The recently decided Romag Fasteners v. Fossil Inc. is bound to be among the most important decisions involving trademark law damages to come out of the U.S. Supreme Court. For many years only some circuit courts of appeal, like the Second Circuit where this case originated, ruled that the plaintiff needed to demonstrate the defendant willfully infringed the plaintiff’s trademark in order for the plaintiff to be awarded the ill-gotten profits of the defendant.
In this case, the clothing company Fossil had entered into a licensing agreement with Romag Fasteners to use its products in the manufacture of Fossil’s clothing. Romag learned that Fossil’s factories were using counterfeit Romag fasteners. Romag sued in district court for false or misleading use of trademark, under Section 1125(a) of the Lanham Act. It is important to note that 1125(a) does not mention willfulness, but under Second Circuit precedent willfulness has been a necessary factor to award profits — the “special sauce,” as it were.
The jury sided with Romag in finding Fossil liable, but stopped short of awarding it Fossil’s profits because — though they found Fossil’s actions to be “callous” — the jury did not find Fossil acted “willfully.” The district court held as a matter of law that, based on the jury’s choice of words, Romag could not recover Fossil’s profits for trademark infringement, because “willfulness” was essential. The Second Circuit affirmed.
Justice Neil Gorsuch wrote the majority opinion. He noted that Section 1125(c) of the Lanham Act expressly requires a willful violation in order to award profits. But that is the anti-dilution section of the Act, not the trademark infringement addressed in Section 1125(a) — and actual infringement was at issue in this case.
Justice Gorsuch went on to point out that in other places in the Lanham Act, infringements can be “intentional”, with “knowledge”, “innocent” or “willful” — each, a type of “mental state”. He reasoned that the legislators would not pepper other sections of the bill with references to mental states and simply forget to include the same requirement in 1125(a). They must have excluded such requirements on purpose from that section.
Lastly, Fossil argued that requiring willfulness was necessary under principles of equity (that is, fairness). Justice Gorsuch noted that equity tends to concern whole practice areas and broader principles in general, and cannot be cherry-picked and used narrowly in one facet of a case such as this.
The Court noted a trademark defendant’s mental state is important in determining whether an award of profits is appropriate — but would not require it to be an inflexible precondition for awarding profits. Congress might choose to amend the Lanham Act to make the infringement and the anti-dilution sections consistently require willfulness to award profits — but that’s beyond the Court’s jurisdiction, as it were. In view of this new rule, the appellate decision was vacated, and the case was remanded (sent back) to the District Court to determine how much of a profits award should be granted to the victorious Romag.
The bottom line: Plaintiffs now have the opportunity to get much better awards — profits, without demonstrating the elusive mental state of the defendants (who seldom provide explicit emails stating “I know we’re infringing but I don’t care!”) — and defendants who appear to be liable now have an added incentive to settle sooner rather than later.
