Trademark Infringers Beware: Willful Infringement No Longer a Requirement for Damages
The U.S. Supreme Court recently settled a long-standing split among the federal appeals courts concerning whether a plaintiff alleging trademark infringement under the Lanham Act must first demonstrate the defendant acted willfully in order to recover a disgorgement of profits.
Justice Gorsuch, writing for the Court, rejected Second Circuit authority and held that mens rea, or a wrongful state of mind, is not a prerequisite to a damages award. This ruling may very well signal a dramatic change to the future of trademark enforcement proceedings.
Romag Fasteners, Inc., the owner of a trademark for magnetic snap fasteners that are used on leather goods, entered into an agreement with Fossil, Inc., whereby Fossil would use Romag’s fasteners on handbags and other accessories. Subsequently, Romag learned that the manufacturers hired by Fossil were producing counterfeit Romag fasteners. Unable to resolve the dispute with Fossil, Romag sued Fossil in the Connecticut District Court alleging, in Romag Fasteners, Inc. v. Fossil Group, Inc. f/k/a Fossil, Inc., et al., that Fossil had infringed Romag’s trademark by falsely representing that its fasteners were Romag fasteners. The jury found that while Fossil did act “in callous disregard” of Romag’s rights, Fossil did not act willfully. Nevertheless, the jury awarded Romag $6.7 million, an amount equal to Fossil’s profits. The Connecticut District Court, however, significantly reduced this award, relying on controlling precedent from the Second Circuit Court of Appeals requiring a plaintiff seeking a profits award to prove that the defendant’s infringement was willful. In its decision, the Supreme Court explained that not all circuits interpret the Lanham Act to impose such a requisite prior to awarding damages, and it therefore “took this case to resolve th[e] dispute over the law’s demands.”
The Supreme Court’s decision in Romag Fasteners Inc. came down to one of statutory construction. Justice Gorsuch focused on the express language of Section 1117(a) of the Lanham Act, which governs remedies for trademark claims. In doing so, he highlighted that Section 1117(a) makes willfulness an express requirement for damages in a suit for trademark dilution, but that the statute is silent on any such requirement for damages in trademark infringement suits.
The Supreme Court emphasized that the answer to the long-standing dispute on damages resides in the absence of that express language. Justice Gorsuch went on to explain that the “Lanham Act speaks often and expressly about mental states[,]” but where the statute does not provide a mens rea requirement, the Supreme Court will be “doubly careful” to avoid reading words into a statute. Since Section 1117(a) does not expressly provide a mens rea requirement for damages in a trademark infringement suit, the Supreme Court conclusively held that a “plaintiff in a trademark infringement suit is not required to show that a defendant willfully infringed the plaintiff’s trademark as a pre-condition to a profits award.” Interestingly, while the Supreme Court clarified that a certain mens rea is not a prerequisite, it did note that the defendant’s mental state is a “highly important” factor when considering damages.
Fossil argued that a willfulness prerequisite should be applied per the language in Section 1117(a) that permits the recovery of profits “subject to the principles of equity,” advancing the position that courts of equity historically required a showing of willfulness prior to imposing damages. The Supreme Court flatly rejected this “curious argument,” explaining it would require the Court to assume that Congress intended there to be a willfulness requirement but elected not to state so specifically. Indeed, Congress expressly included a mens rea requirement for other trademark claims in another part of the same statute, and could have easily done so with respect to trademark infringement claims but chose not to do so.
Before Romag Fasteners, Inc., many federal appeals courts, including the Second Circuit Court of Appeals, required that plaintiffs prove willful misconduct prior to awarding them defendant’s profits derived from trademark infringement. Now, the Supreme Court has clarified that there is no such requirement for profit-based damages in a trademark infringement suit. As a result, trademark owners, particularly those in circuits that previously imposed such a requirement, will likely have a stronger footing to obtain profits in trademark infringement suits, thereby incentivizing plaintiffs to file suit. Conversely, once a trademark infringement suit has commenced, or prior to filing, defendants, knowing that there is a risk of profit disgorgement, may be more incentivized to settle these disputes.
Plaintiffs should be on notice, however, that the defendant’s mental state is still deemed a “highly important” factor to be considered when determining damages, and, therefore, the defendant’s mens rea is not erased entirely from consideration, and circuits that previously had a willfulness requirement may still weigh heavily the defendant’s state of mind when determining the amount of damages to be awarded.
If you have any questions about this ruling or its impact on trademark infringement claims, please reach out to the litigation team at Kleinberg Kaplan for assistance.