Federal LawsLegal

Supreme Court Ruling Leads Cannabis Companies to Reassess Trademark Infringement

Cannabis companies need to examine their entire company vertical to ensure trademark infringement is not occurring.

The U.S. Supreme Court confirmed that brand owners are not required to prove willful intent before obtaining a defendant’s lost profits.

On April 23, 2020, the Supreme Court resolved a longstanding circuit split and unanimously held that trademark infringers may have to hand over their profits even if they did not willfully infringe.

In Romag Fasteners, Inc. v. Fossil Group, Inc., the Supreme Court was tasked with determining whether the rule that a plaintiff can win a profit remedy only after showing a defendant willfully infringed its trademark can be reconciled with the statute’s plain language. Ultimately, the Supreme Court sided with the plaintiffs, Romag Fasteners (Romag), holding that:

“[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.”

Romag and defendant Fossil Group (Fossil) signed an agreement to use Romag’s handbag fasteners in Fossil’s leather goods. Later Romag discovered that factories in China, which Fossil hired to make its products, were using counterfeit Romag fasteners and Fossil was not working to curb the infringement. Romag sued Fossil, along with certain Fossil retailers, for trademark infringement pursuant to 15 U. S. C. § 1125(a). This provision establishes a cause of action for the false or misleading use of trademarks.

Although the jury found that Fossil acted “in callous disregard”, the jury did not find Fossil acted willfully, as it was defined in the case. In deciding whether to award profits, the district court noted that controlling Second Circuit precedent requires a plaintiff seeking a profits award to prove that the defendant’s violation was willful so it did not award Fossil’s profits to Romag.

Fossil argued that courts have historically required a showing of willfulness before authorizing a profits remedy in trademark disputes. The First, Second, Eighth, Ninth, Tenth and D.C. Circuit all required willfulness. Meanwhile, the Third, Fourth, Fifth, Sixth, Seventh and Eleventh Circuit allow for disgorgement of profits without willfulness. However, the Court pointed out that only the dilution section of the Lanham Act (§ 1117(a)) requires a showing of willfulness as a precondition to a profits award.

In this case, Romag alleged and a jury found Fossil violated § 1125(a) and engaged in trademark infringement and false representation, not dilution.

Although the Supreme Court noted that a trademark defendant’s mental state is highly important in determining whether an award of profits is appropriate, it found that the text of § 1125(a) has never required a showing of willfulness as a precondition to win a defendant’s profits award. The fact that other sections of the Lanham Act speak expressly about mental states, and the absence of any such language in § 1125(a), further supported the Supreme Court’s finding in favor of Romag. The Supreme Court’s decision was unanimous.

Moving forward, this decision will give intellectual property rights owners more support in enforcing against counterfeiters and infringers who disregard those owners’ rights. While there may be a rise in frivolous trademark actions being brought with the potential for windfall judgments, it is more likely that this decision will incentivize companies and manufacturers to think twice and be more cognizant of potential counterfeit products being used in their businesses and global supply chains. Looks like it is indeed time to show brand owners the money.

Originally published By Alexis Crawford Douglas, Anisha Mehta and Brittany Kaplan in iplaw watch

Editorial Staff

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