Willfulness Is No Longer A Precondition to an Award of Profits; But Will Courts Award Profits for Innocent Infringement?

In an important case, the U.S. Supreme Court last week resolved a disagreement among the Federal Circuit Courts of Appeals as to whether a plaintiff in a trademark infringement case is required to prove a defendant’s infringement was “willful” as a precondition to receiving an award of the defendant’s profits.

Background

Plaintiff Romag Fasteners, Inc. (“Romag”) sells magnetic snap fasteners for use in leather goods, such as handbags. Fossil Group, Inc. (“Fossil”) designs and sells a wide range of fashion accessories, including handbags. Romag and Fossil entered into an agreement allowing Fossil to use Romag’s fasteners in Fossil’s handbags. Sometime later, Romag discovered that the factories Fossil hired in China to make its products were using counterfeit Romag fasteners. Romag attempted to resolve the matter with Fossil. When those efforts proved unsuccessful, Romag sued Fossil in the U.S. District Court in Connecticut for, among other things, trademark infringement.

At trial, a jury found that Fossil had infringed Romag’s trademark and that Fossil had acted “in callous disregard” of Romag’s rights. However, the jury also found that Fossil did not willfully infringe Romag’s trademark.  Romag sought an award of the profits Fossil had earned on its sale of infringing goods. However, as a result of the jury’s findings, district court denied the request on the grounds that controlling precedent required a plaintiff seeking an award of profits to prove that the defendant’s violation was willful.

Relying on Second Circuit precedent, the U.S. Court of Appeals for the Federal Circuit affirmed, but the Supreme Court reversed. In doing so, Justice Gorsuch, writing for the Court, explained that, while a trademark defendant’s mental state is “a highly important consideration in determining whether an award of profits is appropriate,” the language of the Lanham Act did not support an inflexible rule that a plaintiff must prove a defendant’s willful infringement as a precondition to obtaining a profits award.

Looking Forward

In trademark cases, proving damages is often difficult. For this reason, plaintiffs typically seek the equitable remedy of disgorgement of the defendant’s profits under the theory that equity should not permit an infringer to retain the profits he obtained by trading on the goodwill of another’s trademark.

While the Romag decision makes clear that a plaintiff need not prove “willfulness” in order to recover a defendant’s profits in a trademark case, it fails to provide any guidance as to what level of culpability is sufficient to recover such an award.  Thus, Romag arguably provides greater opportunities for trademark owners to seek an award of profits against defendants whose conduct may be considered “reckless,” “indifferent,” “knowing,” “in callous disregard,” “negligent” and/or “innocent.” It remains to be seen where the courts will draw the line.

The case is Romag Fasteners, Inc v. Fossil Group, Inc., 590 U.S. ___, 2020 WL 1942012 (Apr. 23, 2020).

If you have any questions about this recent decision, or about trademark infringement or other intellectual property-related matters, please contact Douglas H. Morseburg or Esther J. Choe.

Douglas is a Partner at Leech Tishman and a member of the Intellectual Property Practice Group. Doug is based in the Pasadena office and can be reached at 626.796.4000 or dmorseburg@leechtishman.com.

Esther is an Associate at Leech Tishman and a member of the Intellectual Property, Litigation and Employment & Labor Practice Groups. Esther is based in the Pasadena office and can be reached at 626.796.4000 or echoe@leechtishman.com.

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