By Carl C. Butzer & Emilio B. Nicolas
In a recent decision, Romag Fasteners, Inc. v. Fossil, Inc., No. 18-1233, — S.Ct. —-, 2020 WL 1942012 (U.S. Apr. 23, 2020), the U.S. Supreme Court unanimously held that willfulness is not a categorical precondition to an award of a trademark infringer’s profits under the Lanham Act. Some fear the decision will encourage vexatious trademark litigants seeking a windfall. Upon further review, however, a recent opinion from the Fifth Circuit, Ill. Tool Works, Inc. v. Rust-Oleum Corp., No. 19-20210, — F.3d —-, 2020 WL 1808871 (5th Cir. Apr. 9, 2020), articulates why these fears may be overstated.
Romag Fasteners v. Fossil and the Circuit Split
In 2014, Romag Fasteners, Inc. sued Fossil, Inc. for trademark infringement and false representation under Section 43(a) of the Lanham Act, 15 U.S.C. § 1125(a), after discovering that the Chinese factories Fossil hired to make its products were using counterfeit Romag fasteners. Romag prevailed at trial, where the jury found Fossil had acted “in callous disregard” of Romag’s rights. But Romag was denied an award of Fossil’s profits because the jury rejected Romag’s accusation that Fossil had acted “willfully.”
In its 2016 opinion affirming the Connecticut trial court’s judgment, the Federal Circuit first recognized the split in the courts of appeals about whether a trademark owner must prove that the infringer acted willfully to recover the infringer’s profits. Precedent in the First, Second, Ninth, Tenth, and D.C. Circuit Courts of Appeal – which was endorsed by a respected legal commentator, 5 J. Thomas McCarthy, McCarthy on Trademarks and Unfair Competition § 30.62 (2015) –required such proof. That said, the Third, Fourth, Fifth, Sixth, Seventh, and Eleventh circuits did not. In fact, already in 2002 the Fifth Circuit expressly declined to adopt a bright-line rule in which a showing of willful infringement is a prerequisite to an accounting of profits. Quick Techs., Inc. v. Sage Group PLC, 313 F.3d 338, 349 (5th Cir. 2002). Rather, the Fifth Circuit has long held that “whether the defendant had the intent to confuse or deceive” is simply a “relevant factor[ ] to the court’s determination of whether an award of profits is appropriate.” Pebble Beach Co. v. Tour 18 I Ltd., 155 F.3d 526, 554 (5th Cir. 1998). The Third, Fourth, and Sixth Circuits have endorsed the Fifth Circuit’s factor-based approach. Banjo Buddies, Inc. v. Renosky, 399 F.3d 168, 175 (3d Cir. 2005); Synergistic Intern., LLC v. Korman, 470 F.3d 162, 175 (4th Cir. 2006); Laukus v. Rio Brands, Inc., 391 Fed. Appx. 416, 424 (6th Cir. 2010)(unpublished).
Ultimately, however, the Federal Circuit in Romag Fasteners, Inc. v. Fossil, Inc., 817 F.3d 782, 783 (Fed. Cir. 2016), ruled that a showing of willfulness was a precondition because the governing law of the Second Circuit required it. See George Basch Co. v. Blue Coral, Inc., 968 F.2d 1532, 1540 (2d Cir. 1992)
The Supreme Court Weighs In
In Romag Fasteners, Inc., 2020 WL 1942012, the Supreme Court reversed the Federal Circuit’s decision and resolved the long-standing circuit split, unanimously holding that willfulness is not a categorical precondition to an award of a trademark infringer’s profits under the Lanham Act.
In its briefs, Fossil argued that if a showing of willfulness is not required as a precondition to an award of an infringer’s profits then opportunities for abusive litigation and other extortionate tactics would increase, and claimed that “[c]ampaigns by powerful trademark holders to ‘intimidate the small business or individual into forgoing the use and/or registration of their trademark’ are a ‘serious concern.’” See Brief for Respondents, No. 18-1233, 2019 WL 6464592, at *49 (Nov. 27, 2019). The same concern was discussed in amici briefing. Brief for Amicus Curiae Intellectual Property Owners Association, 2019 WL 4671003, at *10 (Sept. 20, 2019) (“By bringing a trademark infringement suit threatening a defendant with having to turn over all of its profits, a less than scrupulous trademark owner could extract settlement payments well in excess of any harm actually suffered … [and] [r]equiring a showing of willfulness or bad faith by accused infringers will eliminate this unwarranted settlement leverage without harming the legitimate value of trademark rights.”); see also Brief of Amici Curiae Intellectual Property Law Professors in Support of Respondents, 2019 WL 6715407, at *19 (Dec. 4, 2019) (“Eliminating the willfulness prerequisite and allowing recovery of profits from even innocent infringers . . . would create strong and perverse incentives for plaintiffs to engage in strategic and abusive litigation practices that would have far more to do with leveraging the powerful threat of massive remedies to force costly settlements of meritless cases or to drive up recoveries than with genuine redress for infringement.”).
Writing for the Court, Justice Gorsuch first explained that the plain language of Section 1125(a) “has never required a showing of willfulness to win an infringer’s profits.” Romag Fasteners, 2020 WL 1942012, at *2 (emphasis in original). As for Fossil’s and the amici’s policy arguments, Justice Gorsuch wrote: “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…” Id., at *4.
Looking Forward, Signs of Hope for Defendants Fearful of Vexatious Litigants Seeking a Windfall
The question remains: short of Congress amending the Lanham Act, and in light of Romag Fasteners, what safeguards address the Fossils of the world who are concerned about the potentially abusive litigation tactics of unscrupulous trademark owners?
First, the Supreme Court did not say that willfulness was irrelevant to the issue of a profits award. It just said that a finding of willfulness was not a prerequisite to a profits award.
Given these traditional principles, we do not doubt that a trademark defendant’s mental state is a highly important consideration in determining whether an award of profits is appropriate. But acknowledging that much is a far cry from insisting on the inflexible precondition to recovery [Defendant] Fossil advances.
Romag Fasteners, 2020 WL 1942012, at *4. Thus, Romag Fasteners does not appear to disturb existing and forward-thinking Fifth Circuit precedent, which supports a factor-based approach for determining “whether an award of profits is appropriate in trademark infringement cases,” including “whether the defendant had the intent to confuse or deceive.” Quick Techs., 313 F.3d at 349.
Second, as the Fifth Circuit recently expressed, another safeguard is the element of causation. Ill. Tool Works, Inc., 2020 WL 1808871. In that opinion, the Fifth Circuit unequivocally held that a “[d]isgorgement of profit is appropriate only if it is equitable and the defendant’s profits are attributable to the Lanham Act violation.” The Illinois Tool Works case involved claims of false advertising brought under Section 45(a) of the Lanham Act, 15 U.S.C. 1125(a) which, like claims of trademark infringement, also are subject to awards of a defendant’s profits under the statute the Supreme Court analyzed in Romag Fasteners (i.e., Section 35(a) of the Lanham Act, 15 U.S.C. § 1117(a)). There, the Fifth Circuit found that the mere “truism” – that advertising in general is important to businesses and might generate profits – could not establish the causal link necessary for a profits award. The Court explained that the plaintiff “cite[d] nothing that links . . . [defendant’s] false advertising to its profits, that permits a reasonable inference that the false advertising generated profits, or that shows that even a single consumer purchased . . . [defendant’s product] because of the false advertising.” See Ill. Tool Works, 2020 WL 1808871, at *2. Thus, it is apparent going forward that trademark plaintiffs still will be tasked with establishing a causal nexus between the infringing act and the infringer’s profits before a court exercises its discretion in assessing the adequacy or excessiveness of a profits award.
The Fifth Circuit thus seems to have addressed, at least in part, the policy concerns of those who advocated for a willfulness requirement as a precondition for profits awards. In deciding whether an award of defendant’s profits should be considered, the Fifth Circuit obliges courts to apply a non-exhaustive factor test that includes the defendant’s intent. Profits awards also require proof of a causal nexus between the infringing conduct and the profits sought. The Fifth Circuit’s approach may effectively deter a flood of “baseless” trademark suits by vexatious litigants seeking windfall awards of defendants’ profits in trademark infringement cases. Stay tuned.
Carl C. Butzer, Chair of the Dallas Office Intellectual Property Group and the Firm’s E-Discovery Practice, is a trademark, copyright, and e-discovery lawyer who, over the past 30-plus years, has developed nationally recognized skill in trademark and copyright litigation and a logical approach to electronic discovery. Carl has represented clients’ IP interests in litigation in Texas state and federal courts, including in the Eastern District of Texas; as well as in federal courts in California, Illinois, Virginia, Michigan, New York, Tennessee, Rhode Island, Washington, and the District of Columbia.
Emilio B. Nicolas is an intellectual property and entertainment law partner with the Austin, Texas office of Jackson Walker LLP. His practice includes entertainment, media, technology, and intellectual property litigation and transactional work, with a particular emphasis on copyright, trademark, and privacy law. He is a Fellow of the Texas Bar Foundation, a member of the ABA IP Litigation Committee, and a past Trustee of the Copyright Society of the USA.
The opinions expressed are those of the authors and do not necessarily reflect the views of the firm, its clients, or any of its or their respective affiliates. This article is for informational purposes only and does not constitute legal advice.