10 January 2020TrademarksRory O'Neill

SCOTUS preview: justices consider profits awards for TM infringement

The US Supreme Court is set to hear arguments next week in a key dispute that is likely to have ramifications for what remedies courts can apply for trademark infringement.

On Tuesday, January 14 oral arguments will be held in Romag Fasteners v Fossil. The Supreme Court granted  certiorari in the case following a petition from Romag, a Connecticut-based manufacturer of magnetic snaps for handbags.

Appealing a decision of the US Court of Appeals for the Federal Circuit, Romag is arguing that a finding of wilful trademark infringement is not required for an award of the defendants’ profits.

Danielle Johnson, associate at Goldberg Kohn, said that she would “hate to see a decision in Romag’s favour have a ripple effect that would allow trademark owners to bully innocent infringers into settlements for fear of expensive litigation and unpredictable profit awards”.

However, Dyan Finguerra-DuCharme, partner at Pryor Cashman, said a judgment in favour of Romag may be a “welcome change” for those practising in the Second Circuit, who are “accustomed to having to show wilfulness”.

The Federal Circuit ruling arose after Romag sued US fashion brand Fossil for patent and trademark infringement, alleging that it used ‘counterfeit’ Romag snaps on its handbags.

The US District Court for the District of Connecticut found Fossil liable for patent and trademark infringement but declined to issue a profits award as Romag had not shown that Fossil’s infringement was wilful.

This was central to Romag’s appeal to the Federal Circuit, which sided with Fossil on the question of profits and affirmed the District Court ruling.

Fossil contends that any infringement on its part was “accidental”, and attributed the counterfeit snaps to a supplier based in China which acquired them without its knowledge.

Principle of equity

At the heart of the case is how courts should interpret a key section in the Lanham Act, which is central to US trademark law.

The Lanham Act states that while profits may be awarded as a remedy for trademark infringement, this remedy is “subject to the principle of equity”.

Fossil argues that this means courts must find that a party wilfully infringed another’s trademark rights before awarding profits.

Fossil said this position is consistent with long-standing legal precedent.

Romag has taken the opposite view. According to Romag, the principle of equity provision was intended to give courts flexibility, rather than a hard rule to follow.

“Romag’s proposed construction gives courts the flexibility to consider in any given case the infringer’s conduct, including in failing to monitor its supply chain,” the company’s brief states.

Circuit split

Not all US courts have adopted the same position on the question of profits awards for trademark infringement.

The Federal Circuit applied the law of the US Court of Appeals for the Second Circuit, which covers Connecticut where the case originated.

In its petition to the Supreme Court for certiorari, Romag cited a ‘circuit split’ as a key reason why the nation’s highest court should intervene and provide clarity on the question of profits awards.

The Second Circuit, which covers New York, Vermont, and Connecticut, requires a finding of wilful trademark infringement for a profits award. It shares this position with five of the other circuits, while the other six do not require a finding of wilful infringement.

As well as federal courts, the case has also divided IP and trademark organisations.

The International Trademark Association (INTA), which includes more than 7,000 trademark owners and law firms worldwide, urged the Supreme Court in amicus brief to rule that wilful infringement is not required for a profits award.

According to INTA, the equity principle was not intended to “narrowly focus on willfulness”, leaving “no statutory basis” for such a requirement.

INTA stressed that its amicus brief concerned only the question of when courts can award profits for infringement, and did not take a position on the facts of the case between Romag and Fossil.

Conversely, a group of 15 US-based IP law professors filed their own brief siding with Fossil.

The academics argued that the wilfulness requirement could be traced back to their origins in English law, and “persisted as trademark jurisprudence evolved throughout the late 19th and early 20th Centuries”.

Removing this requirement would “unjustly enrich plaintiffs and disproportionately punish defendants with awards that far exceed any measure of the actual damages needed for appropriate compensation,” they argued.

Lucky Brand Dungarees v Marcel Fashion Group

The Supreme Court will also hear arguments in another trademark case next week, with oral arguments coming in Lucky Brand Dungarees v Marcel Fashion Group on Monday, January 13.

The dispute is just the latest chapter in a near two-decade-long dispute between the fashion brands. At issue before the Supreme Court is whether Lucky should have been barred from raising defence claims that were not litigated on in previous disputes between the parties.

Johnson said that the facts of the case “do not make Lucky Brand a particularly sympathetic defendant”. Marcel argues that Lucky Brand could have raised its claims in earlier litigation which ultimately led to a 2005 judgment in Marcel’s favour.

“If Lucky Brand were to win, Marcel Fashion cautions this would destroy the finality of the 2005 judgment in its favour, which would encourage defendants to flout judicial determinations in hopes of obtaining a more favourable result in a subsequent lawsuit,” Johnson said.

“On the other hand, Lucky Brand cautions that if Marcel wins, counsel for defendants will have to raise and litigate to judgment every possible defence for fear that their client will be precluded from raising the defence in a later case.”

“This decision will have consequences that affect defendants in less extreme situations, and even in scenarios outside of trademark infringement, so it will be interesting to see if the Supreme Court agrees,” Johnson said.

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More on this story

14 January 2020   Marcel Fashion Group could face an “uphill battle” at the US Supreme Court in its long-running dispute with Lucky Brand Dungarees, lawyers have told WIPR.
15 January 2020   US Supreme Court justices presiding over a closely-watched case are so far struggling with the notion of “wilfulness” as a requirement for awarding profits in trademark infringement cases.
24 April 2020   Yesterday’s US Supreme Court ruling in Romag v Fossil is the latest effort to erase categorical rules on remedies for IP infringement, lawyers have told WIPR.