Supreme Court Says “Willfulness” Not Required to Recover Trademark Infringers’ Profits

Supreme Court Says “Willfulness” Not Required to Recover Trademark Infringers’ Profits

Apr 24, 2020

Client Alert

Brownstein Client Alert, April 24, 2020

On April 23, 2020, the United States Supreme Court ruled unanimously that willful intent is not a prerequisite to awarding an infringer’s profits in a federal trademark infringement lawsuit. Romag Fasteners, Inc. v. Fossil, Inc., et al., 590 U. S. ____ (2020). The decision comes as welcome news to trademark owners because it effectively lowers the standard for recovering an important form of monetary relief. As a result, we may see an uptick in trademark infringement lawsuits and an increased willingness by defendants to settle out of court.

Remedies Available Under The Federal Trademark Act

The federal Lanham Act—also known as the Trademark Act—provides remedies for trademark infringement in the form of injunctive relief, monetary damages and defendant’s profits. Section 1117(a) provides that any violation of a registered trademark or “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.”

Prior to the Romag decision, circuits were split in requiring “willfulness” as a precondition to recovering an infringer’s profits. The Second, Eighth, Ninth, Tenth and District of Columbia Circuits required a showing of willfulness prior to awarding an infringer’s profits. The First Circuit also required such a finding only if the infringer was not a direct competitor of the trademark owner. By contrast, the Third, Fourth, Fifth, Sixth, Seventh and Eleventh Circuits had no such requirement to recover an infringer’s profits; rather, willfulness was merely one consideration in assessing whether an award of profits was appropriate.

Overview of Romag Fasteners, Inc. v. Fossil, Inc.

With its decision in Romag, the Supreme Court has now resolved the circuit split—holding that a trademark owner in an infringement lawsuit is not required to show willful intent by the infringer to recover the infringer’s profits.

In Romag, Petitioner Romag Fasteners, Inc. sued Fossil, Inc. for patent and trademark infringement when Romag discovered certain Fossil handbags sold in the U.S. used counterfeit Romag snaps that used Romag’s mark. At trial, a jury found Fossil guilty of infringement but that Fossil’s conduct did not rise to the level of willful infringement. A jury awarded nearly $7 million in profits; however, the district court struck the award holding Second Circuit precedent requires a finding of willfulness as a precondition to an award of profits. The Federal Circuit affirmed that willfulness is a prerequisite within the Second Circuit. However, not all circuits follow the Second Circuit’s rule.

The Supreme Court reviewed the case to decide whether the plain language of the Lanham Act required a finding of willful intent in order to award an infringer’s profits. Although the Lanham Act explicitly requires a showing of willful intent to recover an infringer’s profits for a trademark dilution claim under § 1125(c), the court held that the same precondition has never been required under § 1125(a) for false or misleading use of a trademark.

The Supreme Court acknowledged that the intent of an infringer (e.g., innocent vs. intentional) should be an important consideration in deciding whether to award an infringer’s profits. However, the court was not willing to create a hardline rule when the Lanham Act has little statutory language, structure or history to support such a finding. The court stated that its “limited role is to read and apply the law” and that in this case, the statutory language is clear—willful intent is not a precondition to awarding an infringer’s profits under § 1125(a).

Practical Implications for Future Trademark Litigation

So what does the Supreme Court’s decision mean for the future of trademark litigation?

First, trademark owners may have an increased willingness to pursue infringement actions in court. Litigation is expensive and plaintiffs undoubtedly weigh the likelihood of monetary recovery when deciding whether to file suit. Notably, the standard remedy for trademark infringement is injunctive relief (i.e., restricting the infringing activity), which prevents further damage to a brand and avoids consumer confusion in the marketplace. Generally, trademark owners can also recover damages resulting from the infringement, for example, lost profits. However, damages are notoriously difficult to prove and some federal circuits require evidence of actual consumer confusion (i.e., more than the likelihood of confusion required to prove trademark infringement). Thus, pre-Romag, many trademark owners faced the real possibility of receiving little or no money despite succeeding on a trademark infringement claim. And, to add insult to injury, attorneys’ fees and costs are only awarded in “exceptional” trademark infringement cases.

Post-Romag, monetary relief in the form of infringers’ profits appears more attainable to trademark owners in the First, Second, Eighth, Ninth, Tenth and D.C. Circuits. Accordingly, we may see an uptick in trademark infringement lawsuits in these jurisdictions as more trademark owners head to court hoping for a payout.

Second, defendants may feel increased pressure to settle trademark infringement claims. Trademark owners in circuits affected by the Romag decision have unquestionably gained settlement leverage. Previously, infringers in these circuits acknowledged the credible threat of injunctive relief, but often felt removed from monetary liability. Recognizing this, trademark owners looking to avoid expensive litigation frequently settled their infringement claims without compensation so long as the infringing activity ceased. Trademark owners now have more bargaining power, and perhaps even have the upper hand in settlement negotiations. Although the Supreme Court indicated that intent of infringers should play a key consideration in whether an award of profits is warranted, post-Romag, even “innocent” infringers face the possibility that courts will disgorge their profits in favor of trademark owners. Significantly, if a court determines that disgorgement is a proper remedy, the trademark owner only needs to show the infringer’s total sales and then the burden shifts to the infringer to prove up all costs and deductions. In other words, the trademark owner has an easier burden of proof.

With all that in mind, infringers will likely take greater pause before telling a trademark owner to pound sand. With the real threat of monetary liability looming, infringers may settle quicker and on less favorable terms. Indeed, we may see more infringers offering financial compensation during settlement negotiations to avoid the uncertainty of having to defend a lawsuit.

All in all, the Supreme Court’s decision in Romag should be viewed as a key victory for trademark owners and one that will undoubtedly influence future enforcement strategies. Please contact Brownstein’s trademark attorneys to assist in the protection and enforcement of your valuable trademark rights.

This document is intended to provide you with general information regarding the U.S. Supreme Court's ruling in Romag Fasteners, Inc. v. Fossil, Inc. The contents of this document are not intended to provide specific legal advice. If you have any questions about the contents of this document or if you need legal advice as to an issue, please contact the attorneys listed or your regular Brownstein Hyatt Farber Schreck, LLP attorney. This communication may be considered advertising in some jurisdictions.

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