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April 28, 2016 Practice Points

Trademark Infringement Must Be Willful to Warrant Award of Infringer's Profits

As the Supreme Court has never addressed this issue, the conflict continues.

By Lesley McCall Grossberg

The Federal Circuit, applying Second Circuit trademark law, has weighed in on the issue of whether an infringer's profits are recoverable absent a finding of willful infringement. In Romag Fasteners, Inc. v. Fossil, Inc. (Fed. Cir. Mar. 31, 2016), a jury had found Fossil liable for patent and trademark infringement of Romag's magnetic snap fasteners and ROMAG mark. For the trademark infringement, the jury made advisory awards of $90,759 for Fossil's profits under an unjust enrichment theory, and $6.7 million under a deterrence theory. However, the jury also determined that neither the patent nor trademark infringement was willful.

The district court held that because the jury had deemed the trademark infringement not willful, Romag was not entitled to an award of Fossil's profits. On appeal, Romag argued that the Lanham Act should be read to permit recovery of an infringer's profits regardless of whether the infringement was willful or not

Prior to 1999 amendments to the Lanham Act, the Second Circuit had adopted the view that "under Section 35(a) of the Lanham Act, a plaintiff must prove that an infringer acted with willful deception before the infringer's profits are recoverable by way of an accounting." George Basch Co. v. Blue Coral, Inc., 968 F.2d 1532, 1540 (2d Cir. 1992). The D.C. Circuit, Third Circuit, and Tenth Circuit had also adopted this rule, which is concerned with avoiding overcompensation for a plaintiff's actual injury, guided by the statute's statement that a prevailing party may obtain monetary damages, including defendant's profits, "subject to the principles of equity." In contrast, the Fifth, Sixth, Seventh, and Eleventh Circuits had held that willfulness was not required to recover an infringer's profits.

Romag argued that George Basch was no longer applicable, in light of 1999 amendments to the Lanham Act. That amendment modified the Federal Trademark Dilution Act of 1995 to clarify that the remedy set forth in Section 1117(a) is available for claims of trademark dilution in addition to infringement and false advertising:

When a violation of any right of the registrant of a mark registered in the Patent and Trademark Office, a violation under section 1125(a) or (d) of this title, or a willful violation under section 1125(c) of this title, shall have been established in any civil action arising under this chapter, the plaintiff shall be entitled, subject to the provisions of section 1111 and 1114 of this title, and subject to the principles of equity, to recover (1) defendant's profits, (2) any damages sustained by the plaintiff, and (3) the costs of the action.

15 U.S.C. § 1117(a) (2014) (new language added by Trademark Amendments Act of 1999, Pub. L. No. 106-43, 113 Stat. 218, 219 (1999) underlined).

Romag argued that by adding the word "willful" in front of the reference to dilution but not the reference to trademark infringement, Congress intended to overrule the judicial interpretation requiring willfulness. The Federal Circuit noted that the Third, Fourth, Fifth, and Sixth Circuits have found that the 1999 amendment to Section 35(a), by virtue of requiring willfulness in order to recover monetary damages for a dilution claim, no longer require such a showing in an infringement case. Laukus v. Rio Brands, Inc., 381 Fed. App'x 416 (6th Cir. 2010); Synergistic Int'l, LLC v. Korman, 470 D.3d 162 (4th Cir. 2006); Banjo Buddies, Inc. v. Renosky, 399 F.3d 168 (3d Cir. 2005); Quick Techs. v. Sage Grp. PLC, 313 F.3d 338 (5th Cir. 2002). However, other courts including the First, Ninth, and Tenth Circuits have maintained the requirement notwithstanding the change in statutory language. Fifty-Six Hope Rd. Music, Ltd. v. A.V.E.L.A. Inc., 778 F.3d 1059 (9th Cir. 2015); Fisherman Transducers, Inc. v. Paul, 684 F.3d 187 (1st Cir. 2012); W. Diversified Servs. Inc. v. Hyundai Motor Am., Inc., 427 F.3d 1269 (10th Cir. 2005).

The Federal Circuit, bound to apply the circuit law of the originating court for non-patent matters, observed that the Second Circuit had re-stated its rule from George Basch that "a finding of defendant's willful deceptiveness is a prerequisite for awarding profits" in a case post-dating the 1999 amendments (although the case did not directly discuss the change in statutory language). Merck Eprova AG v. Gnosos S.p.A., 760 F.3d 247 (2d Cir. 2014).

In accepting the Second Circuit's more recent statement of the law, the Romag Fastener court emphasized the technical nature of the 1999 amendment and that the legislative history did not indicate any Congressional intent to alter the standard for available damages for trademark infringement. Instead, the court found, the new "willful" language in the 1999 amendment was necessary to clarify that willfulness is required for any non-injunctive relief in dilution cases, whereas a plaintiff's damages have always been deemed recoverable under Section 35(a) for trademark infringement.

While acknowledging the circuit split on the issue, the Federal Circuit concluded that "the 1999 amendment to the Lanham Act left the law where it existed before 1999—namely, it left a conflict among the courts of appeals as to whether willfulness was required for recovery of profits." As the Supreme Court has never addressed this issue, the conflict continues.

Lesley McCall Grossberg is with BakerHostetler in Philadelphia, Pennsylvania.

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Lesley McCall Grossberg – April 28, 2016