Profitable Trademarks: Willful Infringement Unnecessary to Award Infringer’s Profits

The Supreme Court made trademarks more valuable by eliminating willfulness as an absolute prerequisite in disgorging an infringer’s profits. In Romag Fasteners, Inc. v. Fossil, Inc., Fossil’s handbags and accessories previously used Romag’s magnetic snap fasteners under a trademark and patent license agreement for years. Eventually, Romag discovered the Fossil’s factories in China were using counterfeit Romag fasteners. The jury held that Fossil had acted “in callous disregard” of Romag’s trademark rights, but did not find that Fossil acted willfully. The district court denied Romag’s request to disgorge $6.7 million dollars in Fossil’s profits, but did award Romag approximately $90,000 in trademark damages, $66,000 in patent damages, and $2.4 million in attorneys’ fees. The Court of Appeals for the Federal Circuit affirmed the district court’s decision to not award Fossil’s profits, but did acknowledge that there was a circuit split whether a showing of willfulness was necessary to disgorge the infringer’s profits.

The Supreme Court took the case to resolve the split in the circuit and its opening salvo that the plain language of 15 U.S.C. §1117(a) “spells trouble for Fossil” predicted the inevitable:

When a violation of any right of the registrant of a mark registered in the Patent and Trademark Office, 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.

The Court observed that the statute uses “willful” only for recovery of damages for dilution under §1125(c), which was added by amendment to the Lanham Act many years after its adoption, but Romag proved a violation of §1125(a) that is silent on any willfulness language or requirements. The Court also took a wider look at the rest of the Lanham Act and identified instances discussing the mental state of an infringer in establishing liability and awarding damages.

Without doubt, the Lanham Act exhibits considerable care with mens rea standards. The absence of any such standard in the provision before us, thus, seems all the more telling.

The Court then addressed Fossil’s argument that the language of 1125(a) triggers an award of the defendant’s profits “subject to the principles of equity,” which would include a willfulness requirement. Finding it “a curious suggestion,” the Court dismissed Fossil’s position because (1) “it would require us to assume that Congress intended to incorporate a willfulness requirement here obliquely while it prescribed mens rea conditions expressly elsewhere throughout the Lanham Act,” and (2) the “phrase ‘principles of equity’ doesn’t readily bring to mind a substantive rule about mens rea from a discrete domain like trademark law.”

The Court also relegated to Congress Fossil’s policy argument that profit disgorgement standards must meet the heightened willfulness standard to avoid baseless trademark suits, and Romag’s counterargument that it will prevent infringement and compel respect for trademark rights.

In the end, the Court held that although a trademark infringer’s mental state is a highly important consideration for the courts in determining whether an award of profits is appropriate, it “is a far cry from insisting on the inflexible precondition” of willfulness. With the order vacated, Romag can now seek Fossil’s $6.7 million in profits. This ruling makes future trademark infringement, unfair competition, and false advertising claims more lucrative for plaintiffs who may be entitled to disgorge defendants’ profits without proving willfulness.