Calculating damages in trademark infringement cases
The United States Supreme Court has agreed to hear a case regarding whether or not willful infringement is a prerequisite for an award of an infringer’s profits in trademark actions, under section 35 of the Lanham Act, 15 U.S.C. § 1117(a). Romag Fasteners Inc. v. Fossil Inc., et al., No. 18-1233. The Court’s ruling will finally put an end to the quarrel between circuit courts while providing a universal rule for profit awards in cases involving trademark disputes.
Overview of 15 U.S.C. 1117 [Section 35 of Lanham Act]: Recovery For Violation of Rights
In 1999, Congress amended the Lanham Act. The amendment provided a plaintiff who establishes a violation of a mark registered in the Patent and Trademark Office entitlement, subject to the principles of equity, to recover the defendant’s profits.
Essentially the Lanham Act affords a prevailing plaintiff the opportunity to recover several types of monetary relief. These include awards of the plaintiff’s own actual damages, statutory damages, the possibility of attorneys’ fees, and the taxable costs ordinarily awardable to all prevailing parties under federal lawsuits. They also include the equitable remedy of an accounting of the defendant’s profits. Although the rules governing the recovery of the other categories of relief are fairly well settled, the same is not true of accountings.
The issue of whether a prevailing plaintiff must demonstrate that a defendant’s conduct is willful before ordering an accounting has split the regional circuits in several respects. Under Burger King Corp. v. Mason, 855 F.2d 779 (11th Cir. 1988), the Eleventh Circuit currently does not require a finding of willfulness to allow for an accounting of the accused infringer’s profits.
Overview of Eleventh Circuit Standard
Burger King Corporation (BKC) maintained a business relationship with Mason for many years, which resulted in Mason acquiring the exclusive right to establish Burger King restaurants in Pittsburg and Kansas City. Over the years Mason purchased at least twenty-seven Burger King franchises under separate agreements. BKC provided financing to Mason for which Mason executed promissory notes. The long-standing Mason-BKC business association began to deteriorate in 1977 when BKC notified Mason of the cancellation of the two exclusive development agreements. In 1978, BKC filed this suit seeking a declaration that it had properly terminated the development contracts.
Afterwards, in 1979, BKC informed Mason that it was unilaterally terminating all twenty-seven of its Burger King franchises for failure to comply with the terms of the franchise agreements. Eventually, through amendments to the complaint and counterclaim, the suit filed in 1978 expanded to controversies concerning both the development and franchise agreements.
The district court held a bench trial on BKC’s claims for common law trademark infringement, unfair competition and breach of the franchise agreements based upon Mason’s post-termination use of the Burger King trademarks. The court awarded to BKC the profits earned from the franchises previously found to have been lawfully terminated for the breach of the franchise agreements.
The Eleventh Circuit ultimately concluded that the district court erred in directing a verdict against BKC on its Lanham Act complaint, explaining that BKC proved Mason employed the Burger King trademarks after its franchise agreements were properly cancelled.” This finding did not require a finding of willfulness, to allow for an accounting of Mason’s profits.
In a more recent case, the Eleventh Circuit emphasized the ruling in Burger King Corp. v. Mason, while concluding that an accounting of defendant’s profits was appropriate in circumstances that didn’t involve willful infringement.
Summary of Romag Fasteners vs Fossil
Romag Fasteners Inc., a family business from Connecticut, sells patented magnetic snap fasteners that allow two pieces of material to connect. In 2002, the manufacturer Fossil and Romag entered into an agreement to use Romag’s fasteners in Fossil’s products, such as wallets, handbags, and other leather goods. Pursuant to the agreement, Fossil ordered the manufacturers of their product to purchase and use the fasteners from Romag’s sole authorized manufacturer in China, Wing Yip.
From 2002 to 2008, an authorized manufacturer of Fossil products purchased more than twenty thousand fasteners from Wing Yip. However, from August 2008 to November 2010, the authorized manufacturer purchased less than a few thousand fasteners. After this decline in purchases, Romag was made aware that certain Fossil handbags contained counterfeit fasteners
In November 2010, Romag filed a suit against Fossil that alleged patent infringement, trademark infringement, false designation of origin, common law unfair competition, and violation of Connecticut’s Unfair Trade Practices Act. Romag alleged that Fossil “knowingly adopted and used the Romag mark, without Romag’s consent, when selling Fossil handbags that contained magnetic snap fasteners bearing Romag’s mark.”
On April 4, 2014, the jury found Fossil liable for patent and trademark infringement. However, the jury maintained that Fossil’s infringement was not willful. Still, Fossil was ordered to pay $90,759.36 in profits to “prevent unjust enrichment”, and another $6,704,046 in profits as to “deter future trademark infringement.” Additionally, the jury awarded Romag patent damages at a royalty rate for a total of $51, 052.14 against Fossil.
Key Implications of Allowing Accounting (without a finding of willfulness) in Trademark Cases
As a result of the split in appellate authority regarding whether willful infringement is needed in order to recover profits for a violation, the Court in Romag held that Romag was not entitled to any of Fossil’s profits because Fossil’s infringement was not willful. Subsequently, Romag appealed the district court’s decision but the ruling was affirmed by the US Court of Appeals for the Federal Circuit.
The Supreme Court’s decision in Romag will have a huge economic impact on trademark infringement damages. If the Court decides that willfulness is required for trademark damages, it may set the bar too high and deprive trademark holders of an important remedy. On the contrary, if the Court decides that willfulness is not to be required for damages, it may give brand owners an easier path to trademark damages while possibly overflowing the judicial system with frivolous claims of trademark infringement.