SCOTUS Rules Proving 'Willfulness' is Not Required for Plaintiffs to be Awarded Defendant's Trade...
Updated: Apr 27, 2020
By Christine-Marie Lauture, Esq.
Resolving one of the most anticipated trademark rulings this year, on Thursday, April 23, 2020, the United States Supreme Court ruled that a trademark owner does not need to prove that a defendant's infringement was willful under federal trademark law in order to recover the infringer's profits. Full Opinion: https://www.supremecourt.gov/opinions/19pdf/18-1233_5he6.pdf.
In 2002, Romag Fastners, Inc., a company that sells magnetic snap fasteners for wallets, handbags, and other leather goods, entered into an agreement with Fossil Inc., the massive Texas-based company that designs, markets, and distributes fashion accessories, to use their magnetic fasteners on handbags Fossil had manufactured in China. In 2010, Romag brought suit in the District of Connecticut against Fossil (as well as other retailers) for trademark and patent infringement, alleging that factories in China were making Fossil goods and other products using counterfeit Romag fasteners. In 2014, a jury found Fossil liable for both claims, and in relation to the trademark claim, made an advisory award of $90,759.36 of Fossil's profits in actual damages, and $6.7 Million of Fossil's profits under a deterrence theory. Importantly, the jury found that Fossil's infringement was not willful, rather "in callous disregard" of Romag's rights. As such, the district court concluded that Romag was not entitled to an award of profits. Romag appealed to the Federal Circuit, and in 2016, it affirmed the lower court's decision. While Romag won on liability and actual damages, it was refused the $6.7 million it sought of Fossil's profits by the Federal Circuit, because it did not show proof that Fossil acted "willfully". After further proceedings, the Federal Circuit refused to allow Romag the award of Fossil's profits, and the Supreme Court granted cert.
In a unanimous decision, Justice Neil M. Gorsuch wrote for the Court.
Lanham Act at Issue: §43(a), 15 U.S.C. §1125, and §35, 15 U.S.C. §1117(a)
Lanham Act §43(a), 15 U.S.C. §1125, provides, in relevant part, as follows: (a) Civil action (1) Any person who, or in connection with any goods or services, or any container for goods, uses in commerce any word, term, name, symbol, or device, or any combination thereof, or any false designation of origin, false or misleading description of fact, or false or misleading representation of fact, which - (A) Is likely to cause confusion, or to cause mistake, or to deceive as to the affiliation, connection, or association of such person with another person, or as to the origin, sponsorship, or approval of his or her goods, services, or commercial activities by another person, or (B) In commercial advertising or promotion, misrepresents the nature, characteristics, qualities, or geographic origin of his or her or another person's goods, services, or commercial activities, shall be liable in a civil action by any person who believes that he or she is likely to be damaged by such act... (c) Dilution by blurring; dilution by tarnishment (1) Injunctive relief Subject to the principles of equity, the owner of a famous mark that is distinctive, inherently or through acquired distinctiveness, shall be entitled to an injunction against another person who, at any time after the owner's mark has become famous, commences use of a mark or trade name in commerce that is likely to cause dilution by blurring or dilution by tarnishment of the famous mark, regardless of the presence or absence of actual or likely confusion, of competition, or of actual economic injury.
(d) Cyberpiracy prevention (1) (A) A person shall be liable in a civil action by the owner of a mark, including a personal name which is protected as a mark under this section, if, without regard to the goods or services of the parties, that person - (i) has a bad faith intent to profit from that mark, including a personal name which is protected as a mark under this section; and (ii) registers, traffics, in, or uses a domain name that - (I) in the case of a mark that is distinctive at the time of registration of the domain name, is identical or confusingly similar to the mark; (II) in the case of a famous mark that is famous at the time of registration of the domain name, is identical or confusingly similar to or dilutive of that mark; or (III) is trademark, word, or name protected by reason or section 706 of title 18 or section 220506 of title 36.
The section of the Lanham Act at issue in Romag, which sets forth remedies for violation of §43, provides in relevant part: "When...a violation under section 1125(a) or (d) of this title, or a willful violation under sections 1125(c) of this title, shall have been established in any civil action arising under this chapter, the plaintiff shall be entitled...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.
Previous Circuit Split on Willfulness Requirement
There has been a long-standing circuit split on whether willfulness is a required element of proof to recover disgorgement of an infringer's profits in a trademark infringement action. From one side, the Second, Eighth, Ninth, Tenth, and D.C. Circuits require plaintiffs to prove of willfulness to recover an award of an infringer's profits under §35 for violating of §43(a). Similarly, the First Circuit requires plaintiffs to prove willfulness, but only where the subject parties are not direct competitors. From the other side, the Third, Fourth, Fifth, Sixth, Seventh, and Eleventh Circuits do not require proof of willfulness in order for a plaintiff to recover under §35 for violating of §43(a). The infringer's intent, in these circuits, is only one of the factors considered in weighing for an award of profits.
Disagreeing with the Federal Circuit, the Supreme Court reversed its decision and ruled that "mens rea" is only a consideration for an award of the infringer's profits and "[t]he absence of any such standard in the provision before us, thus, seems all the more telling." Pointing to the language of the Statute, as amended in 1999, there is a showing of willfulness as "a precondition to a profits award when the plaintiff proceeds under §1125(c)...but Romag alleged and proved a violation of §1125(a), a provision establishing a cause of action for the false or misleading use of trademarks." Justice Gorsuch added, "in cases like that, the statutory language has never required a showing of willfulness to win a defendant's profits." He further advised that the Supreme Court does not "usually read into statutes words that aren't there. It's a temptation we are doubly careful to avoid when Congress has (as here) included the term in question elsewhere in the very same statutory provision."
While a showing of willfulness is not required to recover an infringer's profits, Justice Gorsuch added that it is still an important factor for courts to consider when weighing an award for profits: "...we do not doubt that a trademark defendant's mental state is a highly important consideration in determining whether an award of profits is appropriate. But acknowledging that much is a far cry from insisting on the inflexible precondition to recovery Fossil advances." The Court does not find that the mindset of an infringer should be an "inflexible precondition." Sticking to a close reading of the statutory language of 15 U.S.C. §1117(a), the Court could not support the weight of a willfulness prerequisite.
Justices Alito (joined by Justices Breyer and Kagan) concurred in agreeing that the lower court's decision, holding that willfulness is a prerequisite to an award for profits under 15 U. S. C. §1117(a), is incorrect. Willfulness is "a highly important consideration...but not an absolute precondition."
Justice Sotomayor, concurring with the majority only in the judgment and not in the opinion, distinguishes the award of profits by pointing to the principles in courts of equity as they relate to "innocent infringement." Sotomayor found the majority "agnostic about awarding profits for both 'willful' and innocent infringers," leading her to not join in the opinion.
What This Means Going Forward
For circuits that have had a high-bar standard of "willfulness" in reverse confusion trademark cases, such as the Second and Ninth Circuits, today's ruling very well may extend to those standards. Further, Justice Sotomayor's concurrence seems to leave open the issue of disgorgement of profits for "innocent infringers."
For brand owners, this decision may certainly serve as a sigh of relief. As willfulness typically is a difficult element to prove, this no longer being a requirement means, from Romag's perspective, obtaining an infringer's profits may bring a more meaningful monetary relief that trademark owners can secure.
As far as preventative measures between business partners involving suppliers, it is imperative, now more than before SCOTUS's ruling, to have thorough agreements in place that address how to deal with and remedy issues with counterfeit goods. Specifically, there should be a specified limitation of liability clause for the supplier that addresses the issue of counterfeit goods. Such a limiting clause would put the duty of inspecting final products on the contracting company to ensure that its goods are not counterfeit, prior to product placement and sale.