Image: Fossil

A federal court of appeals handed down the wrong decision in a case centering on trademark infringement damages, the Supreme Court held on Thursday. In issuing its decision in the closely watched Romag Fasteners Inc. v. Fossil Inc. case, the nation’s highest court sided with Romag, holding that the manufacturer of magnetic snaps, clasps, fasteners, and other closures does not need to show that Fossil willfully infringed its trademark in order to recover the brand’s profits as part of a damages award. 

“A plaintiff in a trademark infringement suit is not required to show that a defendant willfully infringed the plaintiff’s trademark as a precondition to a profits award,” Justice Neil Gorsuch wrote, on behalf of the unanimous panel of nine justices, in his decision in the case, which has been slated as standing to resolve a  multi-circuit split among federal appeals courts across the U.S. when it comes to whether a showing of willful infringement is required for a plaintiff to make a play for an infringer’s profits.

The case, which went before the Supreme Court in January, with counsels for the Romag and Fossil arguing their sides, got its start in 2010 when Romag sued Fossil – and Macy’s – alleging that the American apparel company was using counterfeit fasteners on its purses, handbags, and wallets. Orange, Connecticut-based Romag alleged that while Fossil was, in fact, a client of its patent-protected magnetic closures, it had switched from an approved supplier to an unapproved one, and certain Fossil handbags sold in the U.S., thereafter, were found to contain counterfeit Romag snaps.

Given the existence of a longstanding arrangement between the two parties in connection with which Fossil agreed to use Romag closures for its products, when Fossil switched suppliers to one that was offering up the fake closures, Romag alleged that its client “knowingly adopted and used the Romag mark without [its] consent.” By using fake Romag closures for its accessories, Fossil not only ran afoul of its patents for the little metal components, but since the copycat parts bore the “ROMAG” trademark, the apparel co. was violating the tenets of trademark law, as well.

In 2014, following a trial in the U.S. District Court for the District of Connecticut, a jury found that Fossil had infringed Romag’s trademark and patents, and awarded Romag damages to the tune of $156,000 in profits “to prevent unjust enrichment” and a whopping $6.7 million – the amount of profits that Fossil made in connection with the sale of products bearing the infringing closures – “to deter future trademark infringement.”

While the jury had found that Fossil had acted with “callous disregard” for Romag’s trademark rights, it failed to find that Fossil’s violations were willful. As such, the district court refused to award Romag that full damages award, stating that “a finding of willfulness remains a requirement for an award of defendants’ profits in this Circuit.”

Unsatisfied with the lower court’s decision, Romag appealed to the U.S. District Court for the Federal Circuit, which agreed with the district court in its assertion that the U.S. Court of Appeals for the Second Circuit – the court with appellate jurisdiction for the District of Connecticut – requires a showing of willfulness in order for an award of profits.

With yet another loss in hand, Romag sought Supreme Court review of the case, and asked the highest court in the U.S. to consider whether the Lanham Act – the federal statute governing trademark law – requires a showing of willful infringement for a plaintiff to be awarded an infringer’s profits. Romag argues that the $6.7 million jury award should stand, as the jury’s finding of “gross negligence” is sufficient to constitute infringement — even without establishing willfulness.

In its decision on Thursday, the court held that “when it comes to remedies for trademark infringement, the Lanham Act authorizes many,” stating that “a district court may award a winning plaintiff injunctive relief, damages, or the defendant’s ill-gotten profits.” The court continued on, asserting that “without question, a defendant’s state of mind may have a bearing on what relief a plaintiff should receive,” with “an innocent trademark violator often stand[ing] in very different shoes than an intentional one.” Having said that, the court notes that “some circuits … hold a plaintiff can win a profits remedy, in particular, only after showing the defendant willfully infringed its trademark.” The court ultimately asserts that while it does “not doubt that a trademark defendant’s mental state is a highly important consideration in determining whether an award of profits is appropriate,” such an “inflexible precondition to recovery” cannot be “reconciled with the statute’s plain language.”

In short: while “the Lanham Act provision governing remedies for trademark violations, §1117(a), makes a showing of willfulness a precondition to a profits award in a suit … for trademark dilution,” the Lanham Act “has never required such a showing” for an infringement cause of action.

Reflecting on the significance of the case, Jonah Knobler, a partner at Patterson Belknap Webb & Tyler LLP, says that “the number of cases in which Romag will change the ultimate result seems fairly small.” Under the Supreme Court’s standard, “District courts now have the discretion to consider an award of profits [without a showing of willfulness]. However, the lack of willfulness would still be a ‘highly important’ consideration in determining whether to authorize such an award.”

More generally, Knobler says the decision “continues a significant trend of the last 15 years or so, [in which] the Supreme Court has repeatedly granted cert to erase longstanding lower-court precedent in the intellectual property context that imposes categorical rules regarding remedies. ”

“This trend began with 2006’s eBay v. MercExchange, LLC, where the Court overturned the rule that a successful patent plaintiff is presumptively entitled to an injunction. It continued with 2014’s Octane Fitness, LLC v. ICON Health & Fitness, Inc., in which the court undid the rule requiring a showing of bad faith for an award of attorney’s fees in patent cases, and again gathered steam in 2016, when Halo Electronics, Inc. v. Pulse Electronics, Inc. struck down the Federal Circuit’s rigid test for awarding enhanced damages under the Patent Act, and when Kirtsaeng v. John Wiley & Sons rejected a rigid rule about when a copyright plaintiff is entitled to attorney’s fees.”

Viewed in that broader context, Knobler argues that “the Romag holding is no surprise: the current Supreme Court consistently opposes rigid or categorical rules regarding the availability of relief in IP cases, even where lower courts have long hewed to such rules. This decision continues that trend.”

*The case is ROMAG FASTENERS, INC., v. FOSSIL, INC., ET AL., 18–1233 (U.S.).