By Carmen Aviles and Jeff Ratinoff
The recent United States Supreme Court ruling in Romag Fasteners, Inc. v. Fossil Group, Inc. establishes that the infringer’s willfulness is not a necessary precondition to an award of an infringer’s profits under Section 35 of the Lanham Act for violation of trademark rights. The Court’s decision helps trademark owners by enhancing litigation as a tool for brand protection. Although the principles of equity will still govern whether disgorgement of an infringer’s profits can be recovered and the infringer’s intent will remain relevant, this decision resolves a longstanding contradiction between various Federal Circuit Court decisions on whether trademark owners must first establish willfulness prior to recovering profits from defendants found liable for trademark infringement.
Prior to Romag, the Second, Eighth, Ninth, Tenth, and District of Columbia Circuits required a plaintiff to establish the defendant’s willful infringement in order to recover a defendant’s profits, while the First Circuit required the same only where the parties were not direct competitors. On the other hand, the Third, Fourth, Fifth, Sixth, Seventh, and Eleventh Circuits followed a more lenient standard that did not mandate a showing of willfulness, instead considering the infringer’s intent as one factor among many others in determining whether to award defendant’s profits. The difference between the Circuits may have affected a trademark owner’s decision about whether to file a trademark infringement suit if the lawsuit was only properly venued in those Circuits requiring a willfulness showing. These trademark owners may not have found litigation a worthwhile economic investment tool for protection of their brand. Romag may have just changed this calculus.
The Impact of Romag on Brand Protection
Trademark owners use different strategies to protect and strengthen their brand, which historically may not have included seeking relief via the courts even when other avenues are closed off. The value of enforcing trademark rights under the Lanham Act as a brand protection tool has increased with the Romag decision.
Generally, a trademark plaintiff that files suit against an infringer seeks to prevent the continued use of the plaintiff’s trademark. The plaintiff’s primary remedy sought in a trademark litigation is an injunction restraining an infringer from continuing to harm the brand owner’s goodwill in that mark. Monetary damages often are not the catalyst for filing a trademark suit. This can be due to the challenge of proving the plaintiff’s damages, which are commonly calculated as the plaintiff’s lost sales and profits – in essence, a projected estimate of something that didn’t occur rather than a concrete calculation or accounting. Under Romag, trademark owners now are now more likely to revisit their enforcement strategies, particularly where litigation would otherwise be cost-prohibitive due to the uncertainty in being able to establish lost sales or profits.
The difference between a damages award that includes a finding of willfulness can be substantial. In Romag, for example, the jury award for trademark damages included only $51,052.14 in “reasonable royalty” losses ascribed to the plaintiff Romag, but awarded the disgorgement of defendant Fossil’s profits of $90,000 “to prevent unjust enrichment” and more than $6.7 million “to deter future trademark infringement.” The jury justified the $6.7 million disgorgement of profits because it found that Fossil had acted with “callous disregard.” It is now likely that the enhanced potential for a significant damages award may motivate trademark owners to pursue trademark infringement claims in court and more vigorously protect their brands.
While it is too early to tell, Romag is also likely to have a broader impact on other unfair competition claims that can be brought under Section 43(a) of the Lanham Act. In addition to trademark infringement as in Romag, this section also allows plaintiffs to assert claims for false designation of origin, false advertising, and other similar acts of unfair competition against bad actors. While the Supreme Court did not directly address whether the same damages analysis for willfulness would apply to these other claims (as they were not before the Court), it is a logical extension of Romag that the same standard applies to other Section 43(a) Lanham Act unfair competition claims.
The Court specifically noted that Section 43(a) does not include any language requiring willfulness for the disgorgement of infringer’s profits. Thus, the conclusion the Court drew from the statutory text in the trademark infringement context should apply equally to other unfair competition claims enumerated by Section 43(a).
Effect on Resolution
Romag certainly is a win for trademark owners as it provides leverage in negotiation of settlements that will stop infringing conduct without protracted litigation. Indeed, the prospect of a high damages award may even bring some risk adverse defendants to the table early, before plaintiffs file suit. More recalcitrant defendants may decide to forego early settlement altogether, and see whether the litigation proceeds in their favor before seeking resolution. However, in the latter case, that may be after motion for summary judgment attempts to get profit claims dismissed as those may become more difficult to succeed in light of the Court’s opinion.
Conclusion
While the real effect of Romag on Lanham Act claims will not be known for some time, what can be surmised at this time is that at least there will be consistency between the Circuits on is issue of disgorgement of profits. Several questions will remain for the time being whether the Supreme Court’s decision will spark a measurable increase in trademark owners filing lawsuits for infringement, false advertising and other theories of unfair competition under Section 43(a), and whether this will lead to settlements in pending cases or rethinking litigation strategy. It also remains to be seen what Romag’s effect will be on trademark owners and infringers’ respective positions in settlement negotiations. In any event, Romag is a long-awaited statement from the Supreme Court that willfulness should not be a precondition to an award of an infringing defendant’s ill-gotten profits.