Romag v. Fossil: Resolving a Circuit Split on Willfulness and Profit Awards for Trademark Infringement

In the midst of the COVID pandemic, the Supreme Court resolved an issue that was split evenly between the circuit courts. The issue before the Court was whether the Lanham Act, which is the federal statute governing trademarks, required a plaintiff to prove that the defendant had willfully infringed their trademark before the plaintiff could recover the infringer’s profits. In a surprisingly unanimous decision, the Supreme Court in Romag v. Fossil held 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.

This dispute began when Fossil signed an agreement with Romag that allowed Fossil to use Romag’s magnetic snap fasteners in Fossil’s handbags and other products. During the initial years of the relationship, both parties were content with the arrangement but after some time, Romag discovered that the factories Fossil hired in China to make its products were using counterfeit Romag fasteners. Romag alleged that Fossil did little to prevent the factories from continuing this practice and when both parties were not able to resolve the issue internally, Romag initiated litigation. A trademark case followed with Romag accusing Fossil of infringing its trademark and falsely representing that the fasteners came from Romag. At trial, a jury agreed with Romag and found that Fossil acted in callous disregard of Romag’s rights but rejected Romag’s claim that Fossil had acted willfully and therefore denied Romag’s recovery of Fossil’s profits. This decision by the jury was based on the definition of the district court which relied upon precedent from the Second Circuit. The Second Circuit happened to be one of the six circuits that required proof of willful infringement as a precondition to a profits award. This case was then accepted by the Supreme Court to resolve the split.

The Supreme Court was careful to rely on the plain language of the Lanham Act in describing the unanimous holding. This is important because the plain language of the Lanham Act does require willfulness as a precondition to a profits award for a trademark dilution cause of action. However, Romag’s cause of action was not for dilution (conduct that lessens the association consumers have with a trademark), it was for the false and misleading use of their trademarks and the plain language of that section does not require proof of willfulness. Fossil, and half of the circuit courts, had read into this cause of action the willfulness requirement of a dilution cause of action. The Supreme Court rejected this inclusion of willfulness language where the Act had been silent, holding that courts must be more careful when reading into statutes words that are not there when Congress has included that language elsewhere in the same statutory provision. In making its decision, the Supreme Court refused to insert this language, and noted other examples within the Lanham Act where the statutes speak to mental states and how the mental state impacts the damages award (i.e., increasing damages for intentional acts and with specific knowledge, increasing the statutory cap on damages for certain willful violations and limiting the types of awards for innocent infringers). With these references in mind, the Supreme Court made it clear that, while the mental state of a trademark defendant is a “highly important consideration in determining whether an aware of profits is appropriate,” the use of willfulness as an “inflexible precondition to recovery” cannot be read into the statute as written. Based on this determination, the Supreme Court vacated the judgment of the court of appeals and remanded the case for further proceedings consistent with its opinion and left the door open for policymakers to insert this language into the Lanham Act should it determine that this requirement for willfulness would further the goals of the statute.

Crowdfunding Update: IP Protection and Startup Valuation Considerations

Mary Juetten, CEO of Traklight and Efrat Kasznik, Foresight Valuation

Crowdfunding is expected to become a leading source of financing in the early stage, on both rewards and equity platforms. It is likely to add more transparency to startup valuations and, at the same time, contribute to an upward trend in valuations. However, the lack of attention to IP protection or infringement during the campaign can have negative implications on the valuation of your startup. The topic of IP protection should therefore be top of mind for entrepreneurs engaged in crowdfunding, as it is critical to their survival and success long after the campaign has ended.

Read the full article here .

Industry report – Crowdfunding, the JOBS Act and the future of innovation funding

If you back a Kickstarter crowdfunding project by a company that ends up selling to Facebook for $2 billion, do you deserve to get a return on your campaign donation? This is the q
uestion raised by some of the backers of the September 2012 crowdfunding campaign of the Oculus Rift virtual reality headset, which successfully raised $2.4
million on Kickstarter, a rewards-based crowdfunding platform.

Rewards platforms are not considered equity investment Efrat Kasznik Foresight Valuationportals. Instead, they offer ways for companies and projects to find supporters who make a monetary contribution (donation) in return for a set of rewards – ranging from merchandise such as a t-shirt all the way to pre-ordering the actual product itself. One Forbes analyst calculated that a campaign backer who put $300 into Oculus as an equity investment could have made a return of $20,000 when Facebook bought Oculus 18 months later for $2 billion. However compelling, this argument is largely flawed, as a rewards-based donation is technically not an equity investment. Equity crowdfunding is still pending in the United States, awaiting the Securities and Exchange Commission (SEC) regulations required for the implementation of the Jumpstart Our Business Startups (JOBS) Act, the 2012 legislation destined to open up equity crowdfunding to non-accredited investors in the United States for the first time in history. Several key valuation issues are worth discussing in the context of crowdfunding which are very specific to the crowdfunding platform and the regulations surrounding it. Continue reading “Industry report – Crowdfunding, the JOBS Act and the future of innovation funding”

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