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Supreme Court Holds That “Willfulness” is Not a Prerequisite to an Award of Profits in Trademark Infringement Actions

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On April 23, 2020, the Supreme Court of the United States issued a unanimous opinion in Romag Fasteners Inc. v. Fossil Inc. et al., holding that a showing of willfulness is not a precondition to the recovery of profits in trademark infringement cases, but noting “that a trademark defendant’s mental state is a highly important consideration” in such determinations. With this ruling, the Court vacated and remanded the lower court’s decision, which denied an award of profits to Romag on grounds that Fossil’s conduct was not willful.

This case concerns the unauthorized use of counterfeit fasteners on leather handbags. Specifically, by way of an agreement, Plaintiff Romag Fasteners Inc., a seller of fasteners to be used in leather goods, permitted Defendant, Fossil Inc., to use its fasteners in a variety of fashion accessories, including handbags. Romag later discovered that the Chinese factories Fossil hired to make its products were using counterfeit Romag fasteners, which Fossil had not been effectively guarding against. Romag then sued Fossil for trademark infringement and falsely representing that the fasteners used on its products were derived from Romag. A jury sided with Romag, finding that Fossil had acted in “callous disregard” of Romag’s intellectual property rights. However, the jury also determined that Fossil had not acted willfully as defined by the district court, such that Romag’s request for profits from the sale of the infringing products was denied.

The statutory language of the Lanham Act, 15 U.S.C. § 1117(a), states, in part:

When a violation of any right 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 principles of equity, to recover (1) defendant’s profits, (2) any damages sustained by the plaintiff, and (3) the costs of the action.

In its review of the Lanham Act, the Court gave great emphasis to the statute’s plain language which, unlike in dilution claims under §1125(c), does not make willfulness a precondition to an award of profits under §1114 and §1125(a) for false or misleading use of trademarks. Moreover, the Court examined the Lanham Act from a broader perspective and noted that the Act oftentimes explicitly touches on mental states, which suggests that the absence of such a requirement in 15 U.S.C. §1117(a) was deliberate and telling. For instance, §1117(b) requires trebling of profits or damages and an award of attorney’s fees when a defendant acts intentionally and with specific knowledge; §1117(c) increases the cap on statutory damages for specified willful violations; and §1118 allows courts to order the destruction of infringing products if there is a willful violation of §1125(c). The Court contrasted these provisions with the language of §1117(a) in concluding that there is no requirement as to mental state to award profits for infringement.

The Court also analyzed Fossil’s position that a willfulness requirement has long been recognized as a component in the recovery of profits for trademark infringement such that it has become a “principle of equity” and is incorporated within the statutory language – “subject to the principles of equity.” The majority rejected this argument, in part, because it would require the Court to assume that Congress intended for there to be a mental state requirement but intentionally omitted it, as other sections of the Lanham Act explicitly prescribe such mental states. The majority also noted the uncertainty of the willfulness requirement in prior case law. Ultimately, the majority acknowledged that a defendant’s mental state is an important consideration in determining the appropriateness of an award of profits, especially in light of the other mens rea provisions in the Lanham Act, but rejected Fossil’s “inflexible precondition” of willfulness in order for a court to award profits to a trademark owner.

Notably, Justice Sotomayor, who concurred in judgment only, pointed out that although 15 U.S.C. § 1117(a) does not outline a “willfulness” requirement for awarding profits, courts of equity have in fact defined “willfulness” to include recklessness, but to exclude “good faith” or negligence. Justice Sotomayor wrote further that the majority’s contention that courts of equity would have been just as likely to award profits for “willful” infringement as for “innocent” infringement does not in fact reflect the actual reality of historical trademark law, in which profits were rarely awarded for innocent infringement. Nevertheless, Justice Sotomayor concurred that willfulness should not be required for the recovery of profits in trademark infringement actions.

Baker Botts will continue to monitor this important area of the law and will provide future reports as that law continues to develop.

 

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