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Supreme Court Resolves Split as to Whether Willfulness Is Required for Disgorgement of Profits in Trademark Infringement Cases

The U.S. Supreme Court unanimously held in Romag Fasteners, Inc. v. Fossil Group, Inc., Case No. 18-1233, that a plaintiff in a trademark infringement suit is not required to show willfulness to recover a defendant's profits under Section 35(a) of the Lanham Act, 15 U.S.C. §1117(a).

Section 1117(a) provides that, when trademark infringement is established under section 1125(a) or (d) or a "willful violation" of trademark dilution under section 1125(c), the plaintiff shall then be entitled, "subject to the principles of equity, to recover [] defendant's profits." The language requiring a willful violation for an award of profits for a dilution claim under §1125(c) was added in a 1999 amendment and had led some courts to conclude that Congress intended willfulness as a precondition for disgorgement of profits only for dilution claims, while others continued to require willfulness for trademark infringement claims. Specifically, the First (except in cases of direct competition), Second, Ninth, Tenth, and D.C. Circuits had held willfulness a prerequisite for disgorgement while the Third, Fourth, Fifth, Sixth, Seventh, and Eleventh Circuits treated willfulness as merely a factor to consider.

Here, Romag, a seller of magnetic snap fasteners for leather goods, had entered an agreement with Fossil to use Romag's fasteners in Fossil's handbags and other products. However, Romag sued Fossil for patent and trademark infringement when it discovered that the factories Fossil used in China were using counterfeit Romag fasteners. The jury found that Fossil had infringed Romag's trademark and acted in "callous disregard" of Romag's rights, but that the infringement was not willful. Accordingly, the district court held that Romag was not entitled to an award of Fossil's profits. The Federal Circuit, applying Second Circuit precedent, affirmed the district court's denial of profits for lack of willfulness.

The Supreme Court vacated and remanded. The Court―per Justice Gorsuch, known as a strict textualist―focused on the plain language of the Lanham Act, which "ha[d] never required a showing of willfulness to win a defendant's profits" and quipped that the Court "usually [does not] read into statutes words that aren't there." Additionally, the Court found that accepting Fossil's argument that the language "principles of equity" in §1117(a) was meant to require willfulness "would require [the Court] to assume that Congress intended to incorporate a willfulness requirement here obliquely while it prescribed mens rea conditions expressly elsewhere throughout the Lanham Act." Nevertheless, the Court did "not doubt that a trademark defendant's mental state is a highly important consideration in determining whether an award of profits is appropriate."

Given the difficulties of proving compensatory damages, disgorgement is often the only realistic monetary remedy for trademark infringement. The Court's holding provides consistency across the Circuits in protecting brand owners and threatening infringers with disgorgement. The decision also has implications to false advertising claims, as §1125(a) applies in equal measure to trademark and false advertising cases.

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