Romag Fasteners, Inc. v. Fossil, Inc.: To Recover Profits for Trademark Infringement in the Second Circuit, the Infringement Must Be Willful; The Equi

On March 31, 2016, the Federal Circuit issued its opinion in Romag Fasteners, Inc. v. Fossil, Inc. holding that, under Second Circuit law, a trademark owner can only recover profits of an infringer for willful infringement and that the equitable defense of laches applies to patent infringement actions.

Background

Romag Fasteners, Inc. (“Romag”) owns U.S. Patent 5,722,126, a patent for magnetic snap fasteners. Romag sells these fasteners under its registered trademark “ROMAG” but a licensed manufacturer, Wing Yip Metal Manufactory Accessories Ltd. (“Wing Yip”), manufactures them in China. Fossil, Inc. (“Fossil”), a fashion accessory brand and distributor, purchased Romag’s fasteners for use in its products. Pursuant to an agreement between Fossil and Romag, Fossil directed one of its authorized independent manufacturers, Superior Leather Limited (“Superior”), to purchase ROMAG fasteners from Wing Yip and incorporate them into Fossil handbags. From 2008 to 2010, without informing Fossil, Superior purchased counterfeit “ROMAG” fasteners from an unlicensed manufacturer and incorporated them into Fossil handbags. In 2010, Romag became aware that retailers were selling the Fossil handbags with counterfeit fasteners.

Just days before the “Black Friday” shopping holiday in November 2010, Romag commenced an action against Fossil in federal district court asserting, inter alia, patent infringement and trademark infringement. A jury found Fossil liable for patent infringement and trademark infringement. The jury awarded Romag a reasonable royalty of only about $50,000 for the patent infringement, but for the trademark infringement, despite finding that Fossil’s infringement was not willful, made an advisory award of almost $6.8 million of Fossil’s profits.

The district court then held a bench trial to determine whether to adjust Romag’s damages award on equitable grounds. The district court found that Romag unreasonably delayed in bringing suit to take advantage of the upcoming holiday sales season. Under the doctrine of laches, the district court reduced Romag’s reasonable royalty damages for patent infringement to exclude Fossil’s sales made during the period of unreasonable delay. Further, because the jury found that Fossil’s trademark infringement was not willful, the district court held that Romag was not entitled as a matter of law to any award of Fossil’s profits for trademark infringement. Romag appealed on both issues and, because of the patent issue, the Federal Circuit had jurisdiction.

Federal Circuit Opinion

Laches as a Defense to Patent Infringement
In its brief, Romag argued that the equitable doctrine of laches does not apply to patent infringement based on the Supreme Court decision in Petrella v. Metro-Goldwyn-Mayer, Inc., 134 S. Ct. 1962 (2014), holding that laches cannot be invoked as a defense to copyright infringement. The Supreme Court has not addressed the issue of whether laches applies to patent infringement. However, before oral argument in this case, the Federal Circuit held en banc that “laches remains a defense to legal relief in a patent infringement case because Congress codified a laches defense to patent infringement in 35 U.S.C. § 282(b)(1).” SCA Hygiene Prods. Aktiebolag v. First Quality Baby Prods., LLC, 807 F.3d 1311, 1321 (Fed. Cir. 2015)(en banc). At oral argument, Romag conceded that the holding in SCA Hygiene Products controls for the application of laches as a defense in patent infringement. Accordingly, the Federal Circuit affirmed the district court’s application of laches to Romag’s patent infringement claim.

Willfulness as a Requirement for Profits Damages in Trademark Infringement

Romag further argued that the district court erred in finding that profits are only available as damages for trademark infringement when the infringement is willful. The Lanham Act allows a trademark owner to recover damages, including an infringer’s profits, “subject to the principles of equity.” 15 U.S.C. § 1117(a). While the Supreme Court has never directly addressed the issue, Courts of Appeal have split on whether a trademark owner must prove willful infringement to recover an infringer’s profits under this section. Because this issue arises outside the context of the patent issue, the Federal Circuit applied the law of the circuit in which the case arose, the Second Circuit.

The Second Circuit has held that under the Lanham Act, a plaintiff must prove that a trademark infringer acted with “willful deception” to recover profits. George Basch Co. v. Blue Coral, Inc., 968 F.2d 1532 (2d Cir. 1992). However, Congress has since created a cause of action for trademark dilution and in 1999 amended the language of the Lanham Act to provide monetary damages for willful dilution. Therefore, Romag argued that Congress chose to make willfulness a requirement for monetary damages for dilution, but, by not inserting a willfulness requirement into the language relating to trademark infringement damages, Congress must not have intended for willfulness to be a prerequisite for infringement damages.

The Federal Circuit disagreed that the 1999 amendment to the Lanham Act changed Second Circuit law on this point. Notably, since the 1999 amendments, the Second Circuit has reaffirmed its willfulness rule in the context of false advertising under the Lanham Act. See Merk Eprova AG v. Gnosis S.p.A., 760 F.3d 247 (2d Cir. 2014). Further, the Federal Circuit found that nothing in the 1999 amendments calls into question the Second Circuit’s willfulness rule as it relates to infringement. Congress intended to limit monetary recovery for dilution to cases that involve willfulness, but that does not mean that Congress intended to upset existing case law that, in some circuits, requires willfulness for a trademark holder to recover profits for infringement. The Federal Circuit thus concluded that the Second Circuit willfulness rule still applies and that the district court correctly ruled that Romag is not entitled to recover Fossil’s profits. Of course, the Federal Circuit’s ruling here does not resolve the circuit split regarding the need to prove willfulness to be awarded profits for trademark infringement.