Oh Snap: SCOTUS Rules on Willfulness Requirement in Romag v. Fossil Trademark Case
Retail Industry Alert
In Romag Fasteners, Inc. v. Fossil, Inc., the Supreme Court recently took the opportunity to resolve a circuit split regarding the requirement of willfulness for awarding a defendant’s profits in actions for false or misleading use of trademarks under 15 U.S.C. §1125(a) – section 35(a) of the Lanham Act. In a unanimous decision, the Supreme Court held that willfulness is not a requirement for an award of a defendant’s profits in such infringement actions.
Romag sells magnetic snap fasteners for use in leather goods and had agreed to license the use of its Romag-branded fasteners to Fossil for inclusion in Fossil’s handbags and other products. Romag discovered that Fossil’s manufacturers in China were using counterfeit Romag fasteners rather than genuine Romag fasteners. Romag alerted Fossil as to the counterfeit fastener issue, but according to the jury, Fossil acted “in callous disregard” of Romag’s trademark rights. However, this “callous disregard” was not tantamount to the requisite standard of willfulness required by Second Circuit precedent to recover an award of a defendant’s profits attributable to trademark infringement under section 35(a) of the Lanham Act. Romag appealed, arguing that the plain language of section 35(a) contains no such willfulness requirement, and the Supreme Court granted certiorari.
In the majority opinion by Justice Gorsuch (Justices Alito, Breyer, and Kagan joined in one concurring opinion and Justice Sotomayor in another), the Supreme Court held that based on the plain language of 15 U.S.C. §1125(a), an analysis of the principles of equity, and Congress’s use of intent in other sections of the Lanham Act, there is not a willfulness requirement to award a defendant’s profits. Starting with the plain language, the Court pointed out that section 35(a), which governs remedies for trademark violations, allows an award of defendant’s profits “under section (a) or (d) of this title, or a willful violation under section (c) of this title.” The Court pointed out that while a willful violation was required under section 43(c) (trademark dilution), there is no such express requirement for section 43(a) (false or misleading use). This contrast was emphasized because, according to the Court, Congress deliberately employed the inclusion of mental states into other sections of the Lanham Act when it desired. Because Romag was successful under a 43(a) claim, the Court held that the plain language of the statute did not require a showing of willfulness.
Fossil asserted that the language of section 35(a), which subjects the award of profits “to the principles of equity,” was equivalent to an express willfulness requirement as it imported precedent from historical, pre-Lanham Act cases. The Supreme Court examined historical cases from both parties and determined that pre-Lanham Act cases were inconsistent regarding whether a showing of willfulness was required before allowing recovery of a defendant’s profits. The Court acknowledged that the Lanham Act permits enhanced statutory damages for certain willful violations and consideration (rather than a requirement) of mental state is historically reflected in equity practice. As such, the Court rejected Fossil’s argument. Justice Gorsuch concluded the opinion in noting the Court’s limited role in interpreting statutes and encouraged the parties to take policy considerations to Congress.
The Romag decision is pro-brand, as it lifts what was a potential roadblock to the recovery of a defendant’s profits. As evidenced by the facts in Romag, this holding is a particular win for brand owners whose trademarks are included as a component of a larger, finished good. Take, for instance, an automobile comprised of many individual and often branded (whether by the car manufacturer or a third party) components. Such a successful infringement action in the automobile context would now entitle the component-piece brand owner to a portion of the automobile maker’s profits even in the presence of good faith by the automotive manufacturer. In day-to-day trademark practice, the Romag decision emphasizes the need for trademark clearance searches for potential new names for component parts by finished goods sellers on one hand and the need for robust trademark license arrangements by component parts makers on the other.