Supreme Court Gives Small Business More Clout On Infringement

For years inadvertent infringement would not than result in penalties but that has been set aside by the Supreme Court, a major win for small businesses.

According to  William Honaker, a patent attorney at Dickinson Wright, before this ruling, half of the district courts in the United States required trademark owners to prove that an infringement was willful before they could collect an infringer’s profits. Without proof of willfulness, they could only collect their own damages and the costs of the action. This left many trademark owners with no recovery because it can be difficult to prove how they were damaged. Now they have a better chance at adding the infringer’s profits to the award.

Adds Honaker, on the other hand, infringers have more to be concerned about. If they infringe, they may have to turn over their profits. Profits made by an infringer are easier to prove.  The potential for having to turn over profits may be a self-policing benefit to trademark owners. Having to give up profits should make infringers to think twice. Also, it will give trademark owners new leverage in negotiating a settlement.
Interpreting the Law of Trademark Damages

In the past and recently, the law can be frustrating, confusing, and hard to interpret. The damages provision of the Federal Trademark Act is an example. Half the regional Circuit Courts of Appeal interpreted damages one way, while the other half interpreted it another way. Because of this split, on June 28, 2019, the Supreme Court agreed to interpret the damages provision of Federal Trademark Law in Romag Fasteners v. Fossil Inc. The question involved what a trademark owner must prove in order to recover an infringer’s profits. The Court had to decide whether a trademark owner was required to prove willful infringement to get profits? It all came down to one word: “or.”
Trademark Damages

Honaker provides the following provision lists the damages a trademark owner can recover:

“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… the plaintiff shall be entitled… 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.”

The question before the Supreme Court was whether willful infringement must be proven with respect to 1125(a) which involves trade mark infringement, and 1125(d) which involves domain names, or only 1125(c) which involves dilution of a famous mark.

If profits are only available for willful infringement, then a trademark owner can only recover actual damages. These are hard to prove, particularly if the infringer isn’t a competitor. Many courts require actual consumer confusion or deception to recover actual damages.

Honaker cites the Romag Case which after a split decision in The Second Circuit Court of  Appeals it decided to hear.:

As a result of the Romag case which they sell magnetic fasteners under the trademark Romag. They licensed the trademark to Fossil for bags. Under the license, Fossil was required to use Romag’s manufacturer. Romag later learned that Fossil was using another manufacturer, and sued for infringement. The jury found that Fossil infringed the trademark, but did not find willful infringement.

The Supreme Court ruled that proving willful infringement isn’t a requirement to be awarded defendant’s profits. The court held that the statute only requires willful infringement in cases involving the dilution of famous marks.

Even though willfulness isn’t required, it is still part of the consideration as to the amount of damages to award. The statute requires that damages are subject to the principles of equity. The Majority stated:

“We do not doubt that a trademark defendant’s mental state is a highly important consideration in determining whether an award of profits is appropriate. But acknowledging that much is a far cry from insisting on the inflexible precondition [that it is a requirement].”

The concurring opinions stressed the importance of willfulness to award profits:

“The relevant authorities, particularly pre-Lanham Act case law, show that willfulness is a highly important consideration in awarding profits under §1117(a), but not an absolute precondition.”

And, that profits shouldn’t be awarded against innocent infringers.

“Thus, a district court’s award of profits for innocent or good-faith trademark infringement would not be consonant with the “principles of equity” . . .

According to Honaker the majority opinion was broader than the concurring opinions. The majority considers willfulness as an important consideration, but it leaves open other considerations. The decision is left to the court and precedent.

He adds this unknown means that potential infringers have greater risks. The comfort of a plaintiff having to prove “willful infringement” is gone. There is much more risk now when attempting to leverage someone else's success by adopting the same or a similar trademark.  Giving up all your profits is big.

Again according to Honaker, this puts the trademark owner in a better position. There will be some self-policing because many will decide to stay away from established trademarks. This is good. Trademark owners will now have more leverage in settlement discussions, because the risk that a court may order the disgorgement of profits is a big deal to defendants.

The Takeaway:

This decision gives trademark owners more power. Infringement damages got potentially higher. That makes playing off the success of others riskier. Willfulness as a consideration in determining damages has not gone away. It will still be considered, but along with other factors. It is no longer the gate that you had to open to even have an award of profits considered.  Because this gate is gone, trademarks are more valuable, and preventing infringement is easier.