Romag Fasteners, Inc. v. Fossil, Inc.

Issues 

Does Section 35 of the Lanham Act require willful infringement to award a prevailing plaintiff profits of an infringer who violated Section 43(a)?

Oral argument: 

This case asks the Supreme Court to determine whether a plaintiff must show that an entity willfully infringed on a trademark in order to be awarded the infringer’s profits for violating the Lanham Act. Romag Fasteners, Inc. argues that the plain text of Section 1117(a) and the structure of the Lanham Act omits a willfulness requirement, and the phrase “subject to the principles of equity” in Section 1117(a) does not justify such a requirement. Fossil, Inc. counters that the textual analysis of Section 1117(a) should incorporate traditional principles of equity that require willfulness for profits awards because the text expressly allows for consideration of equitable principles. The outcome of this case has important implications for the rights of trademark holders and awards of damages.

Questions as Framed for the Court by the Parties 

Whether, under Section 35 of the Lanham Act, 15 U.S.C. § 1117(a), willful infringement is a prerequisite for an award of an infringer’s profits for a violation of Section 43(a), 15 U.S.C. § 1125(a).

Facts 

In 2002, Fossil, Inc., a company that designs and sells handbags, entered into a trade agreement with Romag, a company that has trademarked and patented magnetic snap fasteners used in handbags. Romag Fasteners, Inc. v. Fossil, Inc. at 2. As part of the trade agreement, Fossil agreed to exclusively use ROMAG fasteners in Fossil products. Id. To make its products, Fossil contracts with manufacturers; and, it instructed them to purchase ROMAG fasteners from a Romag manufacturer when necessary. Id. Between November 2008 and November 2010, one Fossil manufacturer purchased significantly fewer fasteners than it had in prior years. Id. In May 2010, Romag’s president and founder first suspected that this Fossil manufacturer was using counterfeit ROMAG fasteners. Id. This allegation was not fully investigated and confirmed until November 2010. Id.

After this discovery in 2010, Romag sued Fossil in the United States District Court for the District of Connecticut (the “District Court”) under Section 1117(a) of the Lanham Act. Id. Romag alleged that Fossil and multiple retailers who sold Fossil products used counterfeit ROMAG fasteners and thus violated Romag’s patent and committed trademark infringement. Id. Romag also asked for a temporary restraining order (“TRO”) and a preliminary injunction to stop the Fossil manufacturer from using the counterfeit fasteners. Id. The District Court granted the TRO, and Fossil removed the affected products from inventory and kept them from being sold to customers. Id.

In April 2014, the jury found Fossil liable for patent and trademark infringement. Id. It determined that although Fossil had acted with “callous disregard,” it did not willfully infringe on the trademark. Id. The jury then awarded Romag $51,052.14 for the patent infringement claim. Id. For the trademark infringement claim, the jury suggested awarding Fossil’s profits to Romag under two theories: first, the jury suggested $90,759.36 in damages under an unjust enrichment theory which intended to take away any gain Fossil had unfairly obtained, and second, it advised an award of $6,704,046.00 under a deterrence theory intending to prevent Fossil from engaging in similar behavior in the future. Id.

The District Court then held a bench trial regarding defenses and adjustments to the jury’s award. Id. During this trial, it was determined that Romag had delayed in bringing their suit for months—waiting to bring it just before Black Friday—thereby hoping to obtain a higher award. Id. Therefore, the District Court reduced Romag’s award by 18% under an equitable doctrine known as laches, where a party who waits too long to bring a lawsuit will be barred from recovery. Id. The District Court also determined that the jury’s finding that the trademark infringement was not willful meant Romag could not be awarded Fossil’s profits. Id.

Romag appealed the District Court’s rejection of the jury’s profit award to the United States Court of Appeals for the Federal Circuit (the “Federal Circuit”). Id. In 2016, the Federal Circuit upheld the District Court’s ruling. Id. Romag petitioned the Supreme Court for a writ of certiorari, which the Court granted. The Court then vacated the lower court’s judgment and remanded it back to the Federal Circuit for reconsideration in light of a recently decided case—SCA Hygiene Products Aktiebolag v. First Quality Baby Products. Id. On remand, the Federal Circuit upheld most of its previous decision, stating that because the relevant issue in SCA Hygiene addressed the laches defense only, it would not re-consider the prior rejection of a profit award in the absence of willful infringement. Romag then petitioned for certiorari again in March 2019 which the Court granted in June 2019. Id.

Analysis 

STATUTORY ANALYSIS OF SECTION 1117(a)

Romag argues that the plain text of Section 1117(a) does not require willfulness to receive monetary relief under Section 1125(a). Brief for Petitioners, Romag Fasteners, Inc. at 20. Romag explains that Section 1117(a)’s plain language only requires a plaintiff to establish “a violation under section 1125(a) or (d),” neither of which require a showing of willfulness to establish a violation. Id. at 21. Romag then points to the remainder of Section 1117(a) which explicitly requires willfulness by stating “or a willful violation under section 1125(c) of this title.” Id. He explains that because the second part of Section 1117(a) refers to a willful violation, the first clause of Section 1117(a), requiring a violation of Section 1125(a) or (d), does not require willfulness. Id. Romag also refers to other sections of the Lanham Act, such as Section 1118, which differentiate between a mere “a violation” and “a willful violation under section 1125(c).” Id. According to Romag, Congress acts intentionally to either include or omit certain requirements, and because Congress chose to omit the “willfulness” language from Section 1117(a), it is evidence that Congress did not intend for willfulness to be a requirement. Id. at 22.

Romag further contends that the Lanham Act’s overall structure supports the aforementioned textual interpretation of Section 1117(a). Id. at 23. Romag explains that a tacit requirement of willfulness would result in tension with other statutory provisions, including Sections 1117(c), 1117(b), and 1114. Id. at 24–27. Romag explains that the most obvious example is Section 1117(c) which explicitly distinguishes between willful and non-intentional infringements, allowing plaintiffs much higher recovery for a willful violation. Id. at 24. Therefore, Romag contends, interpreting Section 1117(a) to require willfulness would render Section 1117(c) nonsensical as Congress would have no incentive to differentiate between mental states. Id.

Fossil counters that the textual analysis of Section 1117(a) should incorporate traditional principles of equity that limit monetary relief. Brief for Respondents, Fossil Inc. at 15. Fossil explains that the phrase “principles of equity” in Section 1117(a) refers to the established rules of equity jurisprudence. Id. at 16–17. Initially, Fossil asserts, trademark infringement law limited the situations in which a plaintiff could receive monetary relief for a trademark violation by requiring the defendant to willfully infringe on the trademark. Id. at 15. Therefore, Fossil contends that the requirement of willfulness is incorporated into Section 1117(a) through its plain text which mandates that the relief be “subject to the principles of equity.” Id. Furthermore, Fossil notes that the words “subject to” indicate a limitation, and here relief is limited by the mental state. Id. at 17.

Fossil also contends that Section 1117(a) explicitly limits monetary relief in two ways: first, through “Sections 1111 and 1114,” and second, through “principles of equity.” Id. at 22. Thus, Fossil counters Romag’s assertion—that proof of an infringement is sufficient for relief—by pointing out that the two express limitations prevent monetary remedies from being “automatically” available despite proof of an infringement. Id. Fossil adds that Section 1117(a)’s requirement of a violation of Section 1125(c)—which requires a willful infringement—supports the argument that willfulness is a prerequisite to any relief. Id. at 23–24.

DOES THE PHRASE “PRINCIPLES OF EQUITY” JUSTIFY A WILLFULNESS REQUIREMENT?

Romag argues that the phrase “principles of equity” does not justify a requirement of willfulness. Brief for Petitioners at 28. Romag contends that a willfulness requirement is incompatible with basic equitable principles. Id. at 29. Considering the flexibility of equitable principles, Romag argues that Section 1117(a)’s “principles of equity” supports a court’s discretionary authority to administer monetary awards depending on each case. Id. at 30. Romag points out that this Court has recently ruled, in intellectual property cases, that equity is a flexible principle; it rejected any bright-line rules that would restrict courts’ discretion. Id. at 30–32. Romag argues that the same principle should be applied to this case by acknowledging courts’ equitable discretion to grant awards. Id. at 32.

Furthermore, Romag contends that Section 1117(a) is not ambiguous and thus the Court should not rely on equitable principles, otherwise it would make the Lanham Act unpredictable. Id. at 33. Romag explains that since “principles of equity” does not have an established common-law interpretation, this Court cannot assume that Congress intended for it to apply throughout the Act. Id. at 35. Romag continues, arguing that courts declined to make willfulness a prerequisite to a profit award. Id. at 36. Even though courts required an establishment of willfulness in cases containing “unfair competition” and “trademark infringement,” Romag contends that courts did not consistently make this a requirement. Id. at 36–37. Therefore, Romag asserts that the Court should decline to imply this requirement to Section 1117(a). Id.

Fossil counters that traditional principles of equity have established a willfulness requirement for a profits award. Brief for Respondents at 30. Fossil explains that courts have historically required a showing of willful or fraudulent intent, although such a requirement was not always explicitly stated. Id. at 33. Fossil contends that other “general principles of equity” have also influenced courts. Id. at 34. Fossil explains that courts considered the 1905 Act, a basis for the 1946 Lanham Act, to have integrated the willfulness requirement, and continuously applied the same requirement to the 1946 Lanham Act. Id. at 35. Fossil argues that governing treaties of the era also required willfulness. Id. at 37. Therefore, Fossil asserts that Congress likely legislated against this backdrop and intended to include principles of equity, such as willfulness, into Section 1117(a). Id.

Further, Fossil counters Romag’s two premises: (1) that equitable principles grant discretion to courts, and (2) that discretion indicates an absence of clear rules. Id. at 43. Fossil argues that although the text refers to a court’s discretion to grant monetary relief “subject to the principles of equity,” this does not authorize “broad discretion to tailor an award of monetary relief.” Id. at 43–45. Fossil acknowledges that Section 1117(a)’s reference to equitable principles may involve remedial discretion, but this is balanced against equitable principles which are clear standards. Id. at 44. For instance, Fossil points to the requirement of willfulness, which under equity, would limit a court’s discretion to grant monetary relief. Id.

Discussion 

FLEXIBILITY FOR COURTS VS. AVENUES FOR ABUSIVE LITIGATION

The American Bar Association (“ABA”), in support of Romag, argues that creating a prerequisite of willfulness would artificially constrain courts from exercising their full authority and disallow them from considering other relevant factors when granting awards to plaintiffs. Brief of Amicus Curiae American Bar Association (“ABA”), in support of Petitioner at 18. According to the ABA, awarding profits to plaintiffs can serve at least three purposes, and only the third requires willful infringement: (1) an award of profits can be a measure of the plaintiff’s damages, (2) it can prevent unjust enrichment of infringers, and (3) it can deter willful infringement. Id. at 17. The ABA does not deny that willfulness could be an important factor, only that it should not be a “bright-line” rule. Id. at 16, 18. Finally, the ABA argues that this flexibility and discretion allows courts to ensure that no “draconian impacts” are placed on defendants, and that the flexibility allows for fairness to be maintained. Id. at 19. The ABA explains that courts are allowed to adjust awards they find excessive and consider numerous factors when they enter a final judgment for damages—the same discretion available to them in determining awards to be excessive should be available to them in determining whether a profits award is appropriate. Id. at 19, 20.

A group of intellectual property law professors (“law professors”), in support of Fossil, argue that far from giving courts flexibility, not requiring a showing of willfulness would afford plaintiffs a variety of abusive litigation tactics. Brief of Amici Curiae Intellectual Property Law Professors (“Law Professors”), in support of Respondent at 19. Because profits awards can be substantial and even exceed their actual damages, the law professors argue, plaintiffs may leverage such risks against defendants and coerce them into costly settlements. Id. at 21. According to the law professors, plaintiffs may intentionally wait until just before periods of high-sales volume to maximize the potential damage on defendants and improve the plaintiffs’ own bargaining power. Id. Thus, the law professors contend that the Court should interpret a willfulness requirement in Section 1117(a). Id.

FAIR COMPENSATION OR OVERCOMPENSATION?

The ABA, in support of Romag, argues that limiting profits awards to instances of willful infringement may prevent trademark owners from receiving fair compensation. Brief of ABA at 18. According to the American Intellectual Property Law Association (“AIPLA”), in support of neither party, where actual damages are too speculative to support an award, an award of the infringer’s profits may be the only substantive monetary relief that is available to the trademark owner. Brief of Amicus Curiae American Intellectual Property Law Association (“AIPLA”), in Support of Neither Party at 9. AIPLA claims that a rigid willfulness requirement may prevent trademark owners from receiving any recourse for their losses, and therefore the Court should not imply such a requirement into Section 1117(a). Id. at 10.

Conversely, the law professors, in support of Fossil, argue that limiting profits awards to willful infringement still leaves injunctions and compensatory damages available for plaintiffs who fail to show the infringers’ willfulness. Brief of Law Professors at 21. Not only that, the law professors continue, a willfulness requirement for profits awards would actually deter infringing activity while avoiding chilling legitimate competition. Id. at 20−21. Furthermore, according to the law professors, without any willfulness requirement, plaintiffs may recover far in excess of their actual damages where, as here, Romag’s magnetic snap fasteners are only one part of Fossil’s larger products from which the profit calculations are derived. Id. at 20. A requirement of willfulness for profit awards will balance deterring bad conduct with allowing necessary trademark competition. Id. at 19−20.

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