This article appeared in The Intellectual Property Strategist, an ALM/Law Journal Newsletters publication that provides a practical source of both business and litigation tactics in the fast-changing area of intellectual property law, including litigating IP rights, patent damages, venue and infringement issues, inter partes review, trademarks on social media – and more.

On April 23, 2020, the Supreme Court rendered a decision in Romag Fasteners, Inc. v. Fossil, Inc., 590 U.S. ___ (2020), settling a circuit split and holding that, although highly important, willfulness is not a prerequisite for a trademark infringement plaintiff to obtain a profits award. In a relatively short decision, Justice Gorsuch, writing for the majority and joined by Chief Justice Roberts and Justices Thomas, Ginsburg, Breyer, Alito, Kagan, and Kavanaugh, rejected the Second Circuit's denial of disgorgement of profits after a jury found that a trademark infringer callously, but not willfully, infringed a business partner's trademark. Relying in large part on a textual distinction within the Lanham Act's damages provision, 15 U.S.C. Section 1117(a), the Court ruled that while there is a mens rea requirement to a profits award for trademark dilution under 15 U.S.C. 1125(c), Section 1125(a) has no such statutory language for trademark infringement, and reading in such language must be avoided. Justice Alito filed a one-paragraph concurring opinion, in which Justices Breyer and Kagan joined. Justice Sotomayor also filed a concurring opinion, agreeing only in the judgment that a plaintiff in a trademark infringement suit need not show that a defendant willfully infringed the plaintiff's trademark to obtain a profits award.

Although the Supreme Court clarified that willfulness is not mandatory to obtain this powerful remedy, the three opinions still highlight the relative importance for plaintiffs to show that defendants act with some mens rea in their infringement. This decision has significant implications in litigation planning and strategy, and in gaining greater insight into the still relatively new Justice Gorsuch's judicial style, as businesses and litigants are operating in an increasingly uncertain business environment.

Background

Romag Fasteners, Inc. (Romag) appealed from the Federal Circuit's affirmance of the Second Circuit decision that Romag was not entitled to a profits award where the jury found that defendant Fossil, Inc. (Fossil) acted only callously, and not willfully, in its trademark infringement under the Lanham Act, 15 U.S.C. §1125(a).

Romag sells magnetic snap fasteners used in wallets, handbags, and other leather goods. Fossil designs, markets, and distributes fashion accessories including leather handbags and other small leather goods. Starting in 2002, Romag and Fossil agreed that Fossil would use Romag fasteners in particular Fossil products. Between 2002 and 2008, Fossil purchased tens of thousands of Romag fasteners, manufactured in China. The agreement was productive until 2010, when Romag discovered that Fossil's hired factories in China "were using counterfeit Romag fasteners — and that Fossil was doing little to guard against the practice." Romag Fasteners, Inc. v. Fossil, Inc., 590 U.S. __ (2020) (Romag) at 2. Romag then sued Fossil in 2010 for patent and trademark infringement, alleging knowing and willful adoption and nonconsensual use of the Romag mark. Id. at 1-2.

In rendering its verdict, the jury found that Fossil had infringed Romag's trademarks and patents, but that the violations were not willful. Still, the jury awarded Romag trademark damages in two categories: more than $90,000 in profits on Romag's unjust enrichment claim, and more than $6.7 million in profits to deter future trademark infringement. Thus, although Romag won a jury verdict of liability, the district court declined to award any damages due to an absence of willfulness. At the outset, this case highlights the importance of making carefully considered decisions as to where to file suit, considering the circuit split on the damages issue at the time of filing. Had Romag wanted or been able to file in another circuit that did not apply the willfulness prerequisite, it may have initially been successful in obtaining a damages award.

The SCOTUS Decision

Among the three opinions, the Supreme Court unanimously and easily held that a plaintiff pursuing a trademark infringement claim need not prove the defendant willfully infringed to recover profits. Justice Alito's concurrence echoed that, but reiterated the enduring importance of the defendant's mental state in its infringement, while Justice Sotomayor's concurrence emphasized the historical tendency to award profits as damages against willful infringers. The Court's unanimity on the willfulness issue emphasizes a clear consensus regarding the interpretation of this aspect of the Lanham Act and a weighty rebuke of the Second Circuit-led approach to imposing a willfulness prerequisite to the disgorgement of profits remedy. The two concurrences, however, underscore that despite the Court's rejection of a willfulness requirement, litigants, juries, and judges must still seriously consider any indicia of willfulness. Writing for the majority, Justice Gorsuch unsurprisingly embraced a highly textual approach to statutory interpretation in concluding that a finding of willfulness is not a prerequisite for a profits award.

15 U.S.C. Section 1117(a) provides available remedies for particular trademark violations. Critically, it contains different prerequisites to obtain monetary remedies for trademark dilution under 1125(c), than for trademark infringement or the false/misleading use of a mark under 1125(a), which was the basis of Roamag's claim. Section 1125(c) created a cause of action for trademark dilution, namely "conduct that lessens the association consumers have with a trademark." Id. at 3. Enacted well after the Lanham Act was initially adopted, under 1117(a) "a willful violation" of 1125(c) is required" before a plaintiff is awarded damages or profits. In contrast, Section 1125(a), Romag's claim, establishes "a cause of action for the false or misleading use of trademarks [….] has never required a showing of willfulness to win a defendant's profits." Id.

Because the statutory language of 1117(a) does not include that requirement for a profits award under 1125(a), the Court is "doubly careful to avoid" "the temptation" to read into statutes words that are not there. Id. Justice Gorsuch looked to other statutory provisions, finding that the Lanham Act "speaks often and expressly about mental states." Id. Justice Gorsuch identified at least five provisions of the Lanham Act which distinguish between ordinary and willful violations, writing, "[w]ithout doubt, the Lanham Act exhibits considerable care with mens rea standards." Id. Precisely because of the Lanham Act's "considerable care" in that regard, "the absence of any such standard in the provision before us, thus, seems all the more telling." Id. at 4. Justice Gorsuch's emphasis on a textual approach carried the day as the Court swiftly resolved a circuit split on the issue.

Last, Justice Gorsuch easily disposed of Fossil's "curious suggestion" that such a profit award can be triggered "subject to the principles of equity." Id. Consideration of the statute and historical precedent gave the majority no reason to think that equity principles impose a willfulness requirement before awarding profits. Id. This portion of the opinion is the primary issue with which Justice Sotomayor took issue in her concurrence. Agreeing with the ruling that there is no willfulness prerequisite to an award of profits, Justice Sotomayor disagreed with the majority's characterization of "courts of equity [being] just as likely to award profits for such 'willful' infringement as they were for 'innocent' infringement," arguing that "profits were hardly, if ever, awarded for innocent infringement." Id. at 9. Ultimately, even acknowledging "that a trademark defendant's mental state is a highly important consideration in determining whether an award of profits is appropriate [….] is a far cry from insisting on the inflexible precondition to recovery Fossil advances." Id. at 7. Regarding any policy considerations, Justice Gorsuch directed the parties to Congress, which has the role of "reconciling competing and incommensurable policy goals." Id.

Justice Alito's single-paragraph concurrence agreed only with the bottom line holding that "willfulness is a highly important consideration in awarding profits under §1117(a), but not an absolute precondition." Id. at 10.

Practical Implications

The Court's decision unanimously rejected a finding of willfulness as a prerequisite to obtaining a very useful trademark infringement remedy: disgorgement of a defendant's profits as a result of the infringement. This decision will — and should — undoubtedly change litigants' strategy and preparation even before filing suit.

First, this decision reinforces the importance of selecting and presenting the appropriate claims — and defenses — in filings and to a jury. Justice Gorsuch's listing of those Lanham Act claims with mens rea requirements will be an illustrative guidepost as litigants assess their claims, defenses, and counterclaims.

Second, this decision may alter parties' damages calculations and inclinations to settle suits — and at what price. Because claimants nationwide may now obtain an award of profits for trademark infringement even without showing willfulness, parties may be more inclined to settle earlier and at different amounts to avoid a full disgorgement of profits. In that vein, parties would be wise to engage experts earlier to get a clearer sense of the amount of profits an infringer gained as a result of the infringement to help guide litigation and settlement strategy.

Third, although willfulness will no longer be an absolute hurdle, the Court did indicate its importance. Practically, a defendants' willful conduct will likely still loom large for juries and in the psychology of weighing the equities. In telling a story of a defendant's infringement, a plaintiff would still be wise to present as much evidence as possible that the defendant acted willfully. The incentive to present such evidence is not only to support a story of wrong against right, but also to increase the likelihood of a more significant damages award and even an award requiring a defendant to disgorge its profits gained as a result of the trademark abuse.

Finally, this decision is another data point reflecting Justice Gorsuch's textual approach, which he will likely continue applying even outside of the intellectual property arena. The unanimity of the decision shows the relative universality of this approach, at least in an area not hotly contested politically.

Conclusion

In settling a circuit split and eliminating any mens rea requirement to obtaining disgorgement of profits, the Supreme Court bolstered the availability of a powerful remedy for trademark infringement. The Court's decision provides important considerations for trademark litigants, as trademark law continues to be a critical way for businesses to protect their brands in an increasingly uncertain social and economic climate.

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Sarah Benowich is an Associate in the Litigation Group at Pearl Cohen's New York office. Prior to joining Pearl Cohen, Sarah was a litigation associate at an international law firm specializing in intellectual property, media, and technology-related litigation. She can be reached at [email protected].