by Dennis Crouch
Romag Fasteners, Inc. v. Fossil Group, Inc. (Supreme Court 2020)
The Lanham Act provides that a trademark owner can elect disgorgement of the defendant’s profits based upon “a violation under §1125(a) or (d) … or a willful violation under section 1125(c).”
- §1125(a) – TM infringement (likelihood of confusion)
- §1125(c) Dilution
- §1125(d) Cybersquatting
15 U.S.C. §1117(a). The statute appears to require willfulness as a prerequisite to profit disgorgement in the dilution context, but not for typical trademark infringement. However, the award must also conform “to the principles of equity.”
In this case, Romag proved its §1125(a) TM infringement case against Fossil, but the District Court refused to disgorge profits — holding that willfulness is a prerequisite to profit disgorgement in TM cases based upon a long line of pre-and-post Lanham Act decisions. The Federal Circuit then affirmed.
The Supreme Court has now reversed course, holding that a district court may award the plaintiff with “the defendant’s ill-gotten profits” even without a showing of willfulness. However, the court does not go so far as to say plainly that a winning plaintiff “is entitled . . . to recover (1) defendant’s profits.” Rather, the court takes a somewhat middle-road — holding that the principles of equity indicate that an infringer’s mens rea (mental state) is “a highly important consideration in determining whether an award of profits is appropriate.” However, the mental state consideration does not require an “inflexible precondition” of willfulness.
The majority opinion is authored by Justice Gorsuch and joined by seven (7) other justices. Justice Alito joined the majority but also wrote a concurring opinion joined by Justices Breyer and Kagan. Justice Sotomayor also concurred.
The two concurring opinions appear written to attempt to clarify some internal inconsistencies within the Gorsuch opinion. The Alito concurrence is only 1 paragraph and appears written to reemphasize the holding that willfulness is a highly important consideration:
The decision below held that willfulness is such a prerequisite. That is incorrect. The relevant authorities, particularly pre-Lanham Act case law, show that willfulness is a highly important consideration in awarding profits under §1117(a), but not an absolute precondition.
Alito concurring.
Justice Sotomayor further explains that the majority “suggests that courts of equity were just as likely to award profits for such ‘willful’ infringement as they were for ‘innocent’ infringement.” Justice Sotomayor explains that the majority’s statement “does not reflect the weight of authority, which indicates that profits were hardly, if ever, awarded for innocent infringement.” The concurring opinion also points to a feature of possible confusion – that the willfulness definition was formerly more broadly defined to include a “range of culpable mental states–including the equivalent of recklessness.”
I will note that IP Remedies Professor Thomas Cotter has posted a short note about the opinion with the following to-the-point statement: “To say I am disgusted would be an understatement.” Prof. Cotter recalls that the Patent Statute also doesn’t say anything about willfulness, but that the Supreme Court recently reaffirmed that willfulness is a requirement for enhanced damages under Section 284 (“the court may increase the damages up to three times the amount found or assessed.”).
I am unimpressed with the Professor’s “short note.” I litigated this issue several times, and frankly see no basis for a rigid willfulness rule. For one thing, the statutory basis was that an award of profits is “subject to the principles of equity.”
Equity by definition implies flexibility to deal with the facts of the case. A hard and fast rule is simply not in consonance with equitable discretion.
Second, traditionally, an award of profits in a trademark case was done for three reasons: (1) to compensate the plaintiff where it is clear it suffered damages, albeit difficult to quantify (sometimes referred to as the proxy theory); (2) to disgorge unjust enrichment, where the defendant has profited from the mark and (3) deterrence. Only the third, IMO, lends itself to a willfulness requirement. If it is clear that the plaintiff has suffered some loss (theory 1) or that the defendant profited from the mark (theory 2), then what does it matter that the defendant was not willful.
The Halo case is totally different. That deals with treble damages under Section 24. By definition, that is punitive; the patent owner is getting more than it was damaged, maybe three times more. What could justify that other than egregious conduct?
We generally don’t hand out awards to civil plaintiffs more than they are damaged, unless we need to punish the defendant, and for that, you have to show something beyond mere infringement of the plaintiff’s rights. That is pretty elementary and universal law.
Section 284.
+1
(Nicely stated)
From the next thread, Prof. Samuelson provides a similar list as:
“In a forthcoming article, colleagues and I point out that traditional principles of restitution and unjust enrichment support awards of disgorgement of profits insofar as they are (1) levied against conscious wrongdoers, (2) attributable to the wrongful conduct, and (3) subject to equitable discretion.”
Note the subtle spin between providing a list of possible reasons (the list itself using an ‘and’) and implying that the ‘and’ is a conditional requirement that ALL listed items are required for the stated relief to apply.
The ‘and’ in the list is merely providing a set of individual reasons. BL writes here and makes it plain that any item in the list alone provides enough to warrant the condition, while Prof. Samuelson’s writing intimates that it would be ‘proper’ only in the much more rare case that all items on the list are present.
This, rather unsurprisingly, is also illustrated in her other writings and known beliefs.
Re Prof. Cotter’s comment on this Romag Fasteners Sup. Ct. TM damages decision – that the Sup. Ct. did not require willfulness for TM infringer profit disgorgement, but they do for enhanced patent infringement damages.
Besides the different consequences, are not determining both infringement and willfulness usually a lot more difficult for patent infringement than for trademark infringement?
Halo uses the word “generally” a lot, and uses a lot of mushy synonyms for “willfulness” more often than it says “willfulness.” I re-read Halo and Romag, and I’m not quite seeing the daylight Prof. Cotter says exists between Halo and Romag.
I take his point that glib textualist opinions can seem selective in their reliance on “plain language” when you compare them to other opinions by the same authors, and I his point about Justice Sotomayor’s concurring opinion, but I think his “disgust” might be misplaced here.
Furthermore, trademark infringement injures the entire purchasing public by confusing the true source of origin of the product.
I think the legal rule the USSC wants to articulate is that the CAFC is wrong. Always.
Ha! I think that this is a pretty good heuristic for predicting SCotUS outcomes.
How did the appeal from the district court end up before the CAFC – was there also a patent infringement component to the suit?
Yes. Patent + TM + other causes of action.
Comments are closed.