Justices to Say When Trademark Infringers Can Lose Profits (1)

The U.S. Supreme Court will decide whether courts can order companies to forfeit profits if they infringe a trademarked brand through negligence, but not as an intentional act.

The justices June 28 agreed to hear arguments in a dispute between accessory company Fossil Inc. and Romag Fasteners Inc., which makes magnetic clasps for purses and wallets. Romag wants the high court to restore a $6.7 million jury award that a judge wiped out because the jury found Fossil didn’t infringe the trademark “willfully.” Romag argued that an implied the jury finding of gross negligence should have been enough.

The case will resolve a patchwork of precedents in federal appeals courts about when intent is enough to award profits. Four circuits have a hard-line rule requiring willful infringement, and two more require a showing of willfulness for companies that aren’t direct competitors. Six circuits consider willfulness in determining when profit awards are appropriate but don’t require it.

Intellectual property attorney Peter J. Toren said he was surprised the high court took the case because trademark cases are rarely are accepted for arguments. He and other lawyers have also said few cases fall in the gray area where a court might award profits without intent. But he noted that this session the justices have granted certiorari in several intellectual property cases, and said the even balance of the split probably factored into their decision.

“It’s very rare, at least in my understanding, that you get such an even split, among the circuits,” Toren said. “Often there’s an outlier in a split, but to get a real 50-50 or 60-40 split is not common.”

Origin of Dispute

Romag sued Fossil in 2010, claiming the designer 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 retailer 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 U.S. District Judge Janet Bond Arterton reversed the profits award, saying the U.S. Court of Appeals for the Second Circuit requires willfulness. The Federal Circuit agreed.

The split on the infringer profits question goes back to 1947, when the Lanham Act was enacted governing modern trademark law, Mark McKenna, an intellectual property professor at Notre Dame Law School, said.

Lawmakers designed infringement provisions in the Lanham Act for competitors that directly infringe distinctive marks, and innocent infringement was unlikely, McKenna said. The law allows a profits award “subject to the principles of equity,” but infringement doesn’t have a state-of-mind requirement, he said.

Unfair competition provisions in the law dealt with less distinctive brands—locations, names, descriptive marks—where innocent infringement was more plausible. That claim comes with a burden to prove an intent to confuse customers, he said.

“That’s where the intent concept comes from. It wasn’t a part of trademark-proper,” McKenna said. Since then, the scope of trademarks has broadened. “We’ve now mashed those things together, allowed them all to be trademarks, and it’s a mess. That’s the reason we’re in this situation we’re in right now.”

McKenna said he has “mixed feelings” about the case before the high court. Monetary trademark infringement awards are rare because it’s difficult to document damage to a brand, he said. Plaintiffs can still win damages caused to the brand-holder without intent, although they’re often hard to prove. Infringer profits can be awarded in all circuits as a proxy for damages, but only in cases involving competitors where infringement directly shifted sales from brand-owner to infringer.

But McKenna also said those who don’t want a willfulness requirement want the best of both worlds: today’s expanded bounds of what constitutes trademark, plus the lower bar for a monetary award based on law designed for stronger marks.

The case is Romag Fasteners Inc. v. Fossil Inc. et al., U.S., No. 18-1233, Petition Granted 6/28/19