Volume 51, Issue 2
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In Romag Fasteners, Inc. v. Fossil, Inc., the Supreme Court recently held that a plaintiff in a trademark infringement suit is not required to show that the defendant acted willfully as a precondition to an award of defendant’s profits under the Lanham Act.1 The Romag decision should upend the existing approach in the First Circuit and make it easier for trademark plaintiffs in its courts to obtain defendant’s profits from infringement.
The Supreme Court’s Decision in Romag
In Romag, plaintiff had sold magnetic snap fasteners to defendant Fossil for many years before discovering that certain Fossil handbags contained counterfeit ROMAG snaps.2 Unable to resolve the matter amicably, Romag sued Fossil for trademark infringement. After trial, the jury determined that Fossil had acted in “callous disregard” of Romag’s trademark rights but did not find that Fossil had acted willfully.3 Applying Second Circuit precedent, the district court ruled that Romag was not entitled to recover Fossil’s profits absent a finding of willfulness.4 On appeal, the Federal Circuit agreed.5 Seeking to resolve a split among the circuits as to the willfulness requirement, the Supreme Court reviewed the language of the Lanham Act section governing remedies for trademark infringement, which states in pertinent part that “[w]hen a violation . . . shall have been established . . ., the plaintiff shall be entitled . . ., 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.”6 The court observed that the language of the statute did not include any willfulness requirement as a prerequisite to recovery of profits for trademark infringement. Further, given that the Lanham Act “speaks often and expressly” and with “considerable care” about mental states, the court said it was telling that the Act did not include a willfulness standard in the relevant provision.7 Under the circumstances, the court rejected any “inflexible precondition” of willfulness for a recovery of defendant’s profits, though it did not doubt that under traditional “principles of equity” imbued in the Lanham Act’s remedies provision, a trademark defendant’s mental state would continue to be a “highly important consideration” in determining whether a profits award is appropriate.
The First Circuit’s Approach to Recovery of Defendant’s Profits
So where does Romag leave the First Circuit with regard to recovery of defendant’s profits for trademark infringement? The First Circuit recognizes three justifications for awarding defendant’s profits: (1) as a rough measure of the harm to plaintiff; (2) as a means to protect the plaintiff by deterring a willful infringer from further infringement; or (3) as a device to avoid unjust enrichment of the defendant.8 Generally speaking, willfulness — the “conscious awareness of wrongdoing by the defendant or at least conduct objectively reckless measured against standards of reasonable behavior”9 — has played an outsized role in First Circuit jurisprudence as to recovery of defendant’s profits. For example, the court in Fishman Transducers, Inc. v. Paul noted that the circuit’s cases — except for cases involving direct competition — “usually require willfulness” as a condition precedent to allow recovery of defendant’s profits.10 The first theory of recovery — profits as a rough measure of harm to plaintiff — is a proxy for trademark damages in cases where the trademark owner cannot prove actual damages attributable to the infringement.11 An award of profits under this theory requires that the products at issue are directly competitive, such that a sale by the infringer under the infringed mark is “almost automatically a lost sale by the plaintiff.”12 Just as damages in trademark infringement cases can be awarded without reference to scienter,13 the First Circuit does not require a finding of willfulness under the damages proxy.14 Thus, Romag would not appear to change the landscape where profits are sought as an analog to damages. An alternative theory of recovery of defendant’s profits — deterrence — is rarely invoked in the First Circuit and should not be the primary reason for an accounting of profits given that deterrence is primarily served by awards of attorneys’ fees.15 The First Circuit has acknowledged that in cases of at least some direct competition and willfulness, “some role may exist for deterrence in an award of an accounting of profits”16 so as to discourage future misconduct by the defendant.17 After Romag, it would seem that such “black letter” fealty to willfulness under the deterrence theory is inapposite. Thus, the First Circuit may need to entertain a broader “totality of the circumstances” approach in fashioning an appropriate Lanham Act remedy under the deterrence theory, including perhaps the discouraging of some lesser behavior such as negligence or gross negligence. For example, the district court in Fishman refused to disgorge defendant’s profits after finding that defendant’s absence of diligent inquiry prior to use of plaintiff’s mark was not equivalent to willfulness.18 After Romag, First Circuit courts should be willing to at least entertain claims for defendant’s profits under a deterrence theory to discourage culpable behavior that does not rise to the level of willfulness if the balance of equities demands it. Finally, the unjust enrichment theory of recovery of defendant’s profits has also been limited to cases of willful infringement in the First Circuit.19 Romag eliminates any such threshold requirement. The unjust enrichment theory is premised on a trademark and its goodwill as a property right.20 Thus, the award is not based on direct competition or provable loss but on the fact that the defendant has unjustly gained because of the goodwill the plaintiff has built up in the mark.21 In short, “the infringer has reaped where it has not sown.”22 As the theory is focused on the unjust benefit derived by the defendant, it would seem that the First Circuit’s reliance on a defendant’s willfulness as a threshold consideration was inappropriate even before Romag.23 After all, as suggested by the Seventh Circuit, “[a]s between the ‘innocent’ infringer who seeks to get off scot-free, and the innocent infringed . . . the stronger equity is with the innocent infringed.”24 After Romag, willfulness should no longer be a strict obstacle to recovery of defendant’s profits under this theory. Instead, look for First Circuit courts to apply a more expansive consideration of the equities that includes consideration of the defendant’s misconduct as a factor in the balance, such as set forth in the Restatement (Third) of Unfair Competition: (a) the degree of certainty that the actor benefitted from the unlawful conduct; (b) the relative adequacy to the plaintiff of other remedies, including an award of damages; (c) the interests of the public in depriving the actor of unjust gains and discouraging unlawful conduct; (d) the role of the actor in bringing about the infringement or deceptive marketing (e) any unreasonable delay by the plaintiff in bringing suit or otherwise asserting its rights; and (f) any related misconduct on the part of the plaintiff.25
Conclusion
The First Circuit’s consistent reliance on defendant’s willfulness as a prerequisite to an accounting of defendant’s profits (except in cases of direct competition) has long acted as a rigid barrier to a more robust consideration of the equities in fashioning appropriate remedies for trademark infringement under the Lanham Act. After Romag, we can expect the First Circuit to join the Third, Fourth, Fifth, Sixth, Seventh, and Eleventh Circuits in adopting a more holistic balance of the equities approach moving forward without the stringent, inflexible reliance on willfulness or bad faith as a gateway to equitable recovery. Of course, as noted in Romag, the infringer’s intent will remain an important consideration, just not the sine qua non for an award of profits that it has been in the First Circuit.
1. 590 U.S. ____ (2020). 2. Id. 3. Id. Romag’s brief to the Supreme Court provides more context as to Fossil’s “callous disregard” of Romag’s rights. Namely, the evidence suggested that Fossil knew that: (1) counterfeiting is rampant in China in the handbag arena; (2) Fossil’s third party contract manufacturer in China, Superior Leather, had previously lied about the authenticity of zippers in Fossil-branded handbags, and (3) that Superior had a practice of “misleading Fossil about materials they were using.” In response, Fossil had placed quality control inspectors in China to monitor the genuineness of zippers, but had not bothered to guard against the counterfeiting of Romag magnetic snaps. Romag Fasteners, Inc. v. Fossil, Inc., No. 18-1233, 2019 WL 4464225 (U.S., Sept. 13, 2019). 4. 29 F.Supp.3d 85, 109 (D.Conn. 2014). 5. 817 F.3d 782, 791 (Fed. Cir. 2016). 6. 15 U.S.C. Sect. 1117(a).
7. The court noted that in the same section the Act explicitly mandates a showing of willfulness as a precondition to a profits award in a trademark dilution claim. 8. Tamko Roofing Prods., Inc. v. Ideal Roofing Co., 282 F.3d 23, 36 (1st Cir. 2002). 9. Fishman Transducers, Inc. v. Paul, 684 F.3d 187, 191 (1st Cir. 2012). 10. Id. 11. Venture Tape Corp. v. McGills Glass Warehouse, 540 F.3d 56, 63 (1st Cir. 2008); Visible Sys. Corp. v. Unisys Corp., 551 F.3d 65, 80 (1st Cir. 2008). 12. Fishman Transducers, Inc., supra note 9, at 196. 13. Id. at 191. 14. Id. (noting that a primary exception to the rule that willfulness is required for recovery of defendant’s profits are cases involving direct competition).
15. Tamko Roofing Prods, Inc., supra note 8, at 38. 16. Id. 17. Id. at 36, n. 11. 18. Fishman Transducers, Inc. v. Paul, No. 07-10071-GAO, 2011 WL 1157529 at 1 (D.Mass. March 29, 2011). 19. Id.; see also Tamko Roofing Prods, Inc., supra, at 37 (no abuse of discretion in awarding defendant’s profits in order to avoid unjust enrichment where the infringement was willful). 20. Hamilton-Brown Shoe Co. v. Wolf Bros. & Co., 240 U.S. 251, 259 (1916). 21. Aktiebolag Electrolux v. Armatron Int’l, Inc., 829 F.Supp. 458, 465 (D.Mass. 1992), aff’d, 999 F.2d. 1 (1st Cir. 1993). 22. William G. Barber, Recovery of Profits Under the Lanham Act: Are the District Courts Doing Their Job?, 82 TMR 141, 159 (1992) 23. Id. (“In its purest sense, the theory of unjust enrichment has nothing to do with the infringer’s intent”). 24. Louis Vuitton, S.A. v. Lee, 875 F.2d 584, 589 (7th Cir. 1989). 25. Restatement (Third) of Unfair Competition Sect. 37.
2020 Ⓒ Boston Patent Law Association
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The Supreme Court Upends the First Circuit’s Approach to Recovery of Defendant’s Profits Under the Lanham Act
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The Supreme Court Upends the First Circuit’s Approach to Recovery of Defendant’s Profits Under the Lanham Act
By Chris Bolinger, Senior IP Counsel, Wolverine World Wide, Inc.
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