Trademark infringement plaintiffs have long argued that because actual damages in trademark infringement cases are often difficult to measure, receiving a cut of an infringer’s profits is in many cases the only meaningful financial relief a trademark owner can obtain. Section 35 of the Lanham Act sets forth the remedies available to a successful plaintiff in a trademark infringement suit and provides that “subject to the principles of equity,” a plaintiff is entitled to recover a defendant's profits, any damages sustained by the plaintiff, and the costs of the action¹ . The Act goes on to state that profits are awarded according to the principles of equity and the Court is granted “some degree of discretion in shaping the relief,” in light of the circumstances of the individual case.

The “subject to the principles of equity” language has long divided courts when it comes to the topic of recovering a defendant’s profits in trademark infringement cases. Indeed, one of the longstanding questions in trademark jurisprudence involves the question of whether and when a trademark infringer can be ordered to hand over their profits to the owner of the trademark. This question has split Circuit courts of appeal. The Second, First, Eighth, Ninth, Tenth and D.C. Circuits require a showing of willful infringement before an infringer can be ordered to hand over their profits. By contrast,the Third, Fourth, Fifth, Sixth, Seventh and Eleventh Circuits do not require such a showing, and utilize the willfulness of the infringement as one of many factors considered in fashioning an equitable remedy. Now, the Supreme Court has decided to weigh in on the issue, granting certiorari in Romag Fasteners Inc. v. Fossil Inc. et al.

Accessory company Fossil Inc. and Romag Fasteners have been fighting over infringement of Romag’s “ROMAG” mark since 2010, when Romag filed their complaint for both trademark and patent infringement. Romag also filed a motion for a temporary restraining order and a preliminary injunction, seeking to enjoin Fossil’s sale of handbags that bore Romag's trademark (and used a knock off version of Romag’s patented magnetic snap fasteners). The district court granted the motion for a temporary restraining order (which was later converted into a preliminary injunction). After trial, the jury returned a verdict for Romag, finding that Fossil had engaged in patent and trademark infringement as well as unfair trade practices. Romag sought attorney’s fees under the Patent Act, the Lanham Act, and the Connecticut Unfair Trade Practices Act (CUTPA). The district court granted fees under the Patent Act and the CUTPA, but not under the Lanham Act and both parties appealed to the Federal Circuit. Because the case was originally filed in the District of Connecticut, the Federal Circuit applied Second Circuit law, which precluded Romag from receiving any of Fossil’s profits for trademark infringement.

In March, Romag appealed to the Supreme Court, which granted certiorari on June 28, 2019 without providing any underlying reasoning for hearing the case.

In their petition for a writ of certiorari, Romag argued that profits awards serve a vital deterrent purpose in protecting the public against counterfeit and falsely marked goods. Therefore, an inflexible willfulness requirement sets the bar too high and may deprive mark holders of an important remedy while failing to adequately deter infringement.

In reply, Fossil argued that there was no meaningful conflict because although the lower courts apply different formulations of the standard for ordering an accounting of an infringer’s profits, any difference in approach only results in minimal inter-circuit variation in outcomes. According to Fossil, trademark plaintiffs routinely litigate in circuits that require willfulness, and if the standard was truly determinative, plaintiffs would only seek out circuits with the perceived lowest hurdle to recovery. Fossil also argued that the case was a poor vehicle for adjudication by the Court as the district court found that at best, Fossil was negligent, but did not act with reckless disregard, willful blindness or actual knowledge (and thus, the outcome would not change).

This decision has major implications for countless industries where companies rely on their brand and image to establish their position in the marketplace. In addition, the impact of this decision may reach beyond the sphere of trademark jurisprudence, as it is unclear whether the Supreme Court’s ultimate decision in Romag will apply to false advertising cases as well as trademark cases, as section 1117 of the Lanham Act covers both. The availability of a disgorgement remedy can be vital in many false advertising cases as well since it is often difficult for the plaintiff to prove if and to what extent its own profits were diminished by the defendant’s false advertising as modern marketplaces often involve large numbers of factors with complex interrelationships. A decision can likely be expected sometime in the next term when the Court reconvenes later this fall.

¹ 35 U.S.C. § 1117.