Trademark Plaintiffs Need Not Prove Willfulness To Recover Lost Profits

TRADEMARK PLAINTIFFS NEED NOT PROVE WILLFULNESS TO RECOVER LOST PROFITS

In April 2020, the United States Supreme Court issued a near unanimous opinion in the case of Romag Fasteners, Inc. v. Fossil Group, Inc., fka Fossil, Inc., et al. (Case No. 18–1233), overruling the trial court’s decision that required a plaintiff to prove a defendant’s willful trademark infringement before recovering the defendant’s profits as part of the damages.

This ruling ended a circuit split between those courts (including the Second and Ninth Circuit and their underlying federal courts in New York and California) that barred a plaintiff in trademark infringement cases brought under section 1125(a) of the Lanham Act from recovering an infringing defendant’s profits unless they established “willful” infringement and those that instead considered willfulness as one factor in determining whether or not to award the defendant’s profits to a plaintiff.

The Case As Decided

The case before the Supreme Court involved magnetic fasteners used in handbags.  The plaintiff, Romag, sells magnetic snap fasteners for use in leather goods. The defendant, Fossil, designs, markets, and distributes fashion accessories. For many years, the parties had worked together under an agreement allowing Fossil to use Romag’s fasteners in Fossil’s handbags and other products. Over time Romag discovered that the factories Fossil had hired in China to manufacture Fossil products were using counterfeit Romag fasteners—and that Fossil was doing little to guard against the practice. Romag eventually sued, alleging that Fossil infringed its trademark and falsely represented that its fasteners came from Romag.

At trial, the jury found that Fossil had acted “in callous disregard” of Romag’s rights. At the same time, however, the jury rejected Romag’s accusation that Fossil had acted “willfully” in its infringement of Romag’s trademark rights. In light of these findings, the district court refused Romag’s request for an order awarding it Fossil’s profits earned as a result of the trademark violation based on controlling Second Circuit precedent requiring a plaintiff seeking a profits award to prove that the defendant’s violation was willful.

The opinion of the Supreme Court, written by Justice Gorsuch, found that the Lanham Act did not include a requirement that a plaintiff that has proved a trademark violation under section 1125(a) of the Lanham Act also prove willfulness before recovering a defendant’s profits. Instead, the Supreme Court pointed to the language of 15 U. S. C. §1117(a), which states that:

“When a violation of any right of the registrant of a mark registered in the Patent and Trademark Office, 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 . . . , the plaintiff shall be entitled, subject to the provisions of sections 1111 and 1114 of this title, and subject to the principles of equity, to recover (1) defendant’s profits, (2) any damages sustained by the plaintiff, and (3) the costs of the action.”

The Court reasoned that the language of the statute clearly distinguished cases under 1125(c) [dilution] as requiring a showing of willfulness, rather than those under 1125(a) [trademark infringement] or (d) [cyberpiracy]. As such, neither the statute nor controlling precedent set a hard and fast rule requiring a plaintiff to establish that the trademark defendant infringed willfully before it was entitled to recover the defendant’s profits.

Impact on Trademark Infringement Cases

Despite finding that there was no “inflexible precondition” of willfulness to the plaintiff’s recovery of the defendant’s profits, the Court did acknowledge that “a trademark defendant’s mental state is a highly important consideration in determining whether an award of profits is appropriate.” This means that trademark infringement will be like other cases in which “district courts have often considered a defendant’s mental state, among other factors, when exercising their discretion in choosing a fitting remedy.”

This means that more trademark plaintiffs will be able to seek awards of the defendant’s profits for conduct less culpable than “willful” infringement by a defendant, potentially increasing trademark litigation and settlement demand values.  However, future litigants should be mindful of Justice Sotamayor’s concurrence, which noted that historically courts of equity “defined ‘willfulness’ to encompass a range of culpable mental states—including the equivalent of recklessness, but excluding ‘good faith’ or negligence.” As such, a district court’s award of profits for innocent or good-faith trademark infringement would not be consonant with the “principles of equity” referenced above in section 1117(a) and reflected in the cases relied upon by the majority opinion in striking the “willfulness” prerequisite to an award of profits.

Because the principles of equity will be applied by Courts based on historical precedent, the likely result is that cases in which the defendant’s actions show more culpability are those more likely to result in awards of profits, and those on the spectrum of lower culpability, from negligence down to innocent infringement, will not end with awards of a defendant’s profits.



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