June 26, 2020

Should the Law Treat Profit Awards Differently in Infringement and Dilution Cases? In “Romag Fasteners v. Fossil Group,” the Supreme Court stressed that bad faith remains an important factor in determining whether to award profits in infringement cases, and willfulness remains a requirement in dilution cases. It is clear that there are theoretical reasons to explain why willfulness is treated as a threshold requirement in one and not the other.

By Howard Hogan, Connor Sullivan, and Sheri Pan In Romag Fasteners v. Fossil Group, the U.S. Supreme Court resolved a long-standing circuit split in hold- ing that a plaintiff is not required to show that the defendant acted will- fully in order to receive an award disgorging the defendant’s profits. The court reasoned that while the requires plaintiffs to show that a violation was “willful” to disgorge profits from claims, “the statutory language Howard Hogan Connor Sullivan Sheri Pan has never required a showing of willfulness to win a defendant’s profits” for trademark infringement redress consumer confusion. Dilution, in contrast, is claims. Because Congress did not impose a willful- designed to protect against long-term effects on the ness requirement for an award of profits in infringe- trademark itself. These differences may very well ment cases, the court refused to create one. provide an alternate justification for the distinction In the decision, however, the court did not dis- drawn in the Romag case. cuss the reasons why Congress might have created Trademark Infringement: A Dual Injury to this disparate treatment. The Lanham Act creates Mark Owners and Consumers several types of remedies to effectuate different pur- A defendant is liable for trademark infringement poses, including monetary damages, disgorgement, where it uses a mark in a manner that is likely costs, fees and injunctive relief. Which remedy fits to cause consumer confusion. Infringement can a particular violation depends on the circumstances: injure mark owners by reducing their profits or the nature and consequences of the infraction, the creating the need for corrective advertising. And role of the violator and the goals the Lanham Act infringement can also harm consumers by creating attempts to advance. confusion as to the source of a product or service. Although neither the court’s decision nor statu- In either case, the injury exists irrespective of the tory history provides an explicit basis for the dif- infringer’s intent, as the Supreme Court has noted ference (or demonstrates that Congress consciously in the parallel context of false advertising claims chose to create a different test), there are logical under the Lanham Act. reasons why Congress might have provided differ- Infringement claims are designed to protect the ent remedies. An infringement claim is designed to interests of both trademark owners and consumers. the national law journal June 26, 2020

Given those twin goals, an award of profits may deter conduct that harms both groups. An award of the defendant’s profits may also serve as a proxy for sales that the plaintiff would have achieved if it were not for the consumer con- fusion caused by the defendant’s infringement. In fact, some courts had held that profits should only be awarded if the parties were in direct competition. Critically, infringement claims are typically brought to address confusion when it is immediate and ongo- ing, when courts and litigants The U.S. Supreme Court building in Washington, D.C./photo by Diego Radzinschi have the best chance at accu- The Role of Intent the defendant to reap an unjust rately quantifying its effects. The role of intent in the conduct windfall. Where the products or Trademark Dilution: A that gives rise to these cases may services at issue are dissimilar and Gradual and Ongoing Harm also explain why a profits award there is no confusion, it is improb- Trademark dilution poses a dif- may only be appropriate in inten- able that the defendant’s profits ferent kind of injury. Dilution tional dilution cases. Although an reflect diverted sales. Where the erodes the strength and signifi- infringement defendant’s intent diluter acts in bad faith, however, cance of a mark by weakening a may help a court decide the thresh- disgorgement may serve other leg- mark’s distinctiveness, including old question of whether confusion islative goals, including deterrence. the associations and reputation is likely, even unintentional con- It remains to be seen how connected with the mark. The fusion can cause wrongful sales. Romag might affect future harm from trademark erosion is Courts have long connected profit trademark actions. The Supreme long term and incremental—a awards in infringement cases to Court stressed that bad faith gradual whittling away. unjust enrichment. But in com- remains an important factor in For these reasons, the natu- mon law, unjust enrichment did determining whether to award ral remedy for dilution is often not require a showing of intent, profits in infringement cases, and injunctive relief rather than mon- only circumstances that would willfulness remains a requirement etary damages. Dilution claims make it “unjust” for the defendant in dilution cases. What is clear, may be brought prospectively, to retain a benefit without com- however, is that there are theo- designed to protect against harm pensation. Similarly, there may be retical reasons to explain why that is unfolding slowly. Harm infringement cases where courts willfulness is treated as a thresh- to the strength of a mark may would find it “unjust” to allow a old requirement in one and not be difficult to convert into dol- defendant to retain a windfall if the other. Those distinctions will lars. And because dilution was the plaintiff can prove that the be important in future debates expressly designed for situations defendant’s profits were caused over whether and how Congress where the parties’ products do by confusion and not competitive should respond to Romag. not compete and there may be no advantage. confusion, the defendant’s sales Where the conduct at issue is Howard Hogan is a partner at may not offer the same kind of dilution, however, there is less Gibson, Dunn & Crutcher, where he efficient proxy for the trademark justification for requiring defen- chairs the firm’s fashion, retail, and owner’s injury. The long-term dants to disgorge their profits consumer products practice group. effect, moreover, will be more where their conduct was uninten- Connor Sullivan and Sheri Pan are acutely felt by the mark owner tional. It is harder to imagine how litigation associates with Gibson rather than the general public. unintentional dilution could cause Dunn.

Reprinted with permission from the June 26, 2020 edition of THE NATIONAL LAW JOURNAL © 2020 ALM Media , LLC. All rights reserved. Further duplication without permission is prohibited. For information, contact 877-257-3382, [email protected] or visit www.almreprints.com. # NLJ-06292020-452280