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.
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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. (…).”
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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.
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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):
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The Supreme Court ruled unanimously in a decision whose brevity reveals the absence of hesitation:
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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).
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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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