International Amicus Committee Update: INTA Argues That Courts Should Consider All Equitable Factors When Determining Awards of Profit

Published: October 15, 2019

Lawrence Nodine Ballard Spahr LLP Atlanta, Georgia, USA

On September 20, 2019, INTA filed an amicus brief in the United States Supreme Court in Romag Fasteners, Inc. v. Fossil Inc., 18-1233 (U.S.). (Five members of INTA’s U.S. Amicus Subcommittee contributed to INTA’s brief: Theodore Max (Sheppard Mullin Richter & Hampton LLP, USA), David Donahue (Fross Zelnick Lehrman & Zissu, P.C., USA), Eleanor Lackman (Mitchell Silberberg & Knupp LLP, USA), David Bernstein (Debevoise & Plimpton LLP, USA), and Lawrence Nodine (Ballard Spahr LLP, USA)). The Court granted a party’s request to consider whether, under Section 35 of the Lanham Act, 15 U.S.C. § 1117(a), willful infringement is a prerequisite for an award of an infringer’s profits. INTA’s brief, filed in support of neither party, argued that, although willfulness is an important factor, it is not the sole relevant factor or a precondition to an award of profits. Courts should consider all equitable factors when deciding whether to award the defendant’s profits.

Legal Background

Lanham Trademark Act Section 35(a), 15 U.S.C. § 1117(a), provides that a prevailing plaintiff “shall be entitled . . . subject to the principles of equity, to recover (1) defendant’s profits . . .” (emphasis added). The section further specifies that, if a recovery based on profits “is either inadequate or excessive,” the court “may in its discretion enter judgment for such sum as the court shall find to be just, according to the circumstances of the case.” 15 U.S.C. § 1117(a).

The Supreme Court granted a petition for certiorari (review) to resolve a split among the U.S. Courts of Appeals for various regional circuits. The Second, Eighth, Ninth, Tenth, and District of Columbia Circuits require evidence of willful infringement before awarding profits, but the Third, Fourth, Fifth, Sixth, Seventh, and Eleventh Circuits do not. In the latter circuits, the infringer’s intent is merely one, albeit important, factor to be considered.

That split was exacerbated in 1999, when the United States Congress amended Section 35(a) to authorize monetary remedies, including profits, for “a willful violation of section 1125(c),” which prohibits dilution. After the 1999 amendments, some courts reasoned that when Congress explicitly required willfulness as a precondition to an award of profits for dilution, it implicitly eliminated any willfulness requirement for other infringement claims, as to which there is no mention of willfulness in the statute.

Factual Background and Procedural History

Petitioner Romag Fasteners, Inc., sells magnetic snap fasteners for use in wallets, handbags, and other leather goods. Respondent Fossil’s manufacturers purchased tens of thousands of authentic Romag fasteners for use in Fossil’s fashion accessories, including handbags and wallets. However, Romag discovered that some Fossil handbags sold in the United States contained counterfeit snaps bearing the Romag mark. Romag sued Fossil in 2010 in the U.S. District Court for Connecticut for patent and trademark infringement, alleging that Fossil knowingly adopted and used the counterfeit snaps.

A jury found that Fossil had infringed Romag’s trademark and patents, but that none of the violations was willful. The jury made an advisory (non-binding) finding that Fossil had acted with “callous disregard” of Romag’s trademark rights and recommended an award of Fossil’s profits of $6.7 million “to deter future trademark infringement.” However, the district court disregarded the jury’s advisory profits award, holding as a matter of law that “a finding of willfulness remains a requirement for an award of defendants’ profits in” for courts under the jurisdiction of the Second Circuit, which includes Connecticut.

On appeal, the Court of Appeals for the Federal Circuit (a specialized court to which the appeal was taken because the case included patent matters) affirmed, holding that, within the Second Circuit, a showing of willfulness was required for an award of profits. (Because the appeal was from the District of Connecticut, the Federal Circuit applied Second Circuit law.) The Supreme Court vacated the Federal Circuit’s judgment on other grounds. On remand, the Federal Circuit reaffirmed its prior ruling regarding willfulness, whereupon the Supreme Court again granted certiorari to resolve the circuit split on the willfulness issue.

INTA’s Amicus Brief

INTA’s amicus brief argued that willfulness should not be a precondition to an award of profits. The text of Section 35(a) directs the court to award profits “subject to principles of equity . . .” without singling out any one factor. Rather, all equitable principles must be considered, and courts may not rigidly require evidence of willfulness to the exclusion of other equitable factors.

INTA argued that it would be anomalous to require willfulness as a precondition to the entire genus of trademark infringement claims given Congress’s explicit requirement of intentional deception as to certain species. For example, the Lanham Act expressly requires intentional deception with respect to specific categories of liability, such as printers and publishers that prepare or distribute for others materials that infringe. Why require “intentional deception” if willfulness is always required?

The legislative history does not support requiring evidence of willful infringement. Congress made the right to recover an infringer’s profits “subject to principles of equity,” to make it “clear that the normal principles of equity in respect of allowance of and defenses to an accounting of profits and the recovery of damages are not affected by this bill.” Trade-marks: Hearings on H.R. 102, H.R. 5461, and S. 895 Before the Subcomm. on Trade-marks of the House Comm. on Patents, 77th Cong., 1st Sess. 228 (1941) (Letter from Milton Handler). In decisions of the Supreme Court and other courts prior to the passage of the Lanham Act, those “normal principles of equity” were not limited to willfulness, but were instead broad and flexible, and included absence of fraudulent intent, degree of competition between the products, laches, acquiescence, and unclean hands. On occasion, the courts awarded profits when there was no evidence of fraud or deceit.

While INTA’s amicus brief argues that willfulness is not a prerequisite to profit awards, it nonetheless rejects the contention that Congress’s 1999 amendment of Section 35(a) revealed Congressional intent not to require willfulness for claims other than dilution. In context, it is clear that Congress only intended this amendment to correct a drafting error and that there was no intention to resolve conflicting circuit court decisions.

Consideration of a broad and flexible set of equitable principles is the best way to balance competing policy objectives. A wooden insistence on evidence of willfulness may deprive plaintiffs of a remedy and fail to deter infringement. Instead, Section 35(a) gives the courts wide latitude to consider all equitable factors, and, depending on the circumstances of the particular case, courts have discretion to assign extra weight to the presence or absence of willfulness.

Although every effort has been made to verify the accuracy of items in the INTA Bulletin, readers are urged to check independently on matters of specific concern or interest.

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