Supreme Court Holds That Willfulness Is Not a Prerequisite to Obtaining an Infringer’s Profits Under the Lanham Act
On April 23, 2020, the U.S. Supreme Court reversed the Court of Appeals for the Federal Circuit and resolved a split among the circuit courts by holding that a finding of willful infringement is not a prerequisite to disgorgement of profits under the Lanham Act.
The Lanham Act has always posed parties and practitioners with a choose-your-own-adventure element to damages theories. Given the broad and diverse range of conduct prohibited by the act, the statute necessarily had to provide a correspondingly flexible method of calculating monetary damages. Given the difficulty of proving that an individual would have purchased a $100 pair of legitimate denim jeans but for the availability of a $10 knock-off or that a consumer purchased infringing goods because of confusion as to source, the ability to disgorge the infringer’s profits has become an increasingly popular theory of recovery. And for good reason. Rather than requiring the plaintiff to both calculate its actual lost sales and causation, disgorgement shifts the burden to the defendant to both deduct costs from its gross revenues and disprove causation.
The circuit courts were almost evenly split on whether a plaintiff could recover the infringer’s profits absent a finding of willful infringement. In Romag Fasteners, Inc. v. Fossil, Inc., the Supreme Court resolved the dispute by holding that willfulness is not a pre-requisite for disgorgement under the Lanham Act. In Romag, the jury found that Fossil had “acted callously” in failing to prevent its Chinese manufacturer from infringing Romag’s magnetic fasteners but had not done so willfully. Under existing Second Circuit precedent, the lack of willfulness prevented Romag from obtaining an award of Fossil’s profits.
The circuit courts that required a finding of willfulness focused on the fact that Section 1117(a) of the Lanham Act, which sets forth the available relief, prefaces that the permitted remedies are “subject to the principles of equity.” Given that willfulness was often a requirement for disgorgement in courts of equity, the First, Second, Eighth, Ninth, and Tenth Circuits had held that willfulness was a prerequisite for disgorgement under the Lanham Act. In rejecting this interpretation, the Supreme Court noted that, though willfulness was often a factor in awarding profits, it was far from a universal requirement. To be sure, the mental state of the defendant has historically played a central role in assessing damages for trademark infringement, “[b]ut acknowledging that much is a far cry from insisting on the inflexible precondition to recovery Fossil advances.”
More fundamentally, the Supreme Court held that interpreting Section 1117(a) of the Lanham Act to require a finding a willfulness would violate established canons of statutory construction. First, the Supreme Court noted that Section 1117(a) specifically requires willfulness to disgorge profits in dilution cases. Second, the Supreme Court cited to other provisions of the Lanham Act where Congress explicitly established a mens rea requirement by, for example, limiting relief against innocent infringers to injunctions only. As a result, the Supreme Court concluded that where Congress sought to establish specific mens rea requirements in the Lanham Act, it did so explicitly.
Though the Supreme Court rejected willfulness as an absolute precondition for recovering an infringer’s profits, it did not resolve the question of what role remains for willfulness in the disgorgement analysis. While holding that the “principles of equity” could not be interpreted to write a willfulness requirement into the statute, the Supreme Court also could not delete the phrase from the statute. As a result, the Supreme Court’s decision does not prevent circuit courts, district courts, or juries from considering the degree of willfulness in assessing damages, only from using the lack of willfulness as a complete bar to a disgorgement recovery. The way in which courts will apply the Supreme Court’s decision in Romag will be an issue to follow over the next several years and will inform strategic decisions, including where to bring an infringement action.
Copyright © 2020 by Ballard Spahr LLP.
(No claim to original U.S. government material.)
All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, including electronic, mechanical, photocopying, recording, or otherwise, without prior written permission of the author and publisher.
This alert is a periodic publication of Ballard Spahr LLP and is intended to notify recipients of new developments in the law. It should not be construed as legal advice or legal opinion on any specific facts or circumstances. The contents are intended for general informational purposes only, and you are urged to consult your own attorney concerning your situation and specific legal questions you have.