US Supreme Court Resolves Major Dispute in Trademark Law: Willfulness No Longer Required for an Award of Infringer’s Profits as Damages
For many years, there has been a dispute in the federal courts about what level of culpability by a trademark infringer was required to support an award of the infringer’s profits as damages. The courts in the Second, Eighth, Ninth, and Tenth Circuits required that a trademark owner show that the infringement was “willful” before the infringer’s profits earned from the infringement could be awarded as damages. In contrast, the law in the Third, Fourth, Fifth, Sixth, Seventh, and Eleventh Circuits was that the infringer’s willfulness could be considered in deciding whether to award profits as damages, but that willfulness was not a requirement for an award of profits.
On April 23, 2020, the United States Supreme Court issued its decision in Romag Fasterners, Inc. v. Fossil, Inc. by which it resolved the dispute among the circuits and held that willfulness is not a precondition to recovering a trademark infringer’s profits as damages. Critically, the Court did not completely discount the role of the infringer’s culpability in the damages analysis – the Court expressly stated that “a trademark defendant’s mental state is a highly important consideration in determining whether an award of profits is appropriate.”
The Supreme Court’s opinion in Romag can be found here: Romag Fasteners, Inc. v. Fossil, Inc., 590 U.S. __, No. 18 – 1233 (April 23, 2020).
It usually is the case in trademark infringement cases that it is difficult to prove the profits lost by the trademark owner as a result of an infringement. Consequently, prior to Romag, it often was difficult for a trademark owner to obtain damages in cases where the infringer did not act willfully.
While recovering profits-based damages in trademark infringement cases may continue to be challenging given the Supreme Court’s instruction that the infringer’s “mental state” still is an important consideration in the damages calculation, the Romag decision has removed a significant legal hurdle to an award of such damages. It will be interesting to see how the Romag decision affects the settlement value of trademark infringement cases and whether the decision results in an increase in the number of infringement actions filed since the cases now may have more value.
Readers may be surprised to learn how often we are consulted by clients who face the following predicament: an individual or group of people get together to start a business. Working out of a home, or a garage, or a small workspace, they create a product or come up with a service that they think they can sell and proceed through sheer will and hard work to get the product or service to a point where the product really takes off.
Sounds like a success story, right? And it is. But then what too often happens is problems arise. Infighting starts about who created what, who owns what rights and who is entitled to what payments. And of course competitors notice the success of the product or service and before long knock-offs start appearing.
To do as much as is possible to protect against the foregoing problems and other intellectual property issues, we offer the following tips:
- Protect your intellectual property before you do anything else – consult with an experienced intellectual property attorney who can help identify what intellectual property rights exist and how best to protect them. Make sure you budget sufficient funds for legal advice and intellectual property protection – it will be money well spent in the long run.
- Put agreements in place to define specifically who created what intellectual property, who owns what and who gets what payments – such agreements can include corporate shareholder agreements, LLC operating agreements, license agreements, and assignment agreements. Also address at the front end what will happen if one or more of the founders wants out or if the success of the business fades – it is important to consider at the front end what will happen to the business assets and intellectual property down the road. The key is everything must be in writing – do not rely on trust, handshake agreements, oral agreements or any non-written agreement!
- A non-disclosure/confidentiality agreement is essential and must be in place before you discuss your product with anyone – and this includes not only potential vendors, business partners, etc. but also visitors to the place of business, friends, etc. if any protected details of products or services will be disclosed.
- Make sure to protect ownership through appropriate agreements – all employees and independent contractors should execute appropriate assignment agreements and work made for hire agreements. This is especially important with respect to website design and maintenance, marketing activities, outside sales people, and customer lists. It bears repeating: everything must be in writing!
- Put appropriate agreements in place if others will use your intellectual property to make sure there is no question who owns what and what uses can be made of the intellectual property.