On January 14, 2020, the United States Supreme Court heard argument in Romag Fasteners, Inc. v. Fossil, Inc., 18-1233, a case involving a trademark dispute under the Lanham Act, 15 U.S.C. § 1117. At issue is whether a plaintiff can recover profits for a violation of Section 1125(a) of the Act (false designation of origin or false description) without a finding of willfulness on the part of the defendant.
Romag Fasteners, Inc. ("Romag") sells magnetic snap fasteners for use in handbags and other leather goods. Fossil, Inc. ("Fossil") designs and markets handbags, among other items. Romag and Fossil had entered into a purchase and sale agreement whereby Fossil agreed to use Romag’s fasteners in its products, and Fossil’s manufacturers purchased thousands of fasteners from Romag over a period of years.
In 2010, Romag discovered that certain Fossil products sold in the United States contained counterfeit fasteners with the Romag trademark. Romag filed a lawsuit against Fossil for patent and trademark infringement later that year. Romag alleged that Fossil knowingly adopted and used the Romag mark without Romag’s consent.
After a trial, the jury found that Fossil had infringed Romag’s trademark and patents, but that the violations were not willful. The jury still awarded substantial trademark damages though: over $90,000 in profits "to prevent unjust enrichment," and over $6.7 million in profits "to deter future trademark infringement." Although the jury did not find willfulness, it did find that Fossil had acted with "callous disregard" for Romag’s trademark rights.
The district court, however, struck the jury’s award, holding that, in the Second Circuit at least, an award of profits for a violation of Section 1125(a) requires "a finding of willfulness." Romag appealed, and the Federal Circuit affirmed the district court’s decision.
Section 1117(a) of the Lanham Act provides:
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.
As is readily apparent on the face of the provision, there is no explicit "willfulness" requirement to recover profits for a violation of Section 1125(a). In fact, the provision specifies "willfulness" for claims under Section 1125(c), and not Section 1125(a). See 15 U.S.C. § 1117(a) (referring to "a violation under section 1125(a) or (d) of this title, or a willful violation under 1125(c) of this title ").
Romag, of course, argued this very point the plain the language of the statute does not require willfulness to award profits for a violation of Section 1125(a) (as distinct from a violation of Section 1125(c)). Romag allowed that the plaintiff’s award remains "subject to the principles of equity," see § 1117(a), which may include the defendant’s mental state, but also includes other factors such as whether the relief adequately compensates the plaintiff and whether the defendant was enriched by his violation of the law. But, on a plain reading of the statute, the defendant’s mental state does not play a gatekeeping function requiring a threshold showing of willfulness in order to put a profits award in play.
Fossil, for its part, argued that the case is only that easy if you "sweep both Congress’s words and two centuries of history under the rug." Fossil argued that the courts have always required, both prior to the Lanham Act and since its passage, that a plaintiff show actual knowledge of trademark infringement to recover the equitable award of profits. Congress operated against that backdrop when it passed the Lanham Act in 1946, and the textual hook is the Act’s provision that profit awards for a violation of Section 1125 are "subject to principles of equity." In other words, the limitation "subject to the principles of equity" was Congress’s way of enshrining the longstanding requirement that such awards required a finding of willfulness.
As Fossil noted, the word "willfulness" did not appear anywhere in the original, 1946 version of the Act. Nevertheless, no court, either prior to or following the Act, had ever awarded profits without a finding of willfulness. How, then, should courts account for a subsequent amendment to the Act that makes explicit reference to "willfulness" in connection with only certain violations? Fossil acknowledged that, in 1999, Congress inserted the word willfulness into Section 1125(c)(5). Section 1125(c), however, provided for a new violation called trademark dilution. Romag argued that, because trademark dilution did not have trademark infringement’s longstanding history, Congress concluded that the meaning of "principles of equity" as applied to trademark dilution may not be clear. Congress therefore specified in Section 1125(c)(5) that the new violation contemplated willfulness. With this predicate in mind, Fossil argued that Section 1117(a)’s use of the phrase "a willful violation of Section 1125(c)" was simply a label mirroring the description of the cause of action contained in Section 1125(c)(5), and should not be interpreted as stating that Section 1125(c), alone, requires willfulness.
It remains to be seen which way the Court will come down on the question. Justice Breyer, however, may have foreshadowed something of a "middle way" at oral argument. Ever the pragmatist, Justice Breyer highlighted language that appears a few lines later in Section 1117(a) of the Act:
If 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.
Given this discretion, Justice Breyer wondered, what harm is there in understanding the statute to require willfulness to award profits? If a plaintiff is unable to demonstrate willfulness, but is, under "principles of equity," nevertheless entitled to a greater reward than would be available absent an award of profits, the judge can simply increase the award "as the court shall find to be just, according to the circumstances of the case." Of course, this argument works in the opposite direction as well. If the statute were understood not to require willfulness, a reckless defendant who would have otherwise avoided an award of profits could still argue that, under principles of equity (including the absence of a knowing violation), the profits award is too severe, and the judge should decrease the award in an exercise of the same discretion.
Perhaps the Court will conclude that, as Justice Breyer wondered out loud at argument, this is "all much ado about nothing." No doubt this line of reasoning will in any event moderate both the celebration and the disappointment for the winner and loser, regardless of who comes out on top. But whatever arguments may be available to litigants on the backend, they would certainly rather have the gate swing in their favor on the front, and the Court will have to decide at least that much.