CAFC Holds Willful Misconduct is a Pre-requisite for Recovering Profits for TM Infringement
April 4, 2016
In Romag Fasteners, Inc. v. Fossil, Inc., No. 14-1856 (Fed. Cir. 2016), the Court of Appeals for the Federal Circuit (CAFC) upheld a district court decision that Romag could not recover a trademark infringer’s profits absent a showing of willful misconduct.
Romag sold its patented ”ROMAG”-branded snaps to Fossil for use in Fossil handbags. Fossil bags are manufactured by a host of authorized leather manufacturers. One such manufacturer, in an effort to cut costs, purchased counterfeit ROMAG snaps. Romag sued Fossil for, e.g., patent infringement and trademark infringement. The empaneled jury awarded Romag $90,759.36 of Fossil's profits based on unjust enrichment and an additional $6.8 million of Fossil's profits under a theory of deterrence. While the jury determined that Fossil had acted with “callous disregard,” they did not find that Fossil’s misconduct was willful. The District Court ultimately denied the award of $6.8 million, finding that because Fossil’s misconduct was not willful, Romag was not entitled Fossil’s profits on the counterfeit bags. Because of the patent claims, Romag appealed to the CAFC which is the court of exclusive jurisdiction for patent appeals.
Prior to 1999, § 35(a) of the Trademark Act allowed for damages “ 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.” 15 U.S.C. § 1117(a) (1996). There was a disagreement in the courts as to whether the language “subject to the principles of equity” was intended to import a requirement of willfulness or not.
Under a 1999 Amendment to § 35(a), Congress mandated that a violation under section 43(a) (trademark infringement/false advertising) or 43(d)(cybersquatting) or a “willful violation” under section 43(c) (dilution) were subject to injunctive and monetary relief for misconduct. Romag asserted that Congress had explicitly excluded 43(a) and 43(d) actions from the willfulness prerequisite by not referencing “willful” violations as to 43(a) or (d) and explicitly denoting “willful violation[s]” as to trademark dilution actions. 15 U.S.C. § 1117(a) (1999) (Emphasis Gan’s).
While the CAFC acknowledged that there was a split in the circuits as to a willfulness requirement for 43(a) or (d), the CAFC noted that they were bound by Second Circuit case law because but/for the attendant patent claim, the CAFC would not be hearing the Romag trademark dispute. In reviewing the legislative history of the 1999 amendment, the CAFC noted that the 1999 Amendment was, in reality, a simple amendment to correct an error in the 1996 Dilution Act, and not an effort by Congress to change any requirement for trademark infringement.
As the Second Circuit has historically read a willfulness requirement into the Trademark Act – both pre and post-1999, the CAFC agreed with the district court that Romag is not entitled to recover Fossil's profits, as Romag did not prove that Fossil infringed willfully.