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 recover profits of an infringer only for wilful infringement and that the equitable defence of laches applies to patent infringement actions.

Facts

Romag Fasteners, Inc owned US Patent 5,722,126, a patent for magnetic snap fasteners. Romag sold these fasteners under its registered trademark ROMAG, but a licensed manufacturer, Wing Yip Metal Manufactory Accessories Ltd, manufactured them in China. Fossil, Inc, 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 authorised independent manufacturers, Superior Leather Limited, 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, among other things, 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 wilful, it 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 had 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 wilful, 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 defence 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 defence 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 F3d 1311, 1321 Fed Cir 2015)). At oral argument, Romag conceded that the holding in SCA Hygiene Products controls for the application of laches as a defence in patent infringement. Accordingly, the Federal Circuit affirmed the district court's application of laches to Romag's patent infringement claim.

Wilfulness as requirement for profits damages

Romag further argued that the district court had erred in finding that profits are available only as damages for wilful trademark infringement. The Lanham Act allows a trademark owner to recover damages, including an infringer's profits, "subject to the principles of equity" (15 USC § 1117(a)). While the Supreme Court has never directly addressed the issue, courts of appeal have been split on whether a trademark owner must prove wilful infringement to recover an infringer's profits under this section. As 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 'wilful deception' to recover profits (George Basch Co v Blue Coral, Inc (968 F2d 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 wilful dilution. Therefore, Romag argued that Congress chose to make wilfulness a requirement for monetary damages for dilution, but, by not inserting a wilfulness requirement into the language relating to trademark infringement damages, Congress must not have intended for wilfulness 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 wilfulness rule in the context of false advertising under the Lanham Act (see Merck Eprova AG v Gnosis SpA (760 F3d 247 (2d Cir 2014)). Further, the Federal Circuit found that nothing in the 1999 amendments calls into question the Second Circuit's wilfulness rule as it relates to infringement. Congress intended to limit monetary recovery for dilution to cases that involve wilfulness, but that does not mean that Congress intended to upset existing case law that, in some circuits, requires wilfulness for a trademark holder to recover profits for infringement. The Federal Circuit thus concluded that the Second Circuit wilfulness rule still applies, and that the district court had correctly ruled that Romag was not entitled to recover Fossil's profits. The Federal Circuit's ruling does not resolve the circuit split regarding the need to prove wilfulness to be awarded profits for trademark infringement.

For further information on this topic please contact Jason A Leonard or Jacob T Whitt by telephone (+1 212 218 2223 or 212 218 2147) or email (jleonard@fchs.com or jwhitt@fchs.com). The Fitzpatrick, Cella, Harper & Scinto website can be accessed at www.fitzpatrickcella.com.

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