Source: The Recorder
Reprinted with permission from the October 08, 2019, online edition of The Recorder © 2019 ALM Media Properties, LLC. All rights reserved. Further duplication without permission is prohibited, contact 877-257-3382 or [email protected].
While the Supreme Court’s recent decision of a trademark case involving the First Amendment was within its usual scope (Iancu v. Brunetti, ___ U.S. ___, 139 S.Ct. 2294 (2019)), a new one to be decided in the Supreme Court’s new term is not. The question for decision involves money. Romag Fasteners v. Fossil, 139 S.Ct. 2778 (Mem) (2019).
Both common law and the federal trademark act have long provided for recovery of damages, lost profits, and other monetary relief. However, the trademark act, reflecting common law, provides for monetary recovery “subject to the principles of equity,” and most judges considered granting an injunction victory enough for a plaintiff. Thus, according to conventional wisdom, the main goal of bringing trademark litigation was to obtain an injunction against the claimed infringement. An injunction is certainly a powerful tool—and can wreak havoc on a defendant’s business—but without the prospect of monetary recovery only those trademark owners with strong enough brands (and ample enough coffers) had the ability to see litigation through to an injunction. As a result, in practice the principal role of money in trademark cases has historically been to exit the plaintiff’s pocket to pay its attorneys.
Another reason for the dearth of monetary return on litigation investment was the frequent near impossibility of proving causation, i.e., that the sale of an infringing product meant a lost sale to the plaintiff, and quantifying the amount. Proving general harm to reputation symbolized by the mark can be even harder. The complexities of the marketplace, of third-party competition, and of customer perceptions and decision-making, defeated zero-sum calculations. And though the Lanham Act for much of its existence has allowed for disgorgement of the defendant’s profits attributable to the infringement, judges in the past, usually by following the “principles of equity,” have rarely granted a disgorgement of defendant’s profits except in the most egregious of circumstances.
This is not to say that courts have never awarded money in trademark cases, just that it was uncommon. Two circumstances in particular have provided rationales by inference for monetary recovery: (1) If actual confusion were found, especially purchaser confusion, that could be taken as proof of diverted sales and damages to plaintiff, in an amount to be determined. (2) Proof of “willful” infringement could lead to a presumption that the defendant achieved what it intended—to confuse customers into buying the wrong product—supporting the basis for an accounting of defendant’s profits. On the other hand, situations in which the parties were not direct competitors—say, when the defendant’s goods or services are not directly competitive but somewhat related—did not often yield damages awards due to lack of actual competition between the parties.
As the general economic importance of intellectual property has grown, however, Congress has been steadily creating new penalties and enlarging existing ones for trademark infringement, counterfeiting, and cyberpiracy. Subject to equity, a plaintiff’s actual damages may be increased up to treble the amount proved. Plaintiff’s attorney fees may be awarded in exceptional cases, the burden for which has been recently lowered while the basis for which has also been expanded. For trademark counterfeiting, the court “shall” treble the profits or damages, and also award attorney fees. Statutory damages are alternatively available for both counterfeiting and cyberpiracy. Taken together, a potent mix of compulsory and discretionary awards is available, depending on the type of case.
All these developments, at pace with increased investment in and valuation of intellectual property, have resulted in much more attention being paid in trademark infringement litigation to monetary claims. The battery of statutory remedies is brought to bear in hopes of recovering the costs of litigation, and more. In the usual case, surveys, economic experts, and accountants appear to address the vexing problems of causation and quantification. As the costs of winning money increase, however, the net hoped-for takeaway dwindles.
During this spike in parties’ interest in monetary recovery in trademark infringement cases, coinciding with Congress’ expansion of the types of claims trademark plaintiffs could bring under the Lanham Act, a circuit split (really a chasm) arose, the seed for which was first planted in an amendment to the Lanham Act in 1999. Specifically, in 1999, technically corrected in 2002 to fix a typographical error, Congress amended §35 of the Lanham Act to allow for recovery of actual damages, defendant’s profits, and costs in the instance of a violation of §43(a) (for false designation of origin) or §43(d) (for cyberpiracy) or, if willful, a violation of §43(c) (for dilution). Despite the plain language of this amendment—requiring willfulness only with dilution claims but not infringement claims to recover the defendant’s profits—the circuits are now nearly evenly split, with several still requiring willfulness for a disgorgement of profits based on historical focus on the “principles of equity” in trademark jurisprudence, while others do not. The circuit split has caused significant forum shopping, as some circuits make it easier to recover a defendant’s profits while other circuits have maintained the high standard historically applied by courts.
The Supreme Court has denied certioriari in a number of cases on this issue—until now. On June 28, 2019, the Supreme Court granted review of a trademark case on the question of monetary remedy standards in a strong historical current in the direction of ever greater financial compensation of plaintiffs and effectual punishment and deterrence of infringers, especially willful infringers.
The case is Romag Fasteners v. Fossil. The dispute has a long history. Romag Fasteners makes, as one might surmise, fasteners. These are patented, magnetic, and used on a variety of leather goods purses, wallets, and other leather accessories. In 2002, Romag entered into a contract with Fossil under which Fossil agreed to require its Chinese manufacturers to purchase and use Romag fasteners in Fossil’s products. The relationship was strong for six years and the parties had no issues. In 2008 Fossil’s manufacturer’s purchases of Romag fasteners strangely, and inexplicably, dropped precipitously. Some time after that Romag learned Fossil’s bags were being made using a counterfeit Romag-branded fastener. Protracted, and bitterly fought, litigation for patent and trademark infringement ensued from 2010 to the present.
After multiple trips up to and down from the Federal Circuit, Romag filed a petition for writ of certiorari with the Supreme Court. The crux of Romag’s argument is that though a split of authority existed on whether willfulness was required for disgorgement of profits prior to the 1999 amendment to §35 of the Lanham Act, the 1999 amendment laid to rest that split when Congress explicitly inserted a willfulness requirement for disgorgement related to dilution but omitted willfulness language for disgorgement related to infringement or cyberpiracy. And yet, despite this statutory construction, a circuit split has remained—even grown—with several circuits still relying on the “principles of equity” language in §35 to read in a willfulness requirement for disgorgement for infringement. (Even though the Romag case involved counterfeits, the issue for decision on certiorari is not governed by the statute’s draconian monetary penalties when the court finds that intentional counterfeiting has occurred.)
Fossil’s argument in response focuses on this continued split of authority but points out it is the same difference of view that has existed for decades. Thus, as Fossil put it, although “the lower courts apply different formulations of the standard for ordering an accounting of an infringer’s profits, all agree that the presence or absence of willful infringement is, at minimum, an ‘important’ factor. In the overwhelming majority of cases decided by courts applying the latter test, willfulness is present when an accounting of profits is ordered.” Thus, according to Fossil, while some courts may differ on willfulness, all agree it plays a part in deciding whether to grant a disgorgement of profits. Fossil further argued that the Supreme Court has already rejected review of this question on multiple occasions.
The Supreme Court disagreed with Fossil and granted review. The basic structure of the governing law is clear: Congress legislated —and perhaps unclearly worded— provisions for monetary remedies, and entrusted awards to the equitable discretion of the judiciary case-by-case. A requirement of willfulness could unduly constrain a judge in shaping an overall equitable outcome of a case. Treating willfulness as a factor to be considered, and not a requirement, would liberalize monetary awards in line with ever-increasing legal protection of intellectual property. Undoubtedly, this would provide incentive for more litigation to enforce trademark rights. The Supreme Court’s decision in Romag will have far-reaching consequences and will settle an issue that has plagued trademark cases for decades.
When contemplating potential litigation against a trademark infringer, clients often ask if and how much money they can expect to win, hoping of course at least to pay for the costs of litigation. Despite the historical trends, and depending on what the Supreme Court might generally say about monetary recovery in the Romag case in this new term, the conservative advice may be, in most or many cases, the traditional advice—don’t count on it. But if the Supreme Court announces disgorgement of profits does not require proof of willful infringement, more plaintiffs may take the chance at litigating infringement claims. We should know by next summer.