In a landmark ruling issued on April 23, 2020, the United States Supreme Court held that willfulness is not a necessary precondition to an award of profits as a remedy for violation of trademark rights under the Lanham Act, 15 U.S.C. § 1125(a). Though the case involved trademark infringement, the reasoning may equally apply to other trademark claims brought under § 1125(a). Previous to the Court’s ruling, the cases in various federal circuits were divided on whether an award disgorging the profits made from trademark infringement required showing that the defendant willfully infringed the trademark.
The decision by the U.S. Supreme Court in Romag Fasteners, Inc. v. Fossil Group, Inc. lowers the requirements in some circuits to the award of disgorged infringement profits, and thereby strengthens the ability of trademark owners to enforce their trademark rights. The Supreme Court’s landmark ruling may thereby also enhance the value of trademarks.
The Romag Fasteners Case
In the Romag Fasteners case, the parties had entered into an agreement in 2002 allowing Fossil to use Romag’s branded fasteners in Fossil’s handbags and other products. Fossil had purchased tens of thousands of Romag fasteners between 2002 and 2008. In 2010, Romag discovered that the factories Fossil hired in China to make its products were using counterfeit Romag fasteners. The parties attempted to resolve the dispute but were unable to reach an amicable resolution. Romag filed suit for patent and trademark infringement alleging that Fossil had knowingly used counterfeit fasteners bearing Romag’s trademark without Romag’s consent. After a jury trial, the jury agreed with Romag, finding that Fossil had acted “in callous disregard” of Romag’s rights, but rejected finding that Fossil had acted “willfully.” On appeal, the Federal Circuit affirmed, reasoning that a showing of willfulness was required for an award of profits within the Second Circuit. The Supreme Court took up the case to decide whether the lower court’s ruling could be reconciled with the plain language of the Lanham Act.
The Court found that a showing of willfulness was a precondition to a profits award only as to actions brought under § 1125(c) with respect to trademark dilution. However, Romag had alleged and proved a violation of § 1125(a), a provision establishing a cause of action for the false or misleading use of trademarks. The Court pointed out that the statutory language of the Lanham Act had never required a showing of willfulness for a disgorgement of profits as a remedy for trademark violations falling under § 1125(a), and the Court does not usually read into statutes words that aren’t there. Though the Court held that willfulness is not a requirement to award the disgorgement of profits, the Court made clear that willfulness is still an important factor in the overall determination of whether an award of profits is appropriate.
The Court also dismissed Fossil’s fallback argument related to policy concerns. Fossil argued that strict restrains on profits awards are needed to deter “baseless” trademark suits. Romag countered that its reading of the statute will promote greater respect for trademarks. The Court deferred to policy makers on this issue stating, “the place for reconciling competing and incommensurable policy goals like these is before policymakers. This Court’s limited role is to read and apply the law those policymakers have ordained, and here our task, is clear.”
The Romag decision makes trademarks an increasingly critical and valuable tool for business owners, and raises the stakes in favor of trademark owners by providing the threat and leverage of an increased monetary award in negotiations, settlements, and litigation. What this means for potential infringers – businesses, manufactures, licensees – is a need for vigilance to assure that efforts are being made to prevent infringement. On the other hand, trademark owners should also take heed and be vigilant of who, where, when, and how their marks are being used.
At a minimum, trademark owners should:
- Select distinctive and protectable trademarks that are clear of conflicts with the rights of other trademark owners, prior to commencing use. Work with counsel to survey the field and weigh potential risks associated with adopting a potential trademark, including areas of expansion and encroachment by others prior to commencing use.
- Register protectable trademarks with the United States Patent Trademark Office, which among other benefits, provides constructive nationwide notice of the owner’s claimed mark and presumptive rights to exclusive use of the mark for registered goods and services once granted.
- Only permit third party use of a trademark pursuant to a trademark license agreement that sets out clear parameters and terms under which the mark may be used.
- Always include trademark license provisions for quality control that allow a trademark owner to monitor and police use of the licensed mark, i.e., that permit licensor to review and direct how the mark is being used by a licensee. This is an important provision because trademarks embody the reputation and goodwill of a business, which consumers rely on heavily in making purchasing decisions.
- If the marked goods are in a manufacturing supply or sales distribution chain, be sure to include license provisions that require license terms to be observed by all parties in privity with the license parties, and if possible, indemnification against upstream or downstream brand infringement or misuse.
- Monitor the marketplace for unauthorized use of your marks or confusingly similar marks. In concert with trademark counsel, establish a proactive monitoring program that could include, for example, periodic web searches for any improper uses of its marks or confusingly similar marks, searching the USPTO or other foreign trademark office databases for applications and registrations of confusingly similar marks, or using a professional watch service. Discuss with trademark counsel any potential improper uses that are discovered to determine the suitable options to address the improper use.
- Take affirmative steps to avoid infringing another’s mark. Indifference, turning a blind eye, or “callous disregard” of apparent violations are no longer a shield against the disgorgement of profits. Discuss with counsel clearing potential marks before use, and police manufacturing sources and supply chains for counterfeit goods or components.
The Romag decision is a win for trademark owners to the extent it allows for an increased award by way of disgorgement of profits, but it also serves as a reminder that both trademark owners and potential infringers should be vigilant of how marks are being used and protected.