U.S. Supreme Court to Decide If or What Willfulness Is Necessary for An Award of Profits in Trademark Infringement Cases

An important case likely to determine when profits from infringement may be recovered by trademark owners is on its way to the U.S. Supreme Court, with oral argument scheduled for January 14, 2020. It started in the stylish world of fashion accessories, with a familiar story about a fruitful business relationship gone awry, and ended in a snap with the suspiciously off-key “click” of a counterfeit fastener. The outcome of the story, after the Supreme Court decides, will likely affect trademark litigation and settlement strategy for brand owners in all fields for the foreseeable future.

The plaintiff, Romag Fasteners, Inc., makes and sells magnetic snap fasteners for use in wallets, handbags, and other leather goods. Defendant Fossil, Inc., makes and sells, among other things, handbags and related fashion accessories. In 2002, Fossil and Romag entered into an agreement to use Romag fasteners in Fossil’s products, and Fossil’s manufacturers purchased tens of thousands of Romag fasteners between 2002 and 2008.

In 2010, Romag discovered that certain Fossil handbags sold in the United States contained counterfeit snaps bearing the Romag mark. Romag sued Fossil in 2010 for both patent and trademark infringement.

Regarding the trademark claim, the jury awarded Romag over $90,000 in profits “to prevent unjust enrichment” and over $6.7 million in profits “to deter future trademark infringement.” However, the jury did not find that Fossil had acted willfully, but it nevertheless did find that Fossil had acted with “callous disregard” for Romag’s trademark rights. The trial court struck the jury’s award for lack of a finding of willfulness. On appeal, the Federal Circuit affirmed, finding that for cases in the Second Circuit Court of Appeals (New York) a showing of willfulness was required for a plaintiff to be awarded a defendant’s profits.

Although the Second Circuit Court of Appeals and other circuits, including the Ninth Circuit, have held that proof of willfulness is required for an award of profits, other circuits have held that it is at least an “important” factor, but not a precondition for such an award.

Romag petitioned to the U.S. Supreme Court, and it agreed to decide the legal question: Does federal trademark law (the Lanham Act) require a showing of willful infringement for a plaintiff to be awarded the infringer’s profits.

In answering the question the Supreme Court must decide the meaning of the federal statute in question: Section 35(a) of the Lanham act makes no reference to willfulness; it merely says that if infringement is proven, the plaintiff is entitled to recover defendant’s profits, “subject to the principles of equity.” The statute also does not define what is meant by “principles of equity.” However, consistent with well-settled principles, the law of equity permits consideration of a range of equitable factors, willfulness being one of them. Equitable factors may include whether the defendant had intent to confuse or deceive, whether it can be shown that sales have been diverted, whether an injunction will be an adequate remedy, whether the plaintiff has unreasonably delayed in asserting its rights (laches), and whether the public interest will be served by making the misconduct unprofitable.

Contributed by John Baum and Larry Townsend