Fashion and Apparel

Supreme Court Rejects Willfulness Requirement for Profit Awards in Trademark Infringement Actions

By Sara Gates

In a recent decision of considerable importance for trademark practitioners, the U.S. Supreme Court finally resolved a longstanding split among the circuits when the Court held that willfulness is not required to award the plaintiff profits in a trademark infringement action. Romag Fasteners, Inc v. Fossil, Inc., No. 18-1233, 2020 WL 1942012 (U.S. Apr. 23, 2020). Justice Gorsuch delivered the majority opinion in the unanimous decision, expressly rejecting the willfulness prerequisite to profit awards adopted by the Second and Ninth Circuits, which both handle a high volume of the nation’s trademark cases.

Background

The case before the Court involved a dispute over handbag fasteners between Romag Fasteners, Inc., a company that manufacturers the fasteners, and Fossil, Inc., a company that uses the fasteners on its handbags. For years, Romag and Fossil worked together under an agreement that permitted Fossil to use Romag’s fasteners on its handbags. As Romag later discovered, however, factories in China making Fossil products were using counterfeit fasteners, instead of Romag’s products. Believing that Fossil was not policing these factories, Romag sued Fossil for trademark infringement and false representation (along with other claims, including patent infringement).

The issues of fact went to the jury, which agreed with Romag’s view and found that, while Fossil had acted with callous disregard, its actions were not willful. Though the jury made its advisory awards, the Judge Janet Bon Arterton of the U.S. District Court for the District of Connecticut determined that Romag could not recover Fossil’s profits on the trademark infringement claim without a finding of willfulness. On appeal to the Federal Circuit, the Court upheld the district court’s decision, finding that it was consistent with Second Circuit precedent (the District of Connecticut sits within the Second Circuit). Romag’s writ of certiorari to the Supreme Court followed, and the Court granted the writ, presumably to resolve the outstanding circuit split that has persisted for more than 20 years.

Decision

The Court did just that in its recent decision, which fully and finally rejected the view that a showing of willfulness is a prerequisite to a profit award in trademark infringement actions. As the Court explained, while the infringer’s state of mind is certainly an important and valuable consideration, it is by no means a requirement for a court to award a trademark owner the infringer’s profits.

In reaching the decision, the Court relied heavily on the text of the Lanham Act, the statute governing recovery of federal trademark violations, and, specifically, 15 U.S.C. § 1117, the Lanham Act’s damages provision. The Court pointed out that states of mind, or mens rea, are carefully addressed in that section of the statute, as they are throughout the entirety of the Lanham Act. For example, the plain text of § 1117(a) provides for recovery of an award of the infringer’s profits for any violations of 15 U.S.C. § 1125(a) (i.e., trademark infringement), but for violations of § 1125(c) (trademark dilution) the statute clearly requires a willful violation for such an award:

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, (2) any damages sustained by the plaintiff, and (3) the costs of the action. . . .

17 U.S.C. § 1117(a) (emphasis added).

The Court determined that the use of the term “willful” in one instance in § 1117(a), but not in another, indicated Congress’ intent with regard to how mental states should be treated vis á vis profit awards for particular violations. Likewise, in other sub-sections of § 1117, mental states are included judiciously in certain instances, but not others. As the Court, in its interpretation of the law, is careful not to read words into statutes that are not present, it declined to adopt the Second and Ninth Circuit’s interpretations and read in a “willful” requirement for violations of § 1125(a).

The Court similarly rejected other arguments lodged by Fossil, again turning to the text of the statute. For instance, Fossil argued a profit award was appropriate pursuant to “principles of equity” in § 1117(a). The Court discussed the definition and meaning of “principles of equity,” finding it unlikely that Congress intended for this language to denote such a narrow rule regarding profit awards. Even considering pre-Lanham Act case law, the Court again noted that there was no clear rule regarding a willfulness prerequisite, leading the Justices to the conclusion that, at most, mens rea was an historically important consideration in awarding profits but never a requirement. As the Court pointed out, the importance of mens rea has continued under the Lanham Act, as reflected in the provision of greater statutory damages for willful violations in § 1117(c). Finally, the Court briefly rejected Fossil’s policy argument, stating that the Court would instead leave the policy decisions to the policymakers in Congress.

With this decision, trademark plaintiffs will face one less obstacle when establishing their entitlement to an award of a defendant’s profits. In practical terms, courts will likely see fewer motions for summary judgment on willfulness, as defendants may no longer use this tool to foreclose a plaintiff’s ability to obtain the defendant’s profits. Though the Court’s decision that courts may award profits absent a finding of willfulness may, in theory, open the doors to more profit awards, it is unlikely to result in windfalls to plaintiffs. As courts have long recognized, the infringer’s state of mind bears on the relief the trademark owner should receive.

The Supreme Court echoed the well-established notion that an infringer’s state of mind bears on the relief the plaintiff should receive when it clearly articulated that a defendant’s mental state “is a highly important consideration in determining whether an award of profits is appropriate” in trademark infringement actions. Romag, 2020 WL 1942012, at *4. There is just no particular mental state required for profit awards, so it remains in the discretion of the courts, and juries, to determine what is appropriate under the circumstances.

This article was published by the Media Law Resource Center (MLRC) on May 6, 2020

CDAS IP Group and Partner Nancy Wolff Recognized in Chambers USA 2020


The highly regarded “Guide to the Top Lawyers and Law Firms” described CDAS as a “highly skilled boutique offering excellent capabilities handling trademark and copyright infringement cases, as well as substantial portfolio management matters. [CDAS] exhibits expertise acting for market-leading entertainment, media and digital platform clients.” In addition to recognizing the firm for Intellectual Property: Trademark, Copyright & Trade Secrets (New York), Nancy Wolff was also recognized as “a leading attorney in IP issues relating to digital media, counseling clients in a broad range of matters including disputes and licensing.”


Nancy Wolff Featured in ABA Grassroots Initiative Discussing the CASE Act

As part of ABA Day, Nancy participated in a CASE Act Introduction and discussed implications of The Copyright Alternative in Small-Claims Enforcement (CASE) Act of 2019 and its creation of the Copyright Claims Board as an alternative forum to pursue low-value claims of $30,000 or less. Listen to the panel here.

Contractual Disruptions: How They Arise and How to Prepare

By Elizabeth Altman and Tyler Horowitz

With the recent spread of the novel coronavirus COVID-19 and its unprecedented precipitation of social-distancing, work-from-home policies, shelter-in-place orders, and limitations on foreign travel, many individuals may be questioning whether certain contractual obligations are excused. This article provides a primer on the contract concepts of force majeure, impossibility and impracticability, and related provisions that affect, and may in certain instances excuse, performance of contractual duties owing to changed circumstances outside any signatory’s control.

Force Majeure

A force majeure clause is a contract provision that excuses a party’s performance of its obligations under a contract when events beyond the party’s control make performance impossible. To invoke a contract’s force majeure clause, a party must typically demonstrate that (1) a disruptive event enumerated by the force majeure clause has occurred; (2) the risk of nonperformance was not foreseeable; and (3) that the event has rendered the party’s performance impossible.

A party looking to invoke a force majeure clause must follow several steps:

First, a party must examine the contract’s definition of what constitutes a “force majeure” event and demonstrate that the change in circumstances was included within the definition. Force majeure events will have been enumerated within a force majeure clause and generally include: Acts of God; severe acts of nature or weather events including floods, fires, earthquakes, hurricanes, or explosions; war; acts of terrorism; epidemics; acts of governmental authorities such as expropriation or condemnation; changes in laws and regulations; and strikes and labor disputes.

Determining whether a force majeure clause applies is a highly fact-intensive exercise, because whether a party is excused for non-performance stems from the specific contractual language used within an agreement. For example, some contracts’ force majeure provisions may specify disease, epidemics, or pandemics as cause for non-performance, while others may only refer to disease-related disruptions by reference to “Acts of God” or catch-all phrases such as “any event or circumstance beyond the reasonable control of the affected party.”

Where disease-related occurrences have been specifically enumerated, a party may find it easier to invoke its force majeure clause in the context of COVID-19. It may be more challenging where, instead, there is only catch-all language in place; however, a catch-all phrase, or similarly broad language (such as a force majeure clause that begins its list with “including, but not limited to”), may provide some protection, particularly if courts relax their traditional preference for excusing performance solely based on clearly enumerated circumstances, in response to an onslaught of COVID-19 related contract disputes. Additionally, where a party can point to a governmental restriction in place because of COVID-19, it may have additional grounds to defend nonperformance. 

Second, an affected party must demonstrate a causal link between the force majeure event and its failure to perform. In other words, a party’s performance must be impossible because of the changed circumstances surrounding the contract. For example, in light of COVID-19, the owner of a performing arts venue may successfully argue that recent government orders in his or her state have made it impossible to continue under contract with scheduled performances and obligations to performers, considering the widespread uptick in closures of non-essential businesses. On the other hand, should both parties to a contract be capable of conducting transactions online and/or having a history of remote online transactions, it may be more difficult to argue that COVID-19 has rendered performance impossible (at least without demonstrating other exigent circumstances).

Upon successfully invoking a force majeure provision, a party may either suspend performance or terminate the contract outright, depending on the scope of its force majeure clause. It is thus important to verify the terms of the clause, which may also dictate that force majeure coverage will only kick in after a certain period has elapsed, such as 90 days.

If the contract does not contain a force majeure clause, a party may turn to the common law defenses of impossibility or impracticability to excuse performance (though note that New York only recognizes impracticability in rare circumstances, such as in connection with sales of goods under the Uniform Commercial Code). A party may also invoke additional contract provisions where present, such as the “Material Adverse Effect” provision common to many commercial contracts.

Impossibility & Impracticability

Impossibility and impracticability exist where circumstances extraneous to a contract render a party’s performance either impossible or impractical. Although the contract itself was adequately formed and would otherwise maintain its binding effect, these defenses recognize that a post-formation change in circumstances has fundamentally altered the ability of the parties to perform under it. A party’s performance will be excused if the following elements are met:

  • An unforeseen event has occurred. Akin to the events enumerated in force majeure clauses, these may include natural disasters, strikes, and other major events.
  • The nonoccurrence of this event was a basic assumption of the contract. At the time of contracting, the parties did not foresee the event that has since occurred, regardless of whether it was theoretically “foreseeable”. This assumption of nonoccurrence need not be explicitly outlined within the contract, but must be generally apparent from the nature, terms, and purpose of the contract. Under the Uniform Commercial Code, which governs sales of goods, a “[d]elay in delivery or non-delivery in whole or in part by a seller . . . is not a breach of his duty under a contract for sale if performance as agreed has been made impracticable by the occurrence of a contingency the non-occurrence of which was a basic assumption on which the contract was made.” U.C.C. § 2-615. For example, this provision may apply in the event of a labor dispute where striking workers fail to deliver a shipment of the seller’s goods. In such cases, a seller must seasonably notify the buyer of the delay or non-delivery, and, where a seller may still partially perform, must allocate production and deliveries among customers in a “fair and reasonable” manner.
  • The effect of the event has rendered the party’s performance impossible or impracticable. The changed circumstance must be extreme, such that it is unduly burdensome or impossible for the party to comply as originally planned; where impossibility is concerned, under New York law, the subject matter of the contract must have been destroyed or the means of performance must have been rendered objectively impossible. The party seeking relief from its obligations under the existing contract must also show that it was not at fault in causing the event. The reasoning behind this requirement is clear: a party should not be able to take advantage of his or her own misconduct. Here, it is also important to determine how risk has been allocated between the parties under the contract. Even where the other requirements are met, if the adversely affected party assumed the risk of the occurrence of the changed circumstances during contract formation (impliedly or explicitly), it will not be able to invoke impossibility or impracticability. To gauge risk allocation, a party should examine the express language of the contract (i.e., what disruptive events the parties contemplated, and which party was to bear the associated loss and expense), or even the parties’ course of business and dealings. Industry customs may also provide clues to proper risk allocation. For example, industry custom in property rentals is for a premises owner to obtain casualty insurance rather than the party hosting its event on site. As such, risk for the loss of the property would flow more naturally to the owner.

Other Contract Clauses

Various additional contractual provisions may relate to an unexpected event like COVID-19.

  1. Material Adverse Change (MAC) Clause

Many commercial contracts include a material adverse change clause (otherwise known as “material adverse effect”). Where present, this clause could excuse performance or allow a party to suspend performance should a materially adverse change occur. Events constituting a materially adverse change are, as with force majeure provisions, commonly enumerated specifically within the contract and typically also involve wide-scale disruptions.

Historically, MAC clauses have been difficult to enforce, as courts are wary of excusing contractual performance for short-term changes in circumstances, but as is possible with force majeure and related defenses, courts may shift their stance in the coming months. For example, following the September 11, 2001 attacks, New York courts were more amenable to viewing declining rental prices in Manhattan as grounds to declare a material adverse change (See In re Lyondell Chem. Co., 567 B.R. 55, 123 (Bankr. S.D.N.Y. 2017), aff’d, 585 B.R. 41 (S.D.N.Y. 2018) (citing River Terrace Assocs., LLC v. Bank of N.Y., 10 Misc. 3d 1052(A), 2005 WL 3234228 (N.Y. Sup. Ct.), aff’d, 23 A.D.3d 308 (N.Y. App. Div. 2005))). Further, New York courts have allowed commercial parties to cease contractual performance based on demonstrated extensive financial losses during the pendency of a merger (see Katz v. NVF Co., 100 A.D.2d 470, 471 (N.Y. App. Div. 1984)).

  • Covenants

Commercial contracts commonly contain covenants obligating parties to undertake or refrain from certain behavior. While it is unlikely that parties would have allocated obligations or risk regarding COVID-19 in a covenant, it is worth revisiting covenants within a contract to gauge whether they will affect or be affected by current circumstances. For example, many agreements include covenants obligating parties to provide notice that they are invoking force majeure or that material events have occurred that could give rise to litigation or loss beyond the ordinary course of business.

  • Termination Provisions

Even if parties may not utilize force majeure or other contractual provisions to justify non-performance under a contract, there may be termination provisions that kick in based on the occurrence of certain contingencies, whether at-will or otherwise, such as for late delivery or a breach of a “time is of the essence” clause. It is worth viewing any such provisions within the context of the larger defenses of impossibility, impracticability, and force majeure excusal of nonperformance, in case the other party nonetheless attempts to invoke these doctrines to negate invocation of a termination provision.

This is not the law’s first brush with the unexpected, and although this is a time of wide-reaching uncertainty, woven into contract law, particularly, is a system to guide parties through the serious impacts that unexpected events may have. Our team at Cowan, DeBaets, Abrahams & Sheppard LLP will continue to provide updates on legal developments related to the present circumstances and we are available should you request further or specific guidance.

Chambers USA 2018 Ranks Partners Lackman and Wolff as Top IP Attorneys; Recognizes Two Cowan, DeBaets, Abrahams & Sheppard LLP (CDAS) Practice Groups

Cowan, DeBaets, Abrahams & Sheppard LLP is delighted to announce that partners Eleanor M. Lackman and Nancy E. Wolff and both CDAS’s Entertainment and IP, Copyright and Litigation Practices have been recognized by Chambers and Partners in the Chambers USA 2018: America’s Leading Lawyers for Business guide.

Eleanor M. Lackman

Nancy E. Wolff

This is the fifth consecutive year Ms. Lackman and the second consecutive year Ms. Wolff have been ranked in the Chambers USA guide. They are both among just 41 New York lawyers ranked in the field of “Intellectual Property: Trademark, Copyright & Trade Secrets – New York.”

“Impressed sources” told Chambers that Ms. Lackman is “an absolutely incredible trademark litigator” and added: “She is very practical and always seems to make the right call.” She also has notable experience handling copyright matters, often advising clients across the media and entertainment industries.

Chambers describes Ms. Wolff as “very well-known and well-respected.” She receives plaudits for her expertise in a range of complex copyright matters and is highlighted for her particular skill across the photography and visual art industry.

CDAS’s Entertainment Practice was awarded a regional designation of “Noted Firm” in “Media & Entertainment: Film, Music, Television & Theater – New York” for the third consecutive year, while the Firm’s IP, Copyright and Litigation Practice received a  “Noted Firm” designation in “Intellectual Property: Trademark, Copyright & Trade Secrets – New York” for the second consecutive year.

The annual guide ranks law firms and lawyers based on in-depth interviews with clients and lawyers, technical legal ability, professional conduct, client service, commercial astuteness, diligence, commitment, and other qualities most valued by the client.

Fashion Brands Can’t Get a Royal Boost

In a rare precedential opinion, the Trademark Trial and Appeal Board (the “Board”) affirmed a refusal to register the trademark ROYAL KATE for use on cosmetics, handbags, bedding and apparel.  The Board found that this mark falsely suggests a connection with Kate Middleton, the Duchess of Cambridge and, more famously, wife of Prince William, and that it identified the Duchess without her consent.  The decision counsels fashion brands that the trademark office will not condone trading off of the fame of others, even when the mark sought is not such a person’s actual name. Continue reading

CDAS Partner Nancy Wolff’s Webinar Available Online

Recently, CDAS Partner Nancy Wolff hosted a webinar for the Digital Media Licensing Association which answered common questions about when you need releases when using visual images. The webinar is now available online for free, and is a useful resource for anyone publishing or displaying still or motion images and wondering whether permissions are needed from the subjects or property owners depicted in the content. The webinar footage can be found here.

New York Includes “Print And Runway Model” In Child Performers Protected By Labor Laws

A change to New York labor law regulations (Part 186) may have onerous implications for photographers and the stock photography industry who shoot child models  As of November 22, 2013, “print and runway” models are now included among the artistic or creative services that require a permit when using child performers. Previously, the regulations only applied to performers and entertainers in traditional entertainment endeavors and not still photography. The regulations do not define a “print or runway model” and it is possible that it could apply to all photographs offered for a commercial use, even if no money is exchanged. This change creates new restrictions and requirements on those who use models under the age of 18 which require preparation and planning to ensure compliance with the law.  Key components of the law are as follows. Continue reading

Tory Burch Sinks Fashion Pirates

District Court Grants TRO Based on Trademark and Cyberpiracy Claims

Luxury fashion brand Tory Burch scored a victory in the Northern District of Illinois Eastern Division, as the court granted its motions for a temporary restraining order, domain name transfer order and other relief against a syndicate of Chinese counterfeiters selling counterfeit goods across the internet. The unnamed defendants were using hundreds of interactive websites and online marketplaces to sell low quality, fake Tory Burch products, in addition to using various tactics to conceal their identities. Continue reading

Trademark Law Basics, Part 1: Why Register a Trademark?

Welcome to the first part of the CDAS “Trademark Law Basics” series. Over the next month, CDAS attorneys will be explaining the legal and practical basics of trademarks on our IP, Media and Entertainment Law blog. We will also curate the entire series on the CDAS Trademark and Brands Practice Group page.

Just like your own name and face defines your personal identity, your trademark is your company’s identity. Trademarks are protected by U.S. federal law because they help consumers to recognize your products and services, and because they help business owners large and small to benefit from the customer goodwill they have worked hard to create. Continue reading