“[The Romag Fasteners] decision is very important, not only as it clears up a split among courts, but because a decision to the contrary would have been a death charge to the cases of many trademark owners in an already often difficult litigation environment. Some good news from the Supreme Court in an otherwise gloomy time.” – Christian Liedtke, Acuminis
In his second foray into intellectual property law this week, Supreme Court Justice Neil Gorsuch delivered the opinion for a unanimous Court earlier today in Romag Fasteners v. Fossil Group Inc., reversing the Federal Circuit’s August 2017 decision and holding that willful infringement is only one consideration for awarding an infringer’s profits, and that 15 U.S.C. Section 1117(a) of does not articulate a willfulness prerequisite.
Most attorneys who weighed in for IPWatchdog welcomed the decision as providing clarity and being pro-IP. Here is what they had to say.
David H. Bernstein, Debevoise & Plimpton
The Court’s decision was expected given the absence of any textual hook in the Lanham Act for a willfulness requirement. As Justice Gorsuch exhaustively documented, the Lanham Act repeatedly talks about mens rea, intent, and willfulness; the absence of any intent requirement in the section on disgorgement of profits for trademark infringement spoke volumes. But, as the Court recognized, there are policy benefits for requiring willfulness – or more appropriately, as Justice Sotomayor suggests in her concurrence, fraudulent intent – before authorizing the disgorgement of defendant’s profits, which are usually a massive windfall to the plaintiff. Otherwise, plaintiffs who suffered little or no harm will have the incentive to weaponize the Lanham Act and roll the dice at trial rather than pursue rational and reasonable settlements. Nevertheless, as the Court appropriately recognized, that is a question for Congress to decide as a matter of policy, rather than for the Court to decide based on existing law.
Bruce Ewing, Dorsey & Whitney LLP
The decision resolves a longstanding disagreement among various circuit courts as to the standard governing awards of profits on claims for trademark infringement and unfair competition. The Supreme Court has clarified that a defendant’s state of mind is a “highly important consideration in determining whether an award of profits is appropriate,” but not a precondition to such an award, as some circuits had held. The decision will likely make it easier for trademark owners involved in cases in those circuits to recover profits from defendants found liable for trademark infringement and unfair competition.
Benjamin J. Hodges, Foster Garvey
The decision in Romag resolves the circuit split regarding whether willfulness is required for disgorgement of profits, but its practical effect remains to be seen. If anything, I believe this will simply delay or complicate resolution of trademark cases. The decision removes a route of summary judgment in those circuits that previously required willfulness, but ultimately it may not change behavior for trademark plaintiffs. The Court’s opinion, and the concurring opinions, discuss that mens rea, such as willfulness, still remains an important consideration when the court weighs whether equitable factors warrant disgorgement of profits. This will likely mean that more plaintiffs attempt to seek disgorgement as a remedy in those circuits that previously required willfulness. It will likely complicate settlement discussion as defendants in those instances will still see disgorgement as unlikely from their view while plaintiffs will be reluctant to give up the leverage of disgorgement. For courts, it will have a similar effect: adding to the burden on courts to determine another issue without a bright line rule, and one likely to be asserted by a large number of plaintiffs.
Fossil’s argument that an award of the defendant’s profits is “subject to the principles of equity” according to the Lanham Act was not enough to persuade the Court that willfulness is required for such an award. However, the holding is not likely to have a detrimental effect on innocent infringers. As the Court noted, a defendant’s mental state is a highly important consideration in determining whether an award of profits is appropriate—the opinion merely makes clear that willfulness is not an absolute precondition. In the Second Circuit and elsewhere, however, courts will likely continue to require willfulness as a matter of equity in most cases.
The number of cases in which Romag will change the ultimate result seems fairly small. In Romag itself, for example, the jury found that Fossil acted with “callous disregard” for Romag’s trademark rights, albeit not with “willfulness.” Under the Supreme Court’s standard, the district court now has the discretion to consider an award of profits under these circumstances. However, the lack of willfulness would still be a “highly important” consideration in determining whether to authorize such an award. Likely, there would have to be some sort of unusual equity cutting in favor of Romag or against Fossil to justify departing from the usual practice—e.g., Fossil’s non-willful “disregard” would have to be especially blameworthy, or Fossil would have to have been unjustly enriched to an unusually high degree, or an award of Romag’s actual damages would have to be unusually inadequate compensation. In most cases, such unusual equities will be absent, so the district court will make its decision based on willfulness. However, district courts now have some flexibility at the margins, and there will be more opportunities for creative lawyering that emphasizes the unique equities of a given case.
While Romag was a trademark case, it’s important to note that the Lanham Act also addresses false advertising and other forms of unfair competition besides trademark infringement. Although Romag doesn’t expressly mention these other types of Lanham Act suits, nothing in its analysis suggests that its holding is limited to trademark suits alone. To the extent the Court’s opinion relies on statutory text, the text that the Court analyzes governs damage awards under the Lanham Act generally, regardless of the type of claim. And to the extent the Court’s opinion (and Alito concurrence) rely on pre-Lanham Act case law, those cases do not appear to distinguish between passing off (trademark infringement) and other varieties of unfair competition. Thus, I think it’s almost certain that the lower courts will extend Romag’s holding to false advertising and other types of non-trademark Lanham Act litigation.
Viewed in the broader context, the Romag holding is no surprise: the current Supreme Court consistently opposes rigid or categorical rules regarding the availability of relief in IP cases, even where lower courts have long hewed to such rules. This decision merely continues that trend.
Christian Liedtke, Acuminis
Although far from a foregone conclusion, the Court, fortunately from the standpoint of those who value intellectual property, ruled that willfulness is not required. This decision is very important, not only as it clears up a split among courts, but because a decision to the contrary would have been a death charge, if not to say a lethal blow, to the cases of many trademark owners in an already often difficult litigation environment. Some good news from the Supreme Court in an otherwise gloomy time.
It is also important to highlight that the Court reached this result based on a contextual analysis of the Lanham Act, without the need for much creativity or tea leaf reading. The willfulness requirement imposed by some courts, unlike in the case of dilution, had no statutory footing whatsoever and the Supreme Court put its finger right into that wound.
Looking at it with a more fine-tooth comb, and from a more scholarly angle, it seems as though Justice Gorsuch is positioning himself to take Justice Scalia’s place in his approach.
Douglas N. Masters, Loeb & Loeb
While injunctive relief is often the primary remedy sought in trademark disputes, monetary relief has increasingly come to play an important role in parties’ motivations to bring such actions. Riding along the patent troll wave of lawsuits designed to force companies to risk paying huge award of profits as an incentive to settle for a licensing fee, some have feared that without a high bar for awarding profits from a trademark infringer we would see a proliferation of such questionable cases. That concern is overblown, and the Supreme Court’s ruling should not usher in a wave of new questionable trademark suits. Sticking as it has in Lanham Act cases primarily to statutory interpretation, the Court held that a finding of willfulness is not necessary for an award of profits. But at the same time, the infringer’s state of mind remains relevant to whether to award profits. In the end, I doubt we will see much impact in the award of profits under this ruling.
Larry Nodine , Ballard Spahr
Now for the hard part. It was relatively easy to decide that willfulness is not a precondition to a profits award. The hard question is what evidence is sufficient to support a profits award. If there is no evidence of willfulness, what evidence will support an award of profits?
Would it be consistent with “principles of equity” to award profits against a good faith innocent infringer? The majority opinion leaves this unclear, which is why Justice Sotomayor addressed the issue in her concurring opinion—the answer should be “no.” No doubt her concurring opinion will often be quoted in years to come by defendants seeking summary judgment dismissing profits claims. Perhaps evidence of the need for deterrence would suffice. Perhaps a lesser, but nonetheless culpable, mens rea would be enough? Note the Court did not rule that “callous” disregard, which the jury found here, was enough, leaving that question up in the air on remand.
All told, it will be harder for innocent defendants to get profits claims dismissed early. With a vaguely defined set of “principles of equity,” it will be easier to create a question of fact and get past summary judgment, and increase settlement leverage for payment.
This decision brings clarity to an important issue in trademark law. Because the principles of equity will still govern whether an infringer’s profits can be recovered, the infringer’s intent will remain relevant, but a showing of willfulness will no longer be a separate requirement. This is consistent with the plain language of the Lanham Act.