second Circuit precedent that a profits award required proof of willful infringement. The Federal Circuit affirmed.
The Supreme Court granted certiorari to resolve a circuit split on this issue.
Supreme Court: Showing of Willful Infringement is Not a Precondition to Profit Awards
The Supreme Court held that willfulness was not a precondition to a profit award, vacated the Federal Circuit’s decision, and remanded to the district court for further proceedings.
The Court first looked to the Lanham Act and emphasized that 15 U.S.C. § 1117(a), which governs remedies, refers to “a violation under section 1125(a) or (d) of this title, or a willful violation under section 1125(c) of this title.” The Court found no requirement that trademark infringement under Section 1125(a) be willful in order for plaintiffs to receive a profits award. The Court also discussed the many provisions of the Lanham Act that place great importance on the mindset of alleged infringers. For example, Section 1114 only subjects certain “innocent infringers” to injunctions, and portions of Section 1125 prohibit conduct only if it was undertaken with “bad faith intent.” Because the Lanham Act was drafted with considerable care towards mindset, and an award of an infringer’s profits under Section 1117 is only “subject to the principles of equity,” agreeing with the defendant in this case would have required Court to assume that the principles of equity include a willfulness requirement. Such an assumption would have resulted in a nonobvious statutory construction given Congress’s explicit incorporation of willfulness requirements elsewhere in the Lanham Act. Further, the Court concluded it was far from clear that principles of equity historically required a showing of willfulness before allowing a profits remedy.
Despite ruling that willfulness is not an “inflexible [statutory] precondition to recovery,” the Court noted the defendant’s mental state remains a “highly important consideration” when assigning an appropriate remedy. Thus, while willfulness is not a precondition, the Court’s ruling may not result in a wave of profit disgorgements from innocent infringers. Justice Sotomayor seemed to address this point in her concurrence, which discussed how rarely equity courts had awarded profits for innocent infringement. To drive home the conclusion that equitable principles do not go so far as to require willfulness for an award of profit, Justice Sotomayor pointed out the majority of equity decisions that seek to deprive only wrongdoers of their gains from misconduct. Under these equitable principles, intent remains relevant, without declaring a bright line rule.
Potential Impact of the Court’s Decision
Trademark owners may view this decision as increasing the value of a trademark infringement claim, even in cases of innocent infringement. The result may be more lawsuits and different settlement strategies due to the potential for increased recovery. Trademark owners may want to reconsider their approaches to litigation in light of this decision.
Mark users also should beware when adopting new marks. Now that less culpable infringement can still result in an award of profits, avoiding infringement at the front end becomes more important than ever. For example, mark users should reassess their practices concerning comprehensive trademark searches and non-infringement opinions before using a mark in commerce, as state of mind remains highly relevant to the ultimate decision whether to award defendant’s profits.
Trademark attorneys also should exercise caution when drafting non-infringement opinions. Now that trademark infringers may be financially liable for profits arising out of non-willful infringement, previous forms and approaches to analysis may need adjustment.
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