Lex Indicium

In April 2020, the U.S. Supreme Court ruled that trademark infringers can be required to hand over their profits to a brand owner even if their conduct was not “willful.” The case was Romag Fasteners v. Fossil Group, Inc., 590 U.S. (2020). It is an important case for trademark owners because it lowers the plaintiff’s burden to recover a defendant’s ill-gotten profits.  In fact, after Romag, the defendant’s deliberate and intentional state of mind is no longer the critical factor that courts must consider in order to award profits in a trademark infringement case. Romag can be an important weapon for trademark owners against, for example, infringers that use their mark on goods or services that do not directly compete with the trademark owner, where the trademark owner did not necessarily lose a sale and may have no actual damages in that regard. Profit disgorgement by the infringer allows for monetary compensation even if the trademark owner has not been directly damaged in that way.

Fossil is a large and well-known distributor of fashion accessories.  Romag sells magnetic snap fasteners for leather goods. For years, Romag and Fossil had an agreement whereby Fossil used Romag fasteners in its products. Later, however, Fossil hired Chinese companies that duplicated the Romag fasteners, including the Romag trademark. Romag sued Fossil for trademark infringement and won. But the lower court refused to award Romag $6.8 million of Fossil’s profits because Romag couldn’t prove that Fossil acted willfully. The case made its way to the Supreme Court which faced the question of whether an award of profits in trademark cases requires a showing of willfulness on the part of the defendant.  The lower Circuit Courts of Appeals in the United States had been split on this issue

The statute governing damages in trademark cases is 15 USC §1117(a). That statute only uses the word “willful” in connection with an award of profits in trademark dilution cases. By its terms, therefore, the statute does not require a showing of “willfulness” to recover profits for ordinary trademark infringement. For this reason, the Supreme Court refused to read the word “willful” into the trademark damages section, which allows recovery of (i) defendant’s profits, (ii) plaintiff’s damages, and (iii) the costs of the action.

Though the Supreme Court undoubtedly lowered the bar, there is still some threshold of state of mind that needs to be reached in order to award the defendant’s profits. Justice Gorsuch’s opinion stated, “we do not doubt that a trademark defendant’s mental state is a highly important consideration in determining whether an award of profits is appropriate.” But, he said, it is not an “inflexible precondition” to the recovery of profits.

What does this mean for the future of trademark litigation? In certain Federal Circuits that had required the plaintiff to prove “willful” conduct, that requirement no longer applies. For example, the Second Circuit, which covers New York, and the Ninth Circuit, which covers California, can no longer require a showing of willfulness—as they did before— in order to recover the defendant’s profits.  This may encourage plaintiffs in those busy circuits to file trademark litigation given the prospect of these enhanced damages.  Other circuits, which did not require a showing of willfulness, may not see an uptick in trademark litigation.

Even with the abolition of the “willfulness” precondition, it is clear from Justice Gorsuch’s opinion that judges in trademark cases will continue to be influenced by the degree of a defendant’s culpability and state-of-mind. They will continue to look at several factors, which have been part of the state-of-mind analysis in federal courts of many years: These include:

• Fraud
• A deliberate intent to deceive
• Intentional or willful infringement or conduct
• Intent to cause confusion or deception
• Evidence of reckless disregard or willful blindness
• A conscious awareness of wrongdoing
• Intent to benefit from the goodwill or reputation of the trademark holder.

The new decision may even influence current proposed legislation which is pending before Congress.  The House Judiciary Committee is considering the bipartisan SHOP SAFE Act of 2020 which could impose liability on e-commerce platforms such as Amazon, eBay, and Alibaba.  The proposed law imposes liability on e-commerce platforms for sales of counterfeit goods that affect consumer health and safety unless the platforms follow certain best practices to screen sellers and their items.  Now that willfulness is no longer required to recover a defendant’s profits, it will be interesting to see whether this change in trademark liability will affect the conduct and policies of prominent e-commerce platforms.