Who Is Holding The Bag: How Will The Supreme Court Resolve The Circuit Split On Recovery Of Profits In Trademark Cases?

Two weeks from now, on January 14, 2020, the Supreme Court will hear oral argument in Romag Fasteners, Inc. v. Fossil, Inc. on the long-standing circuit split over whether willful infringement is a necessary precondition for an award of profits in a Section 43(a) trademark infringement case.

Under the Lanham Act, a victorious plaintiff in a trademark infringement case may be entitled to an election of either a monetary award of its damages or a disgorgement of the infringer's profits, subject to equitable principles. 15 U.S.C. §1117(a). However, monetary relief is not a given, and injunctive relief is awarded far more commonly. The remedy is to make the plaintiff whole. While a disgorgement of profits is available, it is not intended to be punitive - in theory it serves as a proxy for actual damages, in a case where actual damages are difficult to prove, or alternatively as a means of preventing unjust enrichment or deterring future infringement.

More than 25 years ago, the Second Circuit, in George Basch Co. Inc. v. Blue Coral, Inc., 986 F.2d 1532 (2d Cir. 1992), adopted a per se willfulness standard in keeping with the then current Restatement of Unfair Competition, as necessary to maintain these "principles of equity." A finding of willfulness would avoid the risk of a windfall beyond what would be considered appropriate damages. This precondition of willfulness for a disgorgement of profits has been long-standing in cases arising in the Second, Eighth, Ninth, Tenth and D.C. Circuits.

After the Lanham Act was amended in 1999 to add a separate claim for dilution, Congress expressly included a willfulness requirement for an award of profits on dilution under Section 1117(c) but remained silent on willfulness under Section 1117(a). The failure to add comparable language to Section 1117(a) led some circuits to disavow the traditional requirement that profits required bad intent, reasoning that since willfulness was expressly referenced in other contexts in the Lanham Act, its absence in the statutory section on monetary damage awards under Section 1117(a) meant that willfulness is not a precondition. The circuit split meant that a Third Circuit plaintiff could obtain the infringer's profits, regardless of the infringer's intent. In the Second Circuit, that same plaintiff's remedies would be limited to injunctive relief and money damages, if elected and available.

In Romag, the Federal Circuit (applying Second Circuit law) held that Romag...