Source: https://www.arentfox.com/perspectives/alerts/supreme-court-holds-willful-trademark-infringement-not-required-disgorgement
Timestamp: 2020-08-12 23:40:19
Document Index: 258431825

Matched Legal Cases: ['§ 1117', '§ 1117', '§ 1117', '§ 1118', '§ 1125', '§ 1117', '§1117', '§ 1114']

Supreme Court Holds Willful Trademark Infringement Not Required for Disgorgement of Fossil’s Profits | Arent Fox
Ruling Settles Longstanding Circuit Split
This is an important, age-old, yes-or-no question to which trademark practitioners have yearned for an answer. The Supreme Court of the United States has now finally delivered its long-awaited ruling — a resounding “No.”
Section 35(a) of the Lanham Act, 15 U.S.C. § 1117(a), entitles a prevailing plaintiff to recover an infringer’s profits — “subject to the principles of equity” — for a violation under Section 43(a), which includes trademark infringement. However, the requisite showing of an infringer’s mens rea in order to recover profits has sharply divided the nation’s federal courts of appeals. The Second, Eighth, Ninth, Tenth, and District of Columbia Circuits have mandated a showing of willful infringement in order to recover a defendant’s profits, with the First Circuit requiring the same where the parties are not direct competitors. The Third, Fourth, Fifth, Sixth, Seventh, and Eleventh Circuits, however, have followed a more lenient standard that does not mandate a threshold showing of willfulness, instead considering the infringer’s intent as one factor among many others in determining whether to award profits. In Romag Fasteners, Inc., v. Fossil, Inc., et al., the Supreme Court resolved this deep circuit split, creating a consistent standard nationwide.
Petitioner Romag sells magnetic snap fasteners under its ROMAG trademark for use as closures in wallets, handbags, and other leather goods, while Fossil designs and sells a range of fashion accessories. Despite an initially-amicable agreement between the parties in which Fossil was permitted to use Romag’s fasteners on its products, Romag eventually discovered that certain Fossil handbags sold in the United States contained counterfeit snaps bearing the ROMAG mark, and sued Fossil for trademark infringement. Following a seven-day trial, the jury determined Fossil had infringed Romag’s mark, further finding that Fossil had acted “in callous disregard” of Romag’s trademark rights yet finding that Fossil’s infringement was not willful. After a subsequent bench trial, the district court — relying on Second Circuit precedent, but noting the split of appellate authority — held that Romag was not entitled to an award of profits, as it had failed to prove that Fossil’s trademark infringement was willful. Because Romag had also alleged patent infringement, the appeal was directed to the Federal Circuit, where, after recognizing it had never addressed the question of whether proof of willfulness is required to recover the infringer’s profits, it affirmed the district court’s decision.
The Supreme Court granted Romag’s petition for a writ of certiorari on June 28, 2019, and on April 23, 2020, delivered its holding—a plaintiff in a trademark infringement suit is not required to show that a defendant willfully infringed the plaintiff’s trademark as a precondition to a profits award. Romag Fasteners Inc. v. Fossil Inc., et al., 590 U. S. ____ (2020). Penning the majority opinion was Justice Gorsuch, whose opinion is premised on a contextual analysis of the Lanham Act, and was joined by all of the justices except Justice Sotomayor (who concurred separately).
Justice Gorsuch first noted that, in cases involving a violation under Section 43(a) (like this one), “the statutory language has never required a showing of willfulness to win a defendant’s profits.” Slip Op. at 3 (emphasis in original). Further, Courts should seek to avoid reading into statutes “words that aren’t there” where “Congress has (as here) included the term in question elsewhere in the very same statutory provision.” Id. In that regard, Justice Gorsuch then pointed to the numerous provisions in the Lanham Act that talk about mens rea, intent, and willfulness, such as: § 1117(b), regarding treble profits or damages and attorneys’ fees for intentionally performed acts with specified knowledge; § 1117(c), which increases the cap on statutory damages from for certain willful violations; and § 1118, which permits courts to order the destruction of infringing items if a plaintiff proves, inter alia, a willful violation of § 1125(c). Id.[1] In light of this, the absence of any such intent or mens rea requirement in the provision enabling the recovery of an infringer’s profits speaks volumes.
Fossil argued that the phrase “principles of equity” in § 1117(a) was meant to carry with it a “willfulness” requirement from the common law and that equity courts had traditionally required a showing of willfulness before awarding a defendant’s profits. Slip Op. at 4. But, the Court opined that to follow that line of reasoning “would require [the Court] to assume that Congress intended to incorporate a willfulness requirement here obliquely while it prescribed mens reaconditions expressly elsewhere throughout the Lanham Act.” Id. The Court went on to reject Fossil’s argument on two separate grounds. First, after reviewing use of the phrase in other contexts, the Court was skeptical that Congress intended “principles of equity” to point to a “narrow rule about a profits remedy within trademark law.” Id. at 5. Second, the Court determined the entire foundation of Fossil’s argument—the teachings of earlier courts—was flawed, concluding based on its review of earlier versions of the Lanham Act, case law, and other authorities that “it’s far from clear whether trademark law historically required a showing of willfulness before allowing a profits remedy.” Id.
To be sure, the majority opinion does concede that “a trademark defendant’s mental state is a highly important consideration in determining whether an award of profits is appropriate.” Id. at 7. But in closing, Justice Gorsuch makes clear the rationale underlying the Court’s decision to nix a bright-line rule requiring a showing of willfulness: Fossil’s case “ultimately rests on an appeal to policy,” but the Court’s “limited role is to read and apply the law” that Congress, as policymakers, have chosen to enact. Id. Here, a showing of willfulness as a prerequisite to an award of an infringer’s profits was nowhere to be found in the statute.
There were two concurring opinions, each of which was even shorter than the majority opinion. Justice Alito, joined by Justices Breyer and Kagan, concurred in a one-paragraph opinion seemingly intended to further stress that “willfulness is a highly important consideration in awarding profits under §1117(a).” Concurrence, Alito, J., Slip Op. at 1 (emphasis added). Justice Sotomayor also concurred, but in judgment only, taking issue with what she characterized as the majority opinion’s “agnostic” approach about the award of profits “for both ‘willful’ and innocent infringement.” Concurrence, Sotomayor, J., Slip Op. at 2. In her view, the majority opinion “suggests that courts of equity were just as likely to award profits for such ‘willful’ infringement as they were for ‘innocent’ infringement,” a suggestion she deemed was inconsistent with the weight of authority. Id. at 1. An observation that should make defendants in trademark infringement cases shutter.
On the one hand, the Supreme Court’s decision in Romag finally provides a resolution to the circuit split that has haunted the trademark profession for years. But on the other hand, the decision certainly does not make clear what evidence sufficiently supports an award of defendant’s profits—and what type of conduct short of willfulness does entitle a trademark owner to a disgorgement of profits. Indeed, the Court did not rule whether Fossil’s “callous disregard” of Romag’s trademark rights was enough to meet this standard, leaving it for the district court to decide on remand. So, although the age-old question has now finally be answered, it may take some time before we see the extent of its effect (or lack thereof), and new splits may easily arise in the aftermath.
[1] Also citing 15 U.S.C. §§ 1114, 1125(d)(1)(A)(i), (B)(i).