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Trademark Profit Awards Don’t Require Intent, SCOTUS Rules (2)

April 23, 2020, 2:33 PMUpdated: April 23, 2020, 9:00 PM

Trademark owners don’t have to show infringers’ willfulness in order to win an award from their profits, a unanimous Supreme Court said.

Romag Fasteners Inc., a watch fastener supplier to Fossil Group Inc., appealed to restore a $6.7 million jury award of Fossil’s profits granted after the fashion manufacturer was found to have infringed by switching to an unauthorized supplier. A district court judge nixed the award, a decision affirmed by the U.S. Court of Appeals for the Federal Circuit and vacated by the high court.

The decision remands the case to a lower court for further proceedings. It also settles a circuit split on the question of awarding parts of infringers’ profits, especially in cases between non-competitors.

Romag sued in 2010, claiming Fossil switched from an approved supplier of its patented fasteners to a counterfeiter. The U.S. District Court for the District of Connecticut found Fossil and Macy’s Inc. liable for trademark and patent infringement in 2014.

The jury awarded Romag $156,000 for patent infringement and unjust enrichment, and $6.7 million from Fossil’s profits to “deter future trademark infringement.” But the trial judge reversed the profits portion because the jury didn’t find willfulness, which the U.S. Court of Appeals for the Second Circuit requires for an award of profits to non-competitors. The Federal Circuit agreed.

The now-stricken “willfulness” requirement in some circuits, including the trademark-case heavy Second Circuit, had affected attorneys’ counsel, Haynes and Boone LLP intellectual property chair Richard Rochford said. Now plaintiffs have better chances for monetary awards if there’s negligence, as well as more leverage in negotiation and incentive to persist in litigation, he said.

“Clients want to stop infringement and get damages, and you have to tell them that damages are really tricky and difficult in a lot of cases, because there’s often no way to calculate how much you had suffered,” Rochford said.

The question primarily applied to disputes between non-competitors because plaintiffs can use a competitor’s infringement profits as a proxy for damages. But the new ruling could impact cases involving competitors’ infringement, intellectual property attorney J. Kevin Fee of Morgan, Lewis & Bockius LLP said. The burden falls onto plaintiffs to establish damages, even when it’s a competitor using profits to do so. But when allowed to directly seek profit disgorgement, the burden shifts.

Trademark law “provides that a trademark owner, in an attempt to receive disgorgement, needs only to discover the sales made by the infringer,” Fee said. “The defendant has to prove what costs should be deducted” because they weren’t profits resulting from infringement.

Fee also said the case would benefit false advertisement plaintiffs, as it falls in the same section of law as infringement and has the same language governing the potential for profit awards.

Letter of the Law

The opinion, written by Justice Neil Gorsuch, said trademark law doesn’t require such intent, despite several circuits’ precedents that concluded otherwise. He pointed out that the section on damages in the Lanham Act, the federal law guiding trademark, specifically required willfulness to award profits from trademark dilution. But the section has never had such a prerequisite for trademark infringement, he said.

Other areas of the Lanham Act also spell out requirements for willfulness in order to win a profits award, he added.

“Reading words into a statute should be avoided, especially when they are included elsewhere in the very same statute,” Gorsuch wrote.

Fossil argued that awarding profits under the “principle of equity” implied an intent requirement. The company also said such a requirement was “so long and universally recognized” that it has risen to the level of a “principle of equity,” according to the opinion.

But the Supreme Court said “principles of equity” indicate a fundamental doctrine of fairness that applies across various areas of the law rather than a trademark-specific standard. The historical record also fails to show—before or after the Lanham Act—that courts universally required intent for trademark infringement profits awards, the court said. Romag provided examples rejecting the premise while most cited cases were unclear, it said.

Still a Factor

Four justices signed onto different opinions that concurred with the judgment. The majority opinion said the court doesn’t “doubt that a trademark defendant’s mental state is a highly important consideration.” But Justice Sonia Sotomayor, the only justice who didn’t join the majority opinion, took issue with the majority being “agnostic” about awarding profits for both innocent and willful infringement.

“The majority suggests that courts of equity were just as likely to award profits for such ‘willful’ infringement as they were for ‘innocent’ infringement,” she wrote. “A district court’s award of profits for innocent or good-faith trademark infringement would not be consonant with the ‘principles of equity.’”

Justice Samuel A. Alito wrote a one paragraph concurrence, joined by Justices Stephen Breyer and Elena Kagan; all three also joined Gorsuch. It said “willfulness is a highly important consideration in awarding profits,” but “not a precondition.”

Like Sotomayor, Fossil raised fears of large judgments against good-faith infringers. The company warned of “baseless” lawsuits with no intent requirement. But attorneys have said even in circuits that rejected a requirement, profit awards without intent are rare.

“I don’t think that’s as massive a concern as the defendant was trying to suggest” Fee said. “While willfulness is no longer a requirement, disgorgement of profits is not automatic in trademark cases. There are a series of factors courts consider. Willfulness is just one of those factors.”

Williams & Connolly LLP represented Romag. Hogan Lovells US LLP represented Fossil.

The case is Romag Fasteners, Inc. vs. Fossil Group, Inc., U.S., No. 18-1233, Opinion 4/23/20

(Updated with additional reporting)

To contact the reporter on this story: Kyle Jahner in Washington at kjahner@bloomberglaw.com

To contact the editors responsible for this story: Roger Yu at ryu@bloombeglaw.com; Keith Perine at kperine@bloomberglaw.com

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