Supreme Court reviews damages issue in trademark infringement case

BVWireIssue #207-3
December 18, 2019

intellectual property, economic damages & lost profits
patent infringement, royalty rate, trademark infringement, remedy

The U.S. Supreme Court is about to hear arguments in a trademark infringement case that turns on whether the plaintiff, in order to obtain the infringer’s profits, has to show willful infringement by the defendant. Courts of Appeals are currently split on whether willfulness is a precondition under the applicable section of the Lanham Act, which deals with trademark violations.

The plaintiff is Romag Fasteners Inc., a family business based in Connecticut that sells patented snap fasteners under a registered trademark. The defendant is Fossil Inc. It designs, markets, and distributes fashion accessories. It does not manufacture products but has contracts with overseas factories. Fossil and Romag had an agreement that Fossil would use Romag’s fasteners in its products. Later, Romag discovered that certain Fossil products (handbags) used counterfeit snaps that bore Romag’s trademark.

Romag sued Fossil and Fossil retailers (including Macy’s) in the District of Connecticut for patent and trademark infringement. It asked for injunctive relief and monetary damages, including an accounting of the defendants’ profits. In 2014, a jury found Fossil liable for infringement but also found the infringement was not willful. The jury decided Fossil should pay almost $91,000 in profits “to prevent unjust enrichment” as well as about $6.7 million “to deter future trademark infringement.”

The district court ultimately found there was no basis for any award of profits because the plaintiff did not prove the infringement was willful, and, in “this” circuit (2nd Circuit), “a finding of willfulness remains a requirement for an award of defendants’ profits.” The Federal Circuit Court of Appeals affirmed the district court’s ruling. Romag then asked the U.S. Supreme Court for review, which was granted.

Case turns on statutory interpretation: The Lanham Act prohibits unfair competition, fraud, and the “deceptive and misleading use of [trade] marks.” Section 35 of the Act specifies remedies for certain trademark violations, including the plaintiff’s right to the defendant’s profits (besides actual damages and attorney’s fees). The way the applicable section (15 U.S.C. § 1117(a)) is worded leaves it unclear whether the remedy of infringer’s profits requires a showing of willful infringement for only one type of infringement (section 1125(c) violation) or in all infringement actions.

Not only have the Courts of Appeals in different circuits reached different conclusions, legal scholars and various IP groups have disagreed over how to interpret this section within the context of the Lanham Act, the Act’s legislative history, and public policy.

Romag has argued that it is critical for practical and policy reasons that the high court resolve this issue. Romag contends the circuit split means that, depending on where a case is adjudicated, the plaintiff gets or does not get the infringer’s profits based purely on willfulness, without the court’s analyzing any other factors. Romag also says that a plaintiff’s actual damages are often difficult to measure, making disgorgement of the infringer’s profits in many cases the “only meaningful monetary relief that trademark owners can secure for infringement.” This was the case here. Also, the remedy of infringer’s profits would give the plaintiff and the public at large some protection against counterfeit and falsely marked goods.

Fossil has argued against review by the Supreme Court. As Fossil sees it, infringer’s profits are an equitable remedy and all courts in some way consider willfulness to be an important factor in their damages determination. Some courts do so expressly by making disgorgement a prerequisite, and others do so when balancing the equities. “There is no meaningful conflict among courts of appeals,” Fossil has said.

Oral argument in the Supreme Court is set to take place on Jan. 14, 2020.

To read the parties’ briefs, click on the link here.

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