Baker Donelson - USA
On 23 April 2020 the US Supreme Court's unanimous decision in Romag Fasteners, Inc v Fossil, Inc (590 US (2020)), resolved a circuit court split by confirming that a plaintiff in a trademark infringement suit is not required to show that the defendant wilfully infringed the plaintiff's trademark as a precondition to an award of profits. Prior to this decision, there was a longtime circuit split as to whether establishing wilful infringement was a precondition for allowing disgorgement and an award of profits as a damages award. The Supreme Court previously denied certiorari on similar cases. However, Romag does not ensure a cakewalk for plaintiffs seeking damages from infringers. The concurring opinions from Mr Justices Alito, Breyer, Kagan and Sotomayor have left the door open to a range of culpable mental states being considered, including wilfulness.
Unclear drafting and misinterpretations
The Supreme Court's decision in Romag continues a recent line of trademark cases focused on providing guidance on murkily drafted legislation from Congress, including mixed interpretations of 15 USC Section 1117(a) of the Lanham Act. The relevant section of this act pertains to the violation of a mark owner's rights, which addresses recovery of profits, damages and costs and attorney fees:
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 in any civil action arising under this chapter, 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… In assessing damages the court may enter judgment, according to the circumstances of the case. Such sum in either of the above circumstances shall constitute compensation and not a penalty. The court in exceptional cases may award reasonable attorney fees to the prevailing party. (emphasis added)
Specifically, the issue under review in Romag was whether Section 1117(a) required establishing a defendant's wilfulness for Section 1125(c) violations for dilution by blurring and dilution by tarnishment only; or whether it also required establishing a defendant's wilfulness for violations under Section 1125(a) and (d) for civil action and cyberpiracy prevention.
In 1999 Congress amended Section 1117(a) to include ‘wilful’, apparently in part to address an already existing circuit split. Amicus briefs filed by proponents of the wilfulness requirement to Section 1117(a) included the IP Owners Association and IP law professors, which relied on legislative history and cited other sections of the Lanham Act in asserting that wilfulness was also required for Section 1117(a). These briefs also maintained that prior to the Lanham Act, under common law, principles of equity required establishing a defendant's wilfulness. Conversely, amicus briefs filed by opponents of the wilfulness requirement to Section 1125(a) and (d) under Section 1117(a) included INTA, American Intellectual Property Law Association and American Bar Association, which asserted that Congress specifically drafted the amendment to Section 1117(a) to require the precondition for establishing wilfulness only to violations under Section 1125(c) for dilution by blurring and dilution by tarnishment and not to Section 1125(a) and (d) for civil action and cyberpiracy prevention. Opponents of the wilfulness requirement to Section 1125(a) and (d) under Section 1117(a) also relied on common law as the basis for assertions but maintained that Congress had amended Section 1117(a) to include willfulness in order to resolve a circuit split that existed for dilution by blurring and dilution by tarnishment. The unclear drafting has therefore unintentionally led to misinterpretations by some circuit courts erroneously misapplying the wilfulness requirement to civil action and cyberpiracy prevention.
Resolving circuit splits
Before the Supreme Court's decision in Romag, the First, Second, Eighth, Ninth, Tenth and DC Circuits required plaintiffs to establish that a defendant had wilfully infringed their trademark as a precondition to allowing disgorgement of an infringer's profits as a damages award. While it was unclear whether the Eight Circuit also required wilfulness if the plaintiff and defendant were not direct competitors, it was clear that the First Circuit did require wilfulness if the plaintiff and defendant were not direct competitors.
In contrast, the Third, Fourth, Fifth, Sixth, Seventh and Eleventh Circuits did not require a plaintiff to allow for disgorgement of profits without wilful infringement.
Supreme Court confirms that wilfulness is not a precondition for profits
With regard to Romag, Romag Fasteners, Inc and Fossil, Inc had a longstanding business relationship in which the former supplied magnetic fasteners and strips to the latter for use in its handbags. In 2010 Romag discovered that counterfeit Romag fasteners bearing the ROMAG mark were being used by factories in China that Fossil had contracted to assemble its handbags. Romag sued Fossil in the District of Connecticut for patent and trademark infringement. The jury awarded Romag $6.7 million. However, because the jury did not find that Fossil had wilfully infringed the ROMAG marks, the court struck the award of Fossil's profits and reduced Romag's award accordingly. Romag appealed to the Federal Circuit, which applied the Second Circuit interpretation of the wilfulness requirement to Section 1117(a) in its entirety, including Section 1125(a) and (d).
The Supreme Court disagreed with the lower courts and vacated and remanded in a 9-0 unanimous decision, holding that a plaintiff in a trademark infringement suit is not required to show that a defendant wilfully infringed the plaintiff's trademark as a precondition to an award of profits. The Supreme Court agreed with opponents of the wilfulness requirement to Section 1125(a) and (d) under Section 1117(a), reasoning that a strict reading of the statutory language confirmed that Congress drafted the wilfulness requirement to apply only to Section 1125(c) violations for dilution by blurring and dilution by tarnishment. The Supreme Court also noted that there were many other applications of wilfulness as a requirement in the Lanham Act and, had Congress intended for this to also apply to Sections 1125(a) and (d) for civil action and cyberpiracy prevention, it should have drafted the language accordingly.
However, the Supreme Court did not exclude wilfulness from consideration of an award for profits and the concurring opinions emphasised the importance of consideration of a range of culpable mental states. Justice Sotomayor concurred with the majority opinion that wilfulness was not a prerequisite while also emphasising that it was nevertheless an important consideration for the disgorgement of a defendant's profits as an award.
Impact of decision/takeaways
The Supreme Court's decision in Romag sends another message to Congress to avoid further unclear drafting that leaves open issues to the courts for interpretation and clarification.
For mark owners, the Supreme Court's decision has removed an often-impossible hurdle to establish wilfulness in order to disgorge profits from defendants as an award. However, Section 1117(a) also clearly states that damages and awards "constitute compensation and not a penalty”, which mark owners should keep in mind. While the hurdle of wilfulness as a precondition has been removed, it is unlikely that the Supreme Court's decision in Romag will mark the beginning of windfalls for plaintiffs. A defendant's mental state, including wilfulness, will still likely be an important consideration for awards and damages to a plaintiff.