Romag Fasteners, Inc. v. Fossil Group, Inc.: towards an obligation of vigilance of the same nature as the principles governing corporate social responsibility?
Romag Fasteners produces magnetic snaps. The company had granted a license to Fossil to incorporate the snaps in its handbags. A few years after the license was signed, Romag discovered that Fossil – or, more precisely, its manufacturer in China – was using counterfeit snaps. Romag sued Fossil. A jury ordered Fossil to pay Romag a sum calculated on the profits made with the counterfeits, notwithstanding the unintentional nature of the violation of intellectual property rights. The case ended up before the United States Supreme Court, which had to answer the following question:
Whether Section 35(a) of the Lanham Act, 15 U.S.C. § 1117(a), requires willful infringement as a prerequisite to award a trademark infringer’s profits.
This section provides:
“When a violation of any right of the registrant of a mark registered in the Patent and Trademark Office, a violation under section 1125(a) or (d) of this title, or a willful violation under section 1125(c) of this title, shall have been established in any civil action arising under this chapter, the plaintiff shall be entitled, subject to the provisions of sections 1111 and 1114 of this title, and subject to the principles of equity, to recover (1) defendant’s profits (…). The court shall assess such profits and damages or cause the same to be assessed under its direction. In assessing profits the plaintiff shall be required to prove defendant’s sales only; defendant must prove all elements of cost or deduction claimed. (…). If the court shall find that the amount of the recovery based on profits is either inadequate or excessive the court may in its discretion enter judgment for such sum as the court shall find to be just, according to the circumstances of the case. Such sum in either of the above circumstances shall constitute compensation and not a penalty. (…).”
Section 1125 concerns various infringements of trademark rights. Section 1117 deals with paragraphs (a) and (d) of section 1125. Section 1125 (a) governs, inter alia the civil liability of “Any person who, on or in connection with any goods or services, or any container for goods, uses in commerce any word, term, name, symbol, or device, or any combination thereof, or any false designation of origin, false or misleading description of fact, or false or misleading representation of fact” in a manner which causes confusion or deception as to the origin or the quality of the product”. Paragraph (b) concerns imports. Paragraph (c) relates to “dilution”. Section 1125 (d) deals with cyberpiracy. In this case, the spotlights were on 1125(a).
The Romag Fasteners v. Fossil decision highlighted a profound discrepancy among the court of appeals. Half of the circuits require the trademark owner to demonstrate the intentional use of a known counterfeit trademark, while the other half does not. The decision of the Supreme Court was therefore eagerly awaited because, whatever the outcome, it would modify the case-law of half of the circuits.
Given the importance of the case, several associations representing victims of intellectual property infringement had submitted an amicus curiae brief. The issue was so debated that even associations for the protection of intellectual property rights failed to tune their violins (in particular, the Intellectual Property Owner Association stands out from other associations):
Amicus Briefs Opinion International Trademark Association (INTA) "Section 35(a) of the Lanham Act, 15 U.S.C. § 1117(a) (hereinafter “Section 35(a)”) does not require evidence of willfulness in all cases as a prerequisite to an award of profits. Rather, all equitable principles must be considered, and courts may not rigidly require evidence of willfulness to the exclusion of other equitable factors. This conclusion flows from an appreciation of the overall network of remedies under the Lanham Act, which expressly requires intentional deception with respect to specific categories of liability, such as printers and publishers who prepare or distribute for others materials that infringe. It would be anomalous to require willfulness as a precondition broadly applicable to the entire genus of trademark infringement given Congress’s explicit requirement of intentional deception as to certain species." (INTA's amicus brief, p. 5) American Bar Association (ABA) "Though it has managed to divide the circuits for years, the question presented has a clear statutory answer. Nothing in 15 U.S.C. § 1117(a)—or anywhere else in the Lanham Act—requires proof of willful infringement to award a trademark infringer’s profits. That judicially created prerequisite conflicts with § 1117(a)’s plain language and its purpose (ABA's amicus brief, pp. 2-3)" Intellectual Property Owner Association (IPO) "The plain language and legislative history of § 35(a) of the Lanham Act, codified at 15 U.S.C. § 1117(a), makes clear that willfulness is a prerequisite to recover profits for a violation of § 1125(a). This is true even in light of the 1999 amendments to § 1117(a). Furthermore, a willfulness requirement is necessary to balance the equities in disgorgement of a defendant’s profits and to prevent a potential windfall judgment to the plaintiff. For these reasons, IPO respectfully requests that this Court resolve the conflict among the federal courts of appeals and find that willfulness is a prerequisite for recovering a defendant’s profits for a violation of § 1125(a)." (IPO's amicus brief, p. 2). American Intellectual Property Law Association (AIPLA) "The Lanham Act provides for an accounting, or disgorgement, of the defendant’s profits, subject to the principles of equity, as one possible remedy for violating the Act. Congress has required a showing of the defendant’s willfulness for such relief under other types of Lanham Act claims, but not for the Section 43(a) claim at issue in this case. Requiring willfulness for an accounting of defendant’s profits violates the statute’s direction that the availability of such a remedy rests on the equities of each case. The equitable principles underlying the accounting remedy do not necessarily require willfulness, and courts should be free to grant that remedy based on the facts and circumstances of each case. Willfulness is and should remain an important equitable factor in determining appropriate remedies for violations of the Act, but it is not a threshold requirement for an accounting in cases arising from alleged violations of Section 43(a)." (AIPLI's amicus brief, p. 2). Intellectual Property Law Association of Chicago (IPLAC) "IPLAC urges this Court to hold that the Lanham Act does not, and has never, required a plaintiff to show willfulness for an award of an infringer’s profits for a violation of § 1125(a): First, § 1117(a), through its grammatical structure, history, and context in conjunction with the dilution statute, does not require a plaintiff to show willful conduct. Second, the principles of equity and foundational purposes of § 1117(a) and the Lanham Act disfavor any interpretation that would require a plaintiff to show willful conduct in order to be awarded an infringer’s profits." (IPLAC's amicus brief, pp. 4-5).
The Supreme Court ruled unanimously in a decision whose brevity reveals the absence of hesitation:
A plaintiff in a trademark infringement suit is not required to show that a defendant willfully infringed the plaintiff’s trademark as a precondition to a profits award. The Lanham Act provision governing remedies for trademark violations, §1117(a), makes a showing of willfulness a precondition to a profits award in a suit under §1125(c) for trademark dilution, but §1125(a) has never required such a showing. Reading words into a statute should be avoided, especially when they are included elsewhere in the very same statute.
Romag Fasteners, Inc. c. Fossil Group, Inc., n° 18-1233, Slip Op. (S.Ct.23 avril 2020).
Romag Fasteners, Inc. v. Fossil Group, Inc. is burying a jurisdictional divergence while adopting a solution favorable to victims of counterfeiting who cannot necessarily defend their brand on the ground of dilution. Globalization and digitalization have two consequences that must be kept in mind. On the one hand, even the less famous companies are more and more targeted by counterfeiters who can deliberately infringe their trademark rights with the hope of avoiding the detection tools. On the other hand, globalization and digitization, but also the market competition exaggerated by the first two, have undoubtedly contributed to reducing the vigilance in the choice of trading partners. Circumstances can lead companies to bond with counterfeiters without being aware of the tortuous or criminal nature of their activities.
Romag Fasteners, Inc. v. Fossil Group, Inc. will have a significant impact on business relationships because traders will have to be extra vigilant in the face of counterfeiting. The principle according to which courts should remain insensitive to the willfulness of counterfeiters must be supported for the simple reason that it compels trade operators to a higher degree of vigilance concerning counterfeiting. The decision implicitly paves the way for a sort of duty of vigilance concerning counterfeiting. One could even go further and consider that such an obligation should be based on the ethics that shape the principles governing corporate social responsibility. Counterfeiting should be tackled in the same way and with the same rigor as money laundering.
Concretely, the courts should place the cursor not on the issue of whether the defendant’s profits should be awarded to the plaintiff, but rather on the assessment of the amount of such an award.
Romag Fasteners, Inc. c. Fossil Group, Inc., n° 18-1233, Slip Op. (S.Ct.23 avril 2020).
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