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Where There's No Will There's a Pay – SCOTUS Rejects Willfulness Requirement for Profit Disgorgement

April 24, 2020

Where There's No Will There's a Pay – SCOTUS Rejects Willfulness Requirement for Profit Disgorgement

April 24, 2020

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This decision will encourage more plaintiffs to seek disgorgement of a defendant’s profits.

Romag Fasteners, Inc. v. Fossil, Inc. resolves a longstanding circuit split over one of the remedies available to trademark owners under the Lanham Act—disgorgement of the infringer’s profits. The question in the case was whether a finding of willfulness is a prerequisite to an award of profits under the Lanham Act. A number of circuit courts, including the Second and Ninth Circuits, required a finding of willfulness in order to award disgorgement of the defendant’s profits to a successful plaintiff. In a relatively short seven-page opinion, the Supreme Court of the United States unanimously rejected any absolute willfulness requirement, while noting that a defendant’s mental state is still an important consideration in determining the appropriate remedy.

Romag manufactures fasteners used in Fossil’s handbags pursuant to an agreement between the parties. Fossil’s accused bags were manufactured in China, at a facility known to Fossil to use counterfeit fasteners rather than authentic Romag fasteners. Fossil was accused of doing little to stop the use of counterfeit fasteners. Ultimately, a jury decided that Fossil acted with “callous disregard” for Romag’s trademark rights, although it rejected Romag’s accusation that Fossil’s conduct was “willful.” The trial judge rejected the jury’s award of $6.7 million in Fossil’s profits to Romag because the jurors did not find willful infringement. Romag appealed to the federal circuit, which affirmed the rejection of the profits award under governing Second Circuit precedent.

The Lanham Act states that a plaintiff, “subject to the principles of equity,” can recover profits for “a violation of any right of the registrant of a [federally registered] mark… , a violation under section 1125(a)… , or a willful violation under section 1125(c).” Justice Gorsuch, joined by seven other justices and Justice Sotomayor in the decision, notes that the statute “does make a showing of willfulness a precondition to a profits award… under §1125(c),” but because “Romag… proved a violation of §1125(a),… the statutory language has never required a showing of willfulness.” Gorsuch also notes that the “Lanham Act speaks often and expressly about mental states,” and quotes other provisions that limit remedies to cases of “willful,” “intentiona[l],” “innocent” or “bad faith” conduct. All of which, he states, makes “[t]he absence of any such standard in the provision before us… all the more telling.” As a result, “it seems a little unlikely Congress meant ‘principles of equity’ to direct us to a narrow rule about a profits remedy within trademark law.” Gorsuch said a defendant’s mental state is an important consideration in determining whether disgorgement of profits is appropriate, but wrote that “[A]cknowledging that much is a far cry from insisting on the inflexible precondition to recovery Fossil advances.”

Justice Alito wrote a concurring opinion, joined by Justices Breyer and Kagan. Alito said willfulness is “a highly important consideration” in awarding profits in such suits “but not an absolute precondition.” Sotomayor concurred in the judgment but did not join Gorsuch’s opinion.

What Does This Mean for Trademark Litigants?

This decision will encourage more plaintiffs to seek disgorgement of a defendant’s profits, and may embolden some parties to bring trademark suits that they would not have brought before due to the expense and lack of likely monetary benefit in some circuit courts. It may also increase the willingness of some lawyers to take trademark cases on a contingency fee basis, further lowering plaintiffs’ barrier to entry, and may even encourage a trademark “troll” or two to test the waters. It will also likely increase defendants’ litigation costs, as apportionment of profits to the accused infringement is the defendant’s burden. In the short term, the courts that previously required willfulness as a predicate to an award of disgorgement of profits will be reworking their approach to this issue, creating uncertainty as to how they will apply “the principles of equity” and the defendant’s mental state to this calculation.

For More Information

If you have any questions about this Alert, please contact Jennifer Lantz, Nicole McLaughlin, any of the attorneys in our Trademark, Copyright, Entertainment and Advertising Groupattorneys in our Fashion, Retail and Consumer Branded Products Industry Group or the attorney in the firm with whom you are regularly in contact.

Disclaimer: This Alert has been prepared and published for informational purposes only and is not offered, nor should be construed, as legal advice. For more information, please see the firm's full disclaimer.