Trademark Infringement Litigation: Willfulness No Longer Necessary for Award of Profits
On April 23, 2020, the U.S. Supreme Court unanimously ruled that trademark owners can recover profits from an alleged infringer even if the trademark infringement was not willful—i.e. having intent to infringe or knowingly infringing a trademark.[1] The case, Romag Fasteners, Inc. v. Fossil, Inc., settled a circuit split on whether willfulness is required to award a trademark infringer’s profits to a prevailing plaintiff.
While the Court eliminated the willfulness requirement, the Court held that willfulness remains a factor courts may consider when awarding an infringer’s profits to the plaintiff. The courts in the Second and Ninth Circuit, where willfulness was previously required and where a heavy load of trademark cases are litigated, will be in the spotlight as to how they will use willfulness in their overall assessment of damages. In other circuits, we anticipate business as usual. Nevertheless, the Court’s decision has the potential to affect both the available awards and the litigation strategy on both sides of a trademark infringement dispute. As such, trademark owners and accused infringers alike should consider the impact a potential damage award may have in their cases.
What is Profit Disgorgement and Why Does it Matter?
Section 35(a) of the Lanham Act, 15 U.S.C.A. § 1117(a), authorizes a prevailing plaintiff in a trademark infringement suit to recover both the defendant’s profits and any damages sustained by the plaintiff (often referred to as “actual damages”). While the plaintiff needs to prove actual, non-speculative injury caused by the defendant’s infringement to recover any actual damages, it bears a different, and sometimes lighter, burden to recover a portion of the defendant’s profits.[2] Thus, this “profit disgorgement” is a valuable remedy option when actual damages are difficult to calculate—as is common in trademark infringement suits.
Supreme Court Resolves Circuit Split
Prior to Romag, federal courts were split on their approach to awarding a trademark owner with the infringer’s ill-gotten profits. Federal courts in the First, Second, Ninth, and Tenth Circuits required a showing of willful conduct by the infringer before awarding the plaintiff with the infringer’s profits.[3] Other federal courts, like those in the Third, Fourth, Fifth, Seventh, and Eleventh Circuits, consider a multitude of factors in awarding profits, including whether the defendant’s conduct was willful, but willfulness is not a prerequisite.[4] Courts in the Eighth Circuit have inconsistently ruled that willfulness is required or just a factor in awarding defendant’s profits.[5]
The Court’s decision in Romag settled this split and held that requiring willfulness to award a defendant’s profits was an “inflexible precondition” that Congress did not write into the Lanham Act. Romag filed in the District of Connecticut alleging Fossil and certain retailers infringed Romag’s trademarks. Relying on Second Circuit precedent, the district court rejected Romag’s request for an award of Fossil’s profits because Romag failed to establish that Fossil had acted willfully. Justice Gorsuch, writing for the unanimous Court, stated “without doubt, the Lanham Act exhibits considerable care when considering [a defendant’s mental state]. The absence of any such standard in [Section 1114(a)], thus, seems the more telling.”
Even though the Lanham Act does not require willfulness to award a defendant’s profits, Justice Gorsuch acknowledged that an infringer’s mental state is still an important consideration for courts to apply an equitably fitting remedy—“we do not doubt that a trademark defendant’s mental state is a highly important consideration in determining whether an award of profits is appropriate. But acknowledging that much is a far cry from insisting on the inflexible precondition to recovery.”
Takeaways
The Court’s ruling in Romag has the potential to change litigation strategies for both plaintiffs and defendants alike in trademark infringement cases.
Predominately, the decision paves the way for more discretionary interpretations of damage awards. In one scenario, disgorgement could be awarded on equity grounds or as a deterrence—perhaps especially so in cases where actual damages are difficult to ascertain. In another scenario, with no guidance from the Supreme Court on the degree to which willfulness should contribute to the overall assessment, litigants may still experience unpredictability as to when and how damages are awarded. In particular, the ruling could unfairly penalize innocent or less egregious infringers while giving the plaintiff an undeserved windfall.
Nevertheless, many federal courts that already follow the adopted “willfulness is not required, but still important” standard do not necessarily grant inequitable awards of the defendant’s profits. In these courts, the multi-factor analysis often reserves significant disgorgement of profits to egregious or maliciously willful infringements.[6]
The practical impact may therefore be more procedural in nature. Instead of cases resolving the issue of willfulness on summary judgment, more cases may go to a jury so that willfulness and other factors can be weighed in determining damages. Additionally, the possibility of a higher damage reward could complicate potential settlement discussions—which could have negative implications for each party involved.
In sum, as with any decision resolving a circuit split, Romag leaves much unchanged and much to be determined. What is clear is willfulness remains an important consideration for both parties involved in a trademark infringement dispute.
For more information on trademark infringement litigation, please contact your Quarles & Brady attorney or:
- Lori S. Meddings / (608) 283-2653 / lori.meddings@quarles.com
- Bryce Loken / (608) 283-2608 / bryce.loken@quarles.com
[1] Romag Fasteners, Inc v. Fossil, Inc., No. 18-1233, ___ U.S. ___, 2020 WL 1942012 (2020).
[2] See 5 McCarthy on Trademarks and Unfair Competition §30:59; Venture Tape Corp. v. McGillls Glass Warehouse, 540 F.3d 56, 63, 88 U.S.P.Q.2d 1051 (1st Cir. 2008), cert denied, 129 S. Ct. 1622 (2009); Int’l Star Class Yacht Racing Ass'n v. Tommy Hilfiger, U.S.A., Inc., 80 F.3d 749, 753, 38 U.S.P.Q.2d 1369 (2d Cir. 1996); Bishop v. Equinox Intern. Corp., 154 F.3d 1220, 1222 (10th Cir. 1998) later proceedings, 256 F.3d 1050, 59 U.S.P.Q.2d 1481 (10th Cir. 2001) (“The district court concluded, ‘Plaintiff has not established entitlement to any actual damage[s] and is therefore not entitled to any portion of Defendant’s profits.’ … We agree that this is an erroneous statement of law.” But it remains an “important factor.”); Western Diversified Services, Inc. v. Hyundai Motor America, Inc., 427 F.3d 1269, 1272, 77 U.S.P.Q. 2d 1132 (10th Cir. 2005) (Either actual damages or willful infringement can justify award of infringer's profits.); Klein-Becker USA, LLC v. Englert, 711 F.3d 1153, 1161, 106 U.S.P.Q.2d 1169, 85 Fed. R. Serv. 3d 342 (10th Cir. 2013) (Both actual damages and willfulness were found and $574,000. in profits awarded); Marshak v. Treadwell, 595 F.3d 478, 495, 91 U.S.P.Q.2d 1289 (3d Cir. 2009) (“Treadwell did not need to establish actual damages to justify the imposition of an accounting of profits—she needed only to show that an accounting was necessary to deter infringement or that Marshak and his associates were unjustly enriched. We think Treadwell easily satisfies this standard.”).
[3] First Circuit (Fishman Transducers, Inc. v. Paul, 684 F.3d 187, 191-92 (1st Cir. 2010)); Merck Eprova AG v. Gnosis S.p.A., 760 F.3d 247, 261 (2d Cir. 2014); Stone Creek, Inc. v. Omnia Italian Des., Inc., 875 F.3d 426, 439-42 (9th Cir. 2017); W. Diversified Servs., Inc. v. Hyundai Motor Am., Inc., 427 F.3d 1269, 1273-74 (10th Cir. 2005).
[4] Banjo Buddies, Inc. v. Renosky, 399 F.3d 168, 175 (3d Cir. 2005); Synergistic Int'l, LLC v. Korman, 470 F.3d 162, 175 (4th Cir. 2006); Quick Techs., Inc. v. Sage Grp. PLC, 313 F.3d 338, 348-49 (5th Cir. 2002); Sands, Taylor & Wood Co. v. Quaker Oats Co., 978 F.2d 947, 961 (7th Cir. 1992); Optimum Techs., Inc. v. Home Depot U.S.A., Inc., 217 Fed. App'x 899, 902, 2007 WL 465535 (11th Cir. 2007). The Sixth Circuit, while not explicitly adopting the factor approach, has applied the Third and Fifth Circuits’ six factor test when assessing damages. See La Quinta Corp. v. Heartland Props. LLC, 603 F.3d 327, 343 (6th Cir. 2010).
[5] Several Eighth Circuit courts have held that willfulness is a relevant factor but is no longer required for disgorgement. See Safco Prods. Co. v. Welcom Prods., Inc., 799 F. Supp. 2d 967, 996 (D. Minn. 2011); Wildlife Research Ctr., Inc. v. Robinson Outdoors, Inc., 409 F. Supp. 2d 1131, 1136 (D. Minn. 2005). Other courts in the Eighth Circuit have required the plaintiff to show willful infringement or deception and in some instances limit disgorgement to cases involving bad faith. See, e.g., Zerorez Franchising Sys., Inc. v. Distinctive Cleaning, Inc., 103 F. Supp. 3d 1032, 1048-49 (D. Minn. 2015).
[6] See, e.g., Kodiak Indus., Inc. v. Black & Decker Corp., 1994 WL 323254 at *3 (N.D. Ill. June 30, 1994) (citing Web Printing Controls Co. v. Oxy-Dry Corp., 906 F.2d 1202, 1205 (7th Cir. 1990)) (articulating notion that courts may require unjust enrichment or a need for deterrence to justify profit disgorgement).