“By focusing the majority opinion on the broader inquiries of mental state and mens rea, it suggests a possible broadening of the relevant inquiry.”
Circuits have long split over whether willfulness is required before a trademark infringer’s profits may be awarded. Section 1117(a) of the Lanham Act allows an award of profits “subject to principles of equity.” In Romag v. Fossil, the jury awarded Fossil’s $6.7 million in profits to Romag to deter infringement, even though the jury found only 1% of those profits were attributable to the infringement. However, because the jury found Fossil infringed “in callous disregard” but not willfully, the Federal Circuit refused to allow the award of Fossil’s profits.
The Supreme Court disagreed, reversing the Federal Circuit in today’s decision. Instead, “mental state” or “mens rea” is only a consideration for an award of the infringer’s profits, albeit an “important” or “highly important” consideration. The Court gave nodding mention to the substantial competing policy-based arguments submitted by both parties and amicus briefing and fleshed out further at oral argument. But ultimately, the decision stuck closely to the statutory language, finding Section 1117(a) could not support the weight of a willfulness prerequisite.
How Did SCOTUS Get Here?
Delivering the opinion of the Court, joined by all but one of the other Justices, Justice Gorsuch looked first to the statutory language in context. The statute’s adoption of a “principles of equity” standard “spells trouble for Fossil and the circuit precedent on which it relies.” That is because the Lanham Act’s remedies provisions speak “often and expressly about mental states,” including twice with respect to remedies provided in other subsections of Section 1117, and again for awarding profits under Section 1125(c) dilution claims. Even certain liability provisions of the statute specify mens rea standards needed to establish liability, such as cybersquatting claims under Section 1125(d). This “considerable care” to articulate mens rea requirements makes its absence from Section 1117(a) “all the more telling,” a provision that has “never required a showing of willfulness to win a defendant’s profits.”
Next, the Court rejected on three levels the position that the “principles of equity” standard should be read to include a long-standing practice by courts of equity of denying a trademark infringer’s profits absent willfulness. First, the Court found it an unnatural assumption that Congress, having been so express elsewhere, intended to obliquely adopt a mens rea requirement from pre-Lanham Act case law. Second, the chosen standard of “principles of equity” refers to “transsubstantive guidance on broad and fundamental questions, not a narrow rule about a profits remedy within trademark law.” Finally, looking to the pre-Lanham Act authorities, the only conclusion to be drawn “with certainty” is that mens rea “figured in as an important consideration in awarding profits,” reflecting an ordinary transsubstantive principle.
While Justices Alito, Breyer and Kagan joined in the majority opinion, Justice Alito issued a concurring opinion joined in by Justices Breyer and Kagan tied more narrowly to the issue presented, holding that “willfulness is a highly important consideration in awarding profits under §1117(a), but not an absolute precondition.” It may be that practitioners down the road attempt to rely on this narrower concurring decision to characterize portions of the majority opinion as dicta.
This ruling upsets long-standing principles in many Circuits, while leaving some important questions unsettled.
First, by focusing the majority opinion on the broader inquiries of mental state and mens rea, it suggests a possible broadening of the relevant inquiry. Justice Sotomayor’s concurring opinion recognizes willfulness encompasses “a range of culpable mental states” including reckless or indifferent behavior. But lower courts have disagreed, with some requiring an intent to trade off another’s mark to demonstrate “willfulness” for profit disgorgement purposes. Regardless of the willfulness standard employed by a particular Circuit, the majority’s holding that “a trademark defendant’s mental state is a highly important consideration” does not on its face limit the inquiry to only willfulness.
Second, reverse confusion cases in Circuits with high standards of willfulness have extended the willfulness prerequisite to a bar on profit disgorgement in such cases. As an extension of the now-rejected rule, this absolute bar seems to fall along with it.
Third, the issue of disgorging profits of good faith or innocent infringers in certain circumstances remains in question. Justice Sotomayor’s concurring opinion contends that the majority was too “agnostic about awarding profits for both ‘willful’ and innocent infringers.” This agnosticism lead her not to join in the majority opinion, and concur in the result while separately finding that an award of an innocent or good-faith infringer’s profits would be inconsistent with “principles of equity.”
While the Supreme Court’s decision resolves the issue of whether willfulness is a prerequisite to an award of profits, these lingering issues will remain for lower courts to sort out.