Monday, April 27, 2020

Supreme Court Lowers the Bar for Obtaining a Trademark Infringer’s Profits

Wolf Greenfield IP Alert: by John L. Strand and John L. Welch.

On April 23, 2020, the Supreme Court held that the federal Trademark Act (the Lanham Act) does not require that a plaintiff show that an accused infringer “willfully” infringed in order for a court to make an award of defendant’s profits .
Section 32 of the Lanham Act (15 U.S.C. § 1114) provides that once a defendant is found to infringe a trademark, the plaintiff may recover, among other damages, “defendant’s profits” derived from the infringement. The statute further provides, however, that this award must be made “subject to the principles of equity.” The Second Circuit and other circuit courts have held this limitation to mean that awards of profits can be made only after a finding that defendant willfully infringed the trademark. Other circuit courts have held that although a defendant’s willfulness is a factor to consider in whether an award of profits should be made, a finding of willfulness is not a strict prerequisite to such an award.
This case arose out of a lawsuit brought by Romag Fasteners against Fossil for trademark infringement. As one might conclude from its name, Romag Fasteners sells magnetic snap fasteners. Fossil used those fasteners on its handbags and other products, but eventually started accepting and selling products manufactured in China that had counterfeit Romag fasteners. A jury found in favor of Romag on the question of infringement, but also concluded that Fossil had not acted “willfully” when it sold its products incorporating counterfeit fasteners. Because of that finding, and in view of Second Circuit precedent requiring a finding of willfulness for an award defendant’s profits, the district court refused to award to Fossil’s profits, and the court of appeals affirmed.

In an opinion by Justice Gorsuch, the Supreme Court vacated the court of appeals’ decision. The Court ruled that, while “a trademark defendant’s mental state is a highly important consideration in determining whether an award of profits is appropriate,” a finding of willfulness is not an “inflexible precondition” to such an award. In reaching that conclusion, the Court analyzed other portions of the Lanham Act that used the term “willfulness” and related terms, and went through the historic case law surrounding profit awards in trademark cases. The majority (Chief Justice Roberts and Justices Gorsuch, Thomas, Ginsburg, Breyer, Alito, Kagan, and Kavanaugh) observed that because the Lanham Act “exhibits considerable care” with different mental states including willfulness, the “absence of any such standard in the provision before [the Court],” is telling that willfulness should not be a strict prerequisite to profits award. As for its examination of historic case law, the Court found “it’s far from clear whether trademark law historically required a showing of willfulness before allowing a profits remedy,” so there was no need to read such a requirement into the meaning of the “principles of equity” in Section 32 of the Lanham Act.
In many people’s minds, the question the Supreme Court answered here was one of the most impactful, divided and unresolved issues in the interpretation of the Lanham Act. With its resolution, generally trademark infringement plaintiffs will have more leeway to claim an award of defendant’s profits, raising the stakes for all parties involved. A significant caveat, however, is that the Court also maintained that a defendant’s mental state—i.e., was the infringement willful, innocent or something in between—is still “highly important.” Even with this lowered barrier, obtaining an award of defendant’s profits will likely still prove, at best, to be a difficult hurdle for most plaintiffs.
You can download the full Supreme Court decision here.

Read comments and post your comment here.

Text Copyright John L. Strand and John L. Welch 2020.


At 9:16 AM, Blogger Bob Klein said...

Wondering if "raising the stakes" will lead to more trials or more settlements? My guess is that it will lead to earlier, objective assessment of the strength of each side's case and more reliance on well-designed survey evidence.


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