Federal trademarks are governed by the Lanham Act. See 15 U.S.C. §§1051 et seq. Among the rights granted to trademark owners by the Lanham Act is the right to exclusive use of one’s trademark. If another uses one’s trademark without permission or authorization, the owner can sue for trademark infringement. The Lanham Act invests federal courts with broad powers to punish infringement. Victims of infringement can obtain a vast array of injunctive relief and can recover money damages, attorneys’ fees and, potentially, the disgorgement of the infringer’s profits.

Until recently, there was a split among the lower courts as to whether proof of willfulness was a prerequisite to an award of profit disgorgement. For example, in the Sixth Circuit, the willfulness of the infringement is one FACTOR or element to be considered in whether to order disgorgement. However, willfulness is not REQUIRED. See Laukus v. Rio Brands, Inc., 391 Fed.Appx. 416 (6th Cir.2010). The Third, Fourth and Fifth Circuits have agreed and have issued decisions arriving at the same legal conclusion.

By contrast, in the First, Second, Ninth and Tenth Circuits, willfulness must be shown before disgorgement can be ordered. See, for example, George Basch Co. v. Blue Coral, Inc., 968 F.2d 1532 (2d Cir.1992) (“… a finding of willful deceptiveness is necessary in order to warrant an accounting for profits …”).

The US Supreme Court has now resolved the split among the Circuits by holding that proof of willful infringement is not required before disgorgement can be ordered. See Romag Fasteners, Inc. v. Fossil, Inc., Case No. 18–1233, ___ S.Ct. ___ (April 23, 2020). The decision was unanimous and was based on a detailed analysis of the text of various sections of the Lanham Act and Congressional amendments to the statute in the 1990s. The court concluded that proof of willfulness — mens rea — was not required by the words used in the Lanham Act. Justice Gorsuch wrote the majority opinion, which was joined by seven other justices. Justices Alito and Sotomayor wrote concurring opinions.

The plaintiff in the case — Romag Fasteners, Inc. — owns patents and trademarks for magnetic fasteners mainly used for wallets, handbags, purses, and other small carrying cases. Romag accused the defendants, Fossil, Inc. and Fossil Stores I, Inc. of selling handbags with counterfeit fasteners. In 2002, Romag and Fossil had entered into a licensing agreement allowing Fossil to use Romag fasteners with Fossil’s Wing Yip line of handbags. However, in 2010, Romag’s senior management discovered that counterfeit Romag fasteners were being used on Wing Yip products. Romag initiated litigation. In 2014, after a seven-day trial, a jury returned a verdict in favor of Romag finding that Fossil had acted with “callous disregard” for Romag’s trademark rights but also finding that Fossil’s trademark infringement was not willful. As such, under the Second Circuit rule, the trial court refused to order profit disgorgement for the trademark infringement.

Upon appeal, the Court of Appeals for the Federal Circuit applied the Second Circuit rule and affirmed. However, as noted, the US Supreme Court has held otherwise. Proof of willfulness is not required for an award of profit disgorgement. Rather, willfulness is one of several elements that are to be evaluated by a trial court in deciding whether to order disgorgement.

What Romag Fasteners Means for Trademark Owners

The Romag decision substantially strengthened the remedial toolkit available to trademark plaintiffs. Before this ruling, plaintiffs in circuits that required willfulness faced a significant evidentiary burden: they had to prove not only that infringement occurred but that the defendant acted with a subjective intent to trade on the plaintiff’s goodwill or to deceive consumers. This was often difficult to establish, particularly in cases involving large corporate defendants who could point to internal compliance efforts and claim inadvertence.

After Romag, a trademark plaintiff in any federal circuit can seek disgorgement of the infringer’s profits based on factors like the defendant’s intent, deterrence, the need to prevent unjust enrichment, and the adequacy of other remedies. A defendant who profits handsomely from infringement while claiming it was inadvertent can no longer use that claim to categorically block a profits award.

This matters particularly in supply chain and licensing contexts like Romag itself, where a licensor discovers that a licensee’s overseas manufacturing operations have substituted counterfeit components. The licensee may argue it did not know about the counterfeiting occurring at its factories in China. Under the pre-Romag regime in certain circuits, that argument could defeat a profits award. Under Romag, it is merely one factor for the court to weigh.

The Full Range of Lanham Act Remedies

Trademark owners pursuing infringement claims should understand the complete range of monetary remedies available under 15 U.S.C. § 1117:

• Defendant’s profits. As Romag confirms, a plaintiff may recover the profits the infringer earned through the infringing activity. The plaintiff bears the burden of proving the defendant’s gross sales; the burden then shifts to the defendant to prove any deductions.
• Actual damages. The plaintiff can recover the actual damages sustained as a result of the infringement, including lost sales, price erosion, and harm to the goodwill associated with the mark.
• Corrective advertising costs. If the infringement caused consumer confusion that needs to be remedied through advertising, the costs of such corrective advertising are recoverable.
• Enhanced damages. Courts may award up to three times the actual damages in exceptional cases.
• Attorneys’ fees. The Lanham Act authorizes attorneys’ fees in “exceptional” cases. The Supreme Court defined an “exceptional” case in Octane Fitness, LLC v. ICON Health & Fitness, Inc., 572 U.S. 545 (2014), as one that stands out from others with respect to the substantive strength of a party’s litigating position or the unreasonable manner in which the case was litigated.

Injunctive Relief Remains the Primary Remedy

While Romag expanded the availability of profits awards, injunctive relief remains the most immediately sought remedy in trademark cases. Under 15 U.S.C. § 1116, federal courts have broad power to issue injunctions restraining the use of infringing marks. An injunction stops ongoing harm and prevents future harm to the goodwill associated with the plaintiff’s mark.

In many cases, the most important thing a trademark plaintiff can do is obtain a preliminary injunction quickly to stop the infringing activity while the case proceeds. The standard for a preliminary injunction requires the plaintiff to show a likelihood of success on the merits, irreparable harm, that the balance of hardships favors relief, and that the public interest is not disserved. Given the recognized presumption that trademark infringement causes irreparable harm in many circuits, a strong showing of likelihood of success often carries the motion.

If you have questions about protecting your trademarks, contact the trademark lawyers at Revision Legal at 231-714-0100.