Until its April 23 decision in Romag Fasteners, Inc. v. Fossil Group, Inc. (No. 18-1233), the Supreme Court had not ruled on whether a trademark owner must prove that the defendant's infringement was willful or intentional in order to recover profits the defendant made from the infringement. The Court has now unanimously rejected any absolute willfulness requirement, finding that while “a trademark defendant’s mental state is a highly important consideration in determining whether an award of profits is appropriate,” willfulness should not be an “inflexible precondition” for such awards.
Romag sells magnetic fasteners for leather goods, which Fossil uses on its handbags. Romag discovered that some of the factories in China that Fossil had used to assemble its handbags were using counterfeit Romag fasteners, instead of purchasing authentic fasteners through Romag. Romag sued Fossil for trademark infringement. Ultimately, a jury concluded that Fossil’s actions did not go so far to label it “willful” as Fossil did not engage in reckless disregard, willful blindness, or have actual knowledge. The lower court held that “those determinations, together with every other relevant ‘principle of equity’ would preclude an equitable accounting of Fossil’s profits to Romag under any standard.”1
The plain text of 15 U.S.C. § 1117(a) does not require that the plaintiff in a trademark infringement action prove the defendant acted willfully in order to recover the defendant’s profits. In rendering this opinion, the Court reviewed the Lanham Act provision governing remedies for trademark violations, noting that §1117(a) makes a showing of willfulness a prerequisite for a profits award in a suit for trademark dilution under §1125(c), but that similar language was missing from §1125(a), which pertains to trademark infringement.
What Does the Future Hold for Trademark Litigants?
Damages Calculations Unlikely to Change Significantly
The plain language of the Lanham Act states that a plaintiff may recover a defendant’s profits “subject to the principles of equity” (15 U.S.C. § 1117(a)). Prior to the Romag decision, some federal and state courts, as well as the Restatement (Third) of Unfair Competition, concluded that proof of intentional or willful infringement was an essential requirement for recovery of an infringer's profits.2 Fossil advanced this position, contending that the term “principles of equity” includes a willfulness requirement. The Court unambiguously rejected this position.
Although it will surely come as a relief to trademark plaintiffs that the high bar of proving willfulness3 is theoretically no longer an impediment to recovering a defendant’s profits in jurisdictions that previously required it, disgorgement of profits is not automatic. Equitable considerations will continue to guide monetary awards going forward, so damages calculations may not change significantly as a result of the Supreme Court’s decision. However, the spectre of increased damages may influence settlements and the willingness of infringers to litigate.
One reason Romag may not result in seismic change in trademark damages is that the Romag case considered just one of several monetary remedies available for the infringement of trademarks. In addition to disgorging profits the defendant made from the sale of infringing products, trademark plaintiffs can also seek to recover their own lost profits, actual damages and losses, and attorney’s fees. Courts have discretion to award any combination of these types of monetary awards, or none, making it a fluid analysis.4
In addition, though the Court found that the statute itself does not require a finding of willfulness in order to disgorge profits, Justice Gorsuch was careful to note in his opinion for the Court that “a defendant’s mental state is relevant to assigning an appropriate remedy” and that “a trademark defendant’s mental state is a highly important consideration in determining whether an award of profits is appropriate.” This language suggests that using willfulness as a guiding principle in determining monetary awards remains a sound practice, even if the letter of the law does not strictly require it. In this sense, Romag may be viewed a simple exercise of statutory interpretation where circuits are admonished not to read terms that are not present into the plain meaning of a statute rather than a watershed moment in the area of trademark damages.
Prior to Romag, factors frequently considered in fashioning a monetary award included whether (i) the infringer’s conduct was willful, negligent, or innocent, (ii) the plaintiff suffered losses in any provable amount; (iii) there is proof of actual confusion of some customers, and (iv) the infringer realized profits from its infringing actions.5 A similar calculus is likely to apply going forward. Whether an infringer acted willfully will be considered, but as a factor in the broader analysis.
Trademark Owners Will Have More Freedom in Where to File an Infringement Lawsuit
One tangible impact of the Romag case that we are likely to see is the ability of trademark owners to sue in their preferred venue irrespective of prior circuit precedent on the issue of willfulness. Plaintiffs are always wise to consider where it is most advantageous to bring a lawsuit. Before Romag, when the circuits were split on whether a trademark plaintiff was required to prove willfulness in order to be eligible to recover a defendant’s profits, savvy trademark owners factored the enhanced willfulness burden in their calculation of where to file a lawsuit. Now that the Supreme Court has unambiguously held that willfulness is not a prerequisite to obtaining these types of damages, trademark plaintiffs have greater flexibility in where they can file regardless of the strength of their case for willful infringement.
Trademark Owners Likely to Demand Higher Settlements and Take More Cases to Trial
Trademark owners are likely to feel emboldened by the fact that willfulness is no longer a prerequisite to recovering a defendant’s profits, and we can expect them to become more aggressive in their enforcement efforts. One way this is likely to manifest is in the form of higher settlement demands without evidence of a defendant’s intent to infringe.
Historically, very few trademark cases proceed to trial. This is due, in large part, to the difficulty of proving damages generally, including a defendant’s intent to infringe and the extent to which a plaintiff’s own profits were impacted by the defendant’s infringement. After Romag, trademark owners are likely to take defendants to trial more frequently, reasoning that there is now a higher likelihood of obtaining monetary relief to justify the expense of a trial. In the past, a strongly worded injunction alone was often considered a “win.”6 In time we will see whether lower courts’ readings of Romag will move the needle on trademark damages in any appreciable way.
1 In addition to the Second Circuit, the First, Eighth, Ninth, Tenth and D.C. Circuits imposed willfulness requirements prior to Romag. In the Third, Fourth, Fifth, Sixth, Seventh and Eleventh Circuits, willfulness was a factor, but not a prerequisite, to recovering a defendant’s profits.
3 McCarthy notes that courts have described willfulness to include fraud, a “deliberate intent to deceive,” conduct that shows an “intention of causing confusion or deception,” conduct that is “willful or in bad faith,” conduct that constitutes “reckless disregard or willful blindness,” and conduct demonstrating an “intent to benefit from the goodwill or reputation of the trademark holder”. McCarthy § 30:62.