Principles of Equity: SCOTUS Eliminates “Willfulness” Prerequisite for Award of Trademark Profits

Written by Eleanor M. Lackman

On April 23, 2020, the Supreme Court weighed in on a question that had split the circuits:  to receive an award of profits for trademark infringement under the Lanham Act, does a plaintiff first have to show that the defendant infringed with willful intent?  All the Justices agreed that the answer is “no.”  Romag Fasteners, Inc. v. Fossil, Inc., No. 18-1233.  Instead, a court must consider “principles of equity” in deciding whether to award the equitable remedy of the defendant’s profits.  Recognizing that eliminating a threshold requirement of willfulness may create uncertainty in the law, the Court found that the statute’s language clearly mandated that lack of willfulness is not, in itself, a barrier to a profits award.  Nonetheless, willfulness remains a factor for strong consideration in deciding whether an award is equitable.

The case arose from a dispute between a supplier of fasteners for handbags and other accessories that respondent Fossil made.  Over time, Fossil’s factories in China had started to source counterfeit fasteners. Romag claimed that Fossil was doing little to guard against the practice, and Romag sued.  After trial, the jury found that Fossil had acted “in callous disregard” of Romag’s rights, but the jury rejected the claim that Fossil acted willfully.  The district court refused Romag’s request that Fossil hand over all the profits from the sales of its bags and other products containing the counterfeit fasteners, pointing out that controlling Second Circuit precedent required a plaintiff seeking profits to prove that the defendant’s violation was willful.  Other circuits took a different position from the Second Circuit, so the Court granted certiorari.

In a short opinion written by Justice Gorsuch, which seven other Justices joined,[1] the Court observed that the term “willful” is used throughout the Lanham Act, but it is not used in Section 35(a), 15 U.S.C. § 1117(a), in conjunction with profits for trademark infringement.  A distinction exists within the subsection itself, noting that “the plaintiff shall be entitled . . . subject to the principles of equity” to recover (1) the defendant’s profits, (2) any damages sustained by the plaintiff, and (3) the costs of the action, for a violation of a right of a registered mark, a violation under Section 43(a) or 43(d) of the Lanham Act, or “a willful violation” under section 43(c) of the Lanham Act.  Id.  This language made clear that there could be no prerequisite of willfulness for violations of Section 43(a), because the term “willful” would be rendered superfluous under Section 35(a).

The Court noted that judicial decisions historically have looked at an infringer’s mental state as an important consideration in fashioning remedies at equity.  The Court opined that it “do[es] not doubt that a trademark defendant’s mental state is a highly important consideration in determining whether an award of profits is appropriate.”  But insisting on it as a gatekeeping measure went too far.  While the Court recognized that the many amici had advanced important policy arguments in favor of both interpretations, it noted that addressing those policies is a job for policymakers, not the Court.

Justice Sotomayor, who had handled counterfeiting cases while in private practice, concurred in the judgment but explained in her concurrence that the Court’s majority opinion suggests that courts of equity were just as likely to award profits for “willful” infringement as they were for “innocent” infringement.  Not so, according to Justice Sotomayor.  In her view, awarding profits in cases of mistake or innocent infringement would not “seem to be consistent with longstanding equitable principles.”  In effect, Justice Sotomayor agreed with the reading of the statute but advised that principles of equity should consider the mental state of the infringer.

The Romag Fasteners decision firmly resolves a circuit split on a hotly debated issue in the law, but the ruling’s impact does not necessarily mean that plaintiffs will now demand an infringer’s profits where there is no evidence of willfulness on behalf of the defendant (although certainly there will be plaintiffs who take such an approach).  As the majority opinion and both concurrences noted, a defendant’s mental state in adopting and using a trademark is a “highly important” consideration in a court’s equitable analysis.  Justice Sotomayor’s concurrence, while not binding, goes a step farther, cautioning courts that it would not be “consonant with the ‘principles of equity’” referenced in Section 35(a) to award profits for innocent or good-faith trademark infringement.

The only certainty from Romag Fasteners is that it changes the rules in multiple circuits that have adopted the Second Circuit’s approach.  The bright line of willfulness is now gone, leaving decisions regarding awards of profits, damages, and costs to the equitable discretion of courts, where the Lanham Act evidently intended it to reside.  However, commentary from the Justices about the interplay between mental state and principles of equity tacitly suggests that there was no need for the rule to exist in the first place.  In particular, while the loss of an absolute in the law would add uncertainty in a case arising under any statute, the historic trend of profits turning on willfulness or innocence in trademark lawsuits may continue to run in post-Romag decisions for the same reason it did before the Second Circuit drew any lines in the law.  Therefore, plaintiffs should take care to remember that the Court’s opinion does not open the door to windfall profits against an innocent or good-faith infringer.  Rather, both sides must be mindful that a third party – the judge – will always be the gatekeeper on what is fair.

[1] Justice Alito filed a separate concurring opinion, which Justices Breyer and Kagan joined.  The only Justice not to join the majority, Justice Sotomayor, filed an opinion concurring in the judgment.

 

 

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