“Romag argued that given the prolific counterfeiting in Chinese manufacturing, a willfulness requirement would mean there is no incentive to actively prevent the type of counterfeiting of component parts that occurred in this case… in fact, Fossil’s position means there’s a tangible disincentive to engage in more active monitoring.”
On Tuesday, the Supreme Court heard oral arguments in Romag Fasteners v. Fossil, Inc., Fossil Stores, I. Inc., Macy’s Inc, and Macy’s Retail Holdings, Inc. to decide whether a successful trademark plaintiff must establish that infringement was willful as a hard prerequisite to an award of the infringer’s profits, rather than being just one of multiple factors to be weighed when determining entitlement to a profits award. Under the latter scheme, profits may be awardable even if the infringement was not willful. Taking the Justices’ comments at face value, it seems likely that Romag will prevail and profits may be disgorged for less-than willful infringement.
Specifically, the issue raised by Romag is:
15 U.S.C. § 1117(a) of the Lanham Act states, in relevant part:
When a violation of any right of the registrant of a mark registered in the Patent and Trademark Office, a violation under section 1125(a) or (d) of this title, or a willful violation under section 1125(c) of this title, shall have been established in any civil action arising under this chapter, the plaintiff shall be entitled, subject to the provisions of sections 1111 and 1114 of this title, and subject to the principles of equity, to recover (1) defendant’s profits, (2) any damages sustained by the plaintiff, and (3) the costs of the action.
The Willfulness Split
The absence of the “willful” modifier to violations under section 1125(a) and (d) as compared to the “willful violation” needed for profits and damage under section 1125(c) has been interpreted by some courts to mean that a plaintiff need not establish a willful infringement under 1125(a) to be awarded an infringer’s profits. Other courts say that the omission of the willful modifier is explained by the reference to “principles of equity,” as such principles prior to the Lanham Act included a willfulness requirement for profits to be awardable for infringement of the sort contemplated by 1125(a).
As outlined here, in 2014, a jury in the District of Connecticut found that Fossil infringed Romag’s trademark after Fossil’s Chinese manufacturer used counterfeit Romag magnetic snap fasteners on Fossil’s handbags, in contravention of the parties’ agreement that the fasteners would be purchased from Romag’s Chinese licensee. Though the infringement was not found to be willful, the jury found Fossil acted in “callous disregard” of Romag’s trademark rights where Fossil had been in several previous disputes with its same Chinese manufacturer regarding use of nonconforming cheaper materials, and awarded Romag $6.8 million in Fossil’s profits. However, the award was ultimately denied by both the district court and the U.S. Court of Appeals for the Federal Circuit because the Second Circuit only allows disgorgement of profits for willful infringement. At present, the First, Second, Eighth, Ninth, Tenth and D.C. Circuits require willful infringement to obtain an infringer’s profits (though the First Circuit only requires willfulness where the parties are not direct competitors), while the Third, Fourth, Fifth, Sixth, Seventh and Eleventh Circuits don’t require willfulness to obtain profits.
Romag Starts Strong
Out of the gate, Romag advanced three main contentions during Tuesday’s argument: 1) the phrase “principles of equity” in the statute implicates a multi-factor analysis where willfulness is not an absolute prerequisite; 2) the text and structure of the statute supersedes “any settled willfulness requirement,” as the current statutory language includes multiple explicit limitations concerning the infringer’s state of mind and thus expressly kyboshed the common law standard predating the Lanham Act to the extent the standard was uniform; and 3) the common law “principles of equity” predating the Lanham Act were not settled or uniform in requiring willfulness.
The overall focus of the Justices sensibly turned on whether the common law was settled on requiring willfulness prior to the Lanham Act. After all, if the “principles of equity” did not uniformly require willful infringement to obtain profits, then the statutory reference to those principles is not so limiting. While conceding that most of the pre-Lanham Act courts either explicitly required willfulness or at least found willfulness before awarding infringer’s profits, Romag raised the three outlier cases it cited in its briefs to argue “a conflict is a conflict is a conflict” no matter how lopsided the conflict is. Romag also pointed out that even some of the cases requiring willfulness noted that a conflict existed.
The Pile On
Fossil’s arguments on the history of the willfulness requirement and meaning of “principles of equity” appeared unavailing. Justice Sotomayor took issue with fact that “willfulness” over the centuries has been defined differently. She noted that McCarthy on Trademarks and Unfair Competition (which Fossil cited as one of numerous treatises requiring willfulness) includes recklessness and callous disregard as types of willfulness, and that there was already a circuit split on the meaning of willfulness prior to the passage of the statute at issue in 1999.
Justice Kavanaugh piggybacked on Sotomayor’s observation about the disputed meaning of willfulness, and asked Fossil why we should assume Congress wanted to shield reckless infringers from being subject to disgorgement of profits as a policy. Fossil deflected in vain, saying it’s the Court’s job to interpret the statutory text. Kavanaugh agreed on that premise (as did I in case you were wondering, which you weren’t), but insisted on a rationale. All Fossil could do is cite the common law precedent that on balance requires willfulness, to which Kavanaugh replied that recklessness imparts at least some wrongdoing. It’s not that Kavanaugh was going to base his decision on his preferred policy; but if there was an articulable reason why reckless infringers should retain their profits, at least Fossil’s historical account of what “principles of equity” entail might make sense. Kavanaugh eventually got Fossil to concede that the common law cases they cited did not delve into the “grey areas” or recklessness one way or the other.
Along similar lines, Justices Ginsburg and Gorsuch teamed up to point out that on a textualist level, “principles of equity” is less clear a phrase than the statute’s plain provision requiring a “willful violation under section 1125(c)” to obtain profits, damages, and costs for trademark dilution. As Gorsuch succinctly put it, “‘principles of equity’ might be an unusual way of saying ‘willfulness.’”
The pile on continued. Gorsuch submitted that “principles of equity” simply means laches. Ginsburg parroted Sotomayor and said there was not a standard definition of willfulness. Kagan observed that many of the cases cited by Fossil did not require willfulness, but treated it as a factor.
Roberts Pushes Back
Chief Justice Roberts probably pushed back the hardest against Romag. Given his concern for the Court’s appearance, this might indicate he knew the other Justices weren’t likely to push Romag. On the text of the statute, he questioned Romag about Fossil’s position that the “willful violation” language in 1117(a) in relation to 1125(c) was simply mirroring the same willfulness language provided for in 1125(c) that requires any finding of trademark dilution to be predicated on the defendant’s willful state of mind, so that we shouldn’t read into the omission of the willful modifier elsewhere. Romag answered that if 1117(a) was simply mirroring the underlying 1125(c) language, the willful language wouldn’t have needed to be included at all because it would have been redundant to the willfulness requirement already provided in 1125(c). To challenge Romag’s argument, it’s plausible that Congress repeated the “willful violation” language to clarify that a plaintiff is not entitled to even regular damages for trademark dilution if the dilution under 1125(c) was not willful. But to Romag’s point, by definition it’s impossible to commit trademark dilution without establishing willfulness, so the preclusion of all monetary damages for a 1125(c) claim absent a showing of willfulness ought to be assumed. Roberts also disagreed with Romag’s contention that there could be a partial profits award under principles of equity. It’s hard to see how that can square with 1117(a)’s provision that “[i]f the court shall find that the amount of the recovery based on profits is either inadequate or excessive the court may in its discretion enter judgment for such sum as the court shall find to be just, according to the circumstances of the case.” This could be another indication that Roberts’ push back was perfunctory.
The Parties Paint a Broader Picture
On the policy front, Romag argued that given the prolific counterfeiting in Chinese manufacturing, a willfulness requirement would mean there is no incentive to actively prevent the type of counterfeiting of component parts that occurred in this case. That’s an interesting formulation. In one sense it’s bold in its advocacy for potential profits awards in cases of bare negligence. But at the same time it’s reserved in only critiquing the absence of an incentive to police counterfeiting, when in fact Fossil’s position means there’s a tangible disincentive to engage in more active monitoring. The treatment of the jury’s finding of Fossil’s callous disregard shows how requiring willfulness might encourage would-be infringers to take the ostrich approach to potential infringements (sorry ostriches). That’s not to say there’s no cost to non-willful infringement, but those costs can be easily outweighed by the benefits of using a cheaper infringing knockoff.
Fossil’s dire warning of the parade of horribles that would follow Romag’s preferred policy seems exaggerated, especially in light of its brief in opposition to Romag’s petition for certiorari where it posited that in practice, the result under the Circuits’ varying standards is “willful infringers disgorging their profits; and non-willful infringers not accounting for profits.” Any delay or unfair tactics on a plaintiff’s part would still be subject to equitable considerations. Indeed, in this case, Romag saw its monetary awards reduced under laches for intentionally waiting to take action. And as Justice Breyer harped on, 1117(a) allows courts to increase or decrease a profits award depending on the circumstances.
Ultimately it seems likely the Court will reverse. Willfulness will not be a prerequisite to disgorgement of profits for infringement under section 1125(a), but it may be held out as the most important consideration in determining entitlement and/or the amount of profits to be awarded.