Is Willfulness Required for Recovering Ill-Gotten Gains of Trademark Infringers?
Enforcing one’s intellectual property rights inevitably entails seeking monetary damages in case of a violation. If you are a global player in the fashion industry, the stakes can be higher. Depending on the ruling of a pending U.S. Supreme Court case, a trademark infringer would be able to keep nearly seven million dollars of ill-gotten gains in its pocket.[1] The Supreme Court is set to decide whether a finding of willfulness is required in awarding profits as a remedy. The ruling will hopefully resolve the circuit split on the issue. As of now, in the Second, Eighth, Ninth, Tenth, and D.C. Circuits, a showing of willfulness is a prerequisite for disgorgement.[2] Romag contends that because of this circuit split, a visible possibility of differential legal treatment of similarly situated parties exists “depending on where they file suit.”[3]
The factual background of this case is relatively straightforward. Romag Fasteners, Inc. (“Romag”) is a seller of magnetic snap fasteners for fashion accessories. Fossil, Inc. (“Fossil”), a global fashion accessory brand, outsources its production to overseas manufacturers. In 2010, it came to Romag’s attention that some of the foreign-manufactured Fossil products used counterfeited fasteners bearing the Romag mark. Romag sued Fossil for trademark infringement, and the jury awarded Romag 6.8 million dollars in profits aside from other statutory damages because Fossil acted in callous disregard of Romag’s trademark rights. [4] However, the district court judge vacated the awarding of profits on the basis that a finding of willfulness has not be shown [5], and the Federal Circuit affirmed the decision.[6]
To resolve the circuit split, the Supreme Court will interpret the language of Section 35 of the Lanham Act[7] to determine whether willful infringement is a prerequisite for an award of an infringer’s profits for a violation of section 43(a). Romag notes in its brief that circuits that do not read into the statute the willfulness requirement are of the position that the word “willful” covers only Section 1125(c)-type violations (which singularly applies to a “famous mark”), and that, under rules of equity, a finding of willfulness serves as a factor in awarding of profits.[8]
During the oral argument, some of the justices, however, seemed to approach the issue more from a policy- and justice-oriented standpoint. Justice Breyer asked the Fossil attorney whether she thinks “terrible cases” might happen if the Supreme Court does not read willfulness out of the statute.[9] Justice Alito also asked the attorney to cite a single case in which a requiring of willfulness was “very unjust.”[10] Indeed, those two justices evinced a palpable worry that awarding a disgorgement remedy to an accidental infringer who did not possess a culpable mind might lead to overly harsh results. As with any other Supreme Court case, predicting an outcome is an educated guess at best. However, one thing is clear. If the Supreme Court decides to follow the Second Circuit approach, trademark owners will face a hard time enforcing the rights they have earned over time in the market.
Footnotes
