This suit arose out of a dispute between Fossil, a designer, marketer and distributor of fashion accessories, including handbags, and Romag, a manufacturer of magnetic snap fasteners. Romag sells its fasteners under its registered trademark, "ROMAG." Fossil agreed to use Romag's snaps as a component in several Fossil products. Fossil contracted with an independent business in China to manufacture its handbags and the manufacturer bought the component parts, which it then assembled into Fossil handbags. Upon discovering that Fossil's China manufacturer was using counterfeit fasteners, Romag sued.
Finding Fossil liable for trademark infringement, a jury issued an advisory verdict that Fossil acted "in callous disregard" of its agreement with Romag, but rejected Romag's accusation that Fossil had acted willfully. The district court held that Romag could not recover Fossil's profits because the trademark infringement was not willful. The US Court of Appeals for the Federal Circuit, applying controlling Second Circuit precedent, affirmed and held that willfulness is a prerequisite to an award of the infringer's profits under 15 U.S.C. § 1117(a). The Court of Appeals cited George Basch Co. v. Blue Coral, Inc., 968 F.2d 1532, 1540 (2d Cir. 1992), which reasoned that such an award would cause an undue windfall to a plaintiff and result in inequitable treatment of an "innocent" or "good faith" infringer.
The Supreme Court held that § 1125(a), which is directed to trademark infringement, does not and never has required a showing of willfulness to obtain remedy of the defendant's profits. In contrast § 1117(a) explicitly requires a showing of willfulness as a precondition to a profit award when the plaintiff proceeds under § 1125(c) for dilution by blurring or tarnishment. The Court noted the explicit references to willfulness in other sections of the Lanham Act involving remedies. See, e.g., "Section 1117(c) increases the cap on statutory damages from $200,000 to $2,000,000 for certain willful violations;" "Section 1114 makes certain innocent infringers subject only to injunctions." Dismissing Fossil's contention that the limiting language in § 1117(a), "subject to principles of equity," imposed a willfulness requirement, the Court was guided by the general principle that the term "principles of equity" refers to broad and fundamental questions about matters including parties' conduct, modes of proof, factual defenses, and appropriate remedies under the circumstances.
Nevertheless, the Court acknowledged that a defendant's mens rea figured heavily in the question of whether or not to award an infringer's profits in many pre-Lanham Act cases, and agreed that it should continue to be an important consideration. "Without question, a defendant's state of mind may have a bearing on what relief a plaintiff should receive." Indeed, Justice Alito's concurrence, joined by Justices Breyer and Kagan, notes that "willfulness is a highly important consideration in awarding profits under § 1117(a), but not an absolute precondition."
It remains to be seen how the decision will impact trademark practice, but prior to Romag Fasteners, willful infringement was already considered by every circuit for determination of profit awards. Because New York and California see a significant portion of trademark litigation, and those are two of the jurisdictions that had required willfulness as a prerequisite for disgorgement of profits, this ruling could herald a broad shift in trademark practice in the US. Whether the Second and Ninth Circuits incorporate the multifactored analyses seen in other circuits or create new equitable factor tests will inform how trademark owners approach their litigation strategies and the ensuing volume of new cases. There may also be an increase in written trademark opinions among the circuits that need to adopt new tests so that this area of the law can be developed. Regardless, the decision is likely to place a greater emphasis on trademark searches in order to clear new marks and may encourage competitors to invest resources to diligently avoid even negligent infringement of other marks. New mark adopters may even seek litigation insurance in order to protect against the risk of disgorgement.
In sum, the prospect of obtaining an infringer's profits may tip the balance for some trademark owners, particularly smaller, more senior mark owners, in considering litigation, but proving willfulness will continue to be an important factor in determining relief. Nevertheless, the Supreme Court's Romag decision provides significant additional leverage to trademark owners who may view the threat of obtaining the infringer's profits as an important deterrent.
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