In a recent unanimous decision in Romag Fasteners, Inc. v. Fossil, Inc., the U.S. Supreme Court brought some welcome clarity to the question of whether willfulness is required in order to recover an infringer’s profits under Section 35 of the Lanham Act, 15 USC § 1117(a), in infringement litigation. Section 1117(a) sets out the statutory requirements for recovery of acts of trademark infringement, unfair competition, and false advertising. In ruling that plaintiffs in trademark infringement lawsuits could secure monetary damages for lost profits without having to show that the defendant’s infringement was “willfully intended,” the Supreme Court resolved a previously polarizing split that caused inconsistent rulings among the lower federal courts. Brand owners had been eagerly awaiting resolution of this fundamental issue in trademark infringement litigation.
Case Background, Procedural History, and Holding
A dispute between Romag, a snap fastener manufacturer, and Fossil, a fashion accessory company, made its way through federal courts in Connecticut and the Federal Circuit when Romag alleged that Fossil was producing handbags that contained counterfeit Romag fasteners. Years ago, Romag and Fossil signed an agreement allowing Fossil to use Romag fasteners in a variety of its accessories. In time, Romag discovered that the Chinese factories Fossil had hired to make its merchandise were using counterfeit Romag fasteners, and that Fossil was doing little to prevent this practice. Ultimately, Romag sued for trademark infringement pursuant to Section 43 of the Lanham Act, 15 U.S.C. §1125(a).
Based on the Second Circuit precedent applied in the dispute, the district court denied Romag damages in the form of lost profits, finding that although Fossil had acted callously, the accessory company had not acted willfully in infringing the fasteners. The Federal Circuit affirmed the district court’s ruling, concluding that willfulness was required for the monetary recovery of profits.
On appeal, the Supreme Court carefully scrutinized the wording of Section 1117(a). Romag argued this section requires a mere “violation” and not a “willful violation.” Fossil rebutted by contending that the phrase “principles of equity” under Section 1117(a) includes an implied willfulness requirement in order to recover for lost profits. The court rejected Fossil’s arguments, finding that such an implied meaning of “principles of equity” would require the Court to assume that Congress intended to incorporate a willfulness requirement that was not expressly stated in the text of Section 1117(a). Justice Gorsuch was troubled by Fossil’s argument because the Lanham Act expressly prescribes knowledge of wrongdoing as a requisite for recovery in other portions of the Lanham Act. Therefore, the Court reasoned it was unlikely that the legislature intended to fill the gaps of the meaning of “principles of equity” under Section 1117(a) with an implied willfulness requirement in order to determine recovery.
SCOTUS further stated that historically, the determination of lost profit remedies has considered willfulness as a factor. Thus, the trademark defendant’s mental state should still be a “highly important consideration in determining whether an award of profits is appropriate.” However, the willfulness factor is not to be a firm requisite in awarding such remedies.
Conclusion and Future Implications
The Supreme Court’s holding could potentially make trademark owners more likely to pursue litigation in cases where the defendant’s actions may not have been expressly willful, but were reckless in nature. It is unlikely, however, that this ruling will lead to a spike in frivolous trademark infringement cases since the Supreme Court made clear that the defendant’s mental state is still an important determinative factor in recouping lost profits. Therefore, the ruling does not necessarily mean that plaintiffs can now easily shake loose lost profits. The intent and motivations of the infringer will still be considered, while the Court directly rejected willfulness as an “inflexible precondition to recovery” of lost profits.
This ruling simplifies at least one aspect of bringing an infringement suit. Since this ruling has closed a split among the federal circuit courts, brand owners no longer need to strategize about which forum to select when bringing trademark lawsuits for purposes of potential profits recovery. There is now uniformity with respect to the requisites that plaintiffs must show in order to disgorge an infringer’s profits.
The Romag decision, however, should not be misinterpreted as sanctioning automatic awards of profits to prevailing trademark plaintiffs. Injunctive relief will remain at the forefront of remedies sought in trademark litigation, as the central focus of such a dispute is to cease the act of infringement before more harm is done to the brand owner’s goodwill. Since equitable principles will still be applied when determining whether an infringer’s profits are recoverable, a defendant’s mental state will remain a salient factor for courts to weigh in future cases. Plaintiffs assessing their litigation options, however, can now proceed knowing that willful infringement is not a prerequisite to obtaining an award of an infringer’s profits for violation of Section 43(a) of the Lanham Act. While the facts of the Romag case pertained to trademark infringement, Section 43(a) encompasses false and misleading advertising as well as a broad range of unfair competition claims. While we do not expect a flood of Section 43(a) litigation, the directive about recovering profits in Romag is a win for brand owners.