Locke Lord QuickStudy: Supreme Court Rejects Willfulness Requirement for Awarding a Trademark Infringer’s Profits Giving District Courts More Authority to Grant Monetary Awards

In Romag Fasteners, Inc. v. Fossil, Inc., a unanimous Supreme Court resolved a circuit split—upending long-standing Second Circuit precedent—holding that a plaintiff in a trademark infringement suit is not required to show that a defendant willfully infringed its trademark as a precondition to receiving an award of the infringer’s profits. 

Romag sued Fossil for trademark infringement after discovering that Fossil failed to properly police counterfeiting by its contract manufacturers in China. A jury found that Fossil infringed Romag’s trademark and falsely represented that the fasteners in its handbags and other products came from Romag. Though it determined that Fossil acted “in callous disregard” of Romag’s rights, the jury concluded that Fossil had not acted willfully. When Romag tried to recoup Fossil’s profits, the district court demurred because Second Circuit precedent requires a plaintiff seeking profits to prove that the defendant’s violation is willful. The Supreme Court took on the case to resolve a split on this issue between the First, Second, Eighth, Ninth and Tenth Circuits, on one hand, and the Third, Fourth, Fifth, Sixth, Seventh and Eighth Circuits, on the other.

In a crisp 7-page decision delivering the opinion of the Court, Justice Gorsuch first looked at the relevant statute, 15 U. S. C. §1117(a):

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. 

Justice Gorsuch notes that: “this language spells trouble for Fossil and the circuit precedent on which it relies.” The statute requires a showing of willfulness as a precondition to a profits award for a dilution claim under 15 U. S. C. §1125(c), but says nothing about trademark infringement and false designation of origin under 15 U. S. C. §1125(a). Further, the opinion notes that the “Lanham Act speaks often and expressly about mental states,” namely:

• Section 1117(b) requires courts to award treble profits or damages and attorney’s fees when a defendant engages in certain acts intentionally and with specified knowledge; 
• Section 1117(c) increases the cap on statutory damages from $200,000 to $2,000,000 for certain willful violations; 
• Section 1118 permits courts to order the infringing items be destroyed if a plaintiff proves any violation of §1125(a) or a willful violation of §1125(c); 
• Section 1114 makes certain innocent infringers subject only to injunctions; and
• §§1125(d)(1)(A)(i), (B)(i) prohibits certain conduct only if undertaken with “bad faith intent” and listing nine factors relevant to ascertaining bad faith intent.

The rest of the Court’s opinion rejects Fossil’s attempts to read a willfulness requirement into the Lanham Act. Fossil specifically argued that recovering profits for a violation under §1125(a) is “subject to the principles of equity,” and since the equity courts required willfulness to award profits, the willfulness precondition is codified into the law. The Court disagreed. Justice Gorsuch first notes that Fossil’s construction would require the Supreme Court “to assume that Congress intended to incorporate a willfulness requirement here obliquely while it prescribed mens rea conditions expressly elsewhere throughout the Lanham Act.” Moreover, the Court notes that the term “principles of equity” suggests “fundamental rules that apply more systematically across claims and practice areas,” and that “it seems a little unlikely Congress meant ‘principles of equity’ to direct us to a narrow rule about a profits remedy within trademark law.” 

Finally, the Court noted that equity courts have not uniformly required a showing of willfulness before awarding profits, stating the case law is “far from clear.” Having failed to persuade the Court with its statutory construction arguments, Fossil also speculated that restraints on awarding profits are required to deter baseless trademark suits. Again, Justice Gorsuch was not convinced, noting that those concerns are best resolved by Congress because the Supreme Court’s “limited role is to read and apply the law those policymakers have ordained.” 
The judgment of the district court was vacated and the case remanded for further proceedings consistent with the decision. 

There are two concurring opinions. Justice Alito (joined by Justice Breyer and Justice Kagan) concurred on a seemingly narrower ground: “The relevant authorities, particularly pre-Lanham Act case law, show that willfulness is a highly important consideration in awarding profits under §1117(a), but not an absolute precondition.” Justice Sotomayor was the only justice who did not join Justice Gorsuch’s opinion of the Court. Instead, she concurred in judgment because, in her view, profits should not be awarded against innocent infringers, noting that “a district court’s award of profits for innocent or good-faith trademark infringement would not be consonant with the ‘principles of equity.’”

Some takeaways:

• Flood of Monetary Awards Unlikely. This decision upends decades of circuit precedent. For trademark lawyers, this case is noteworthy. However, whether to award profits is still left to the discretion of the district court. This decision confirms the practice of some circuits, so there will be no change in those courts. Courts in circuits that have required willfulness as a precondition to recovering profits may be hesitant to simply open the floodgates to excessive profits awards. 
• Willfulness is Still Important. Though willfulness is not a precondition to recovering profits, “a defendant’s state of mind may have a bearing on what relief a plaintiff should receive.” Justice Alito’s concurring opinion goes even further, noting that “willfulness is a highly important consideration in awarding profits” under the Lanham Act. As a practical matter, in district courts in circuits where willfulness has never been a requirement for recovering profits they nevertheless have historically weighed willfulness heavily in considering awards of profits and likely will continue to do so.  Bottom line: Willfulness is still a vital, if not the most important, factor in determining whether a plaintiff can recover a defendant’s profits.
• Decision Should Apply to Plaintiff’s Damages. The question before the Court only concerned whether a plaintiff must show that a defendant willfully infringed as a precondition to an award of the infringer’s profits. The Lanham Act also allows recovery for any damages sustained by the trademark owner. Proving damages is notoriously difficult, but there is nothing in the decision to suggest that this ruling does not also apply to recovering damages, as well as an infringer’s profits.  
• Justice Gorsuch Sticks to Plain Reading. In his brief tenure on the Supreme Court, we have observed that Justice Gorsuch has garnered a reputation for sticking to the “plain language” of a statute while spurning calls to read terms into a statute. Fossil was no doubt disappointed when it learned that Gorsuch wrote the opinion of the Court. Just as Justice Gorsuch observed when looking at the statute, his appearance as the author of the opinion immediately spelled trouble for Fossil.