Where There's a Will, There's a Way: Reconciling Theories of Willful Infringement and Disgorgement Damages in Trademark Law

• Publication year: 2015
• Citation: Vol. 22 No. 2

Where There's a Will, There's a Way: Reconciling Theories of Willful Infringement and Disgorgement Damages in Trademark Law

Rachel Anne Zisek

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Zisek: Where There's a Will, There's a Way: Reconciling Theories of Will

WHERE THERE'S A WILL, THERE'S A WAY: RECONCILING THEORIES OF WILLFUL INFRINGEMENT AND DISGORGEMENT DAMAGES IN TRADEMARK LAW

Rachel Anne Zisek^*

Table of Contents

I. INTRODUCTION..........................................................................................465

II. BACKGROUND.............................................................................................469

A. DEFINING TRADEMARKS AND TRADEMARK INFRINGEMENT...................................................................................469
B. THE LANHAM ACT AND DISGORGEMENT OF PROFITS.................470
C. THE FEDERAL DILUTION ACT OF 1995, THE LANHAM ACT'S 1999 AMENDMENT, AND WILLFULNESS DEFINED........................472
D. WILLFULNESS AS A REQUIREMENT FOR DISGORGEMENT...........473

1. THE TENTH CIRCUIT'S REQUIREMENT OF WILLFULNESS................................473

E. WILLFULNESS AS A CONSIDERATION FOR DISGORGEMENT.......476

1. THE FIFTH CIRCUIT'S FACTOR-BASED CONSIDERATION OF WILLFULNESS...........476
2. THE THIRD CIRCUIT'S APPLICATION OF THE FIFTH CIRCUIT'S TEST................477
3. THE FOURTH CIRCUIT REMOVES WILLFULNESS...........................................478

F. AMBIVALENCE TOWARDS WILLFULNESS.........................................479

1. THE FIRST CIRCUIT STALLS.....................................................................479
2. THE EIGHTH CIRCUIT AVOIDS THE QUESTION..........................................479
3. THE NINTH CIRCUIT DISMISSES WILLFULNESS..........................................480
4. THE SECOND CIRCUIT AS A QUINTESSENTIAL EXAMPLE OF THE CIRCUIT SPLIT..................................................................................................480

III. ANALYSIS......................................................................................................481

A. CONGRESS'S SILENCE CONCERNING WILLFULNESS INDICATES RETAINING A WILLFULNESS REQUIREMENT IS PROPER..................................................................................................483

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B. REMEDIAL THEORIES UNDERLYING DISGORGEMENT OF PROFITS SUPPORT A WILLFULNESS REQUIREMENT.......................484

1. PROOF OF WILLFULNESS PROPERLY COMPENSATES VICTIMS OF TRADEMARK INFRINGEMENT......................................................................................484
2. PROOF OF WILLFULNESS CORRECTS UNJUST ENRICHMENT..............................485
3. PROOF OF WILLFULNESS DETERS FUTURE INFRINGEMENT................................486

C. MERELY VIEWING WILLFULNESS AS A CONSIDERATION DOES NOT ACCURATELY REPRESENT CONGRESSIONAL INTENT..................................................................................................487

IV. CONCLUSION...............................................................................................489

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I. Introduction

At its core, trademark law aims to prevent consumer confusion and protect business investment with a property right.¹ Business entities utilize trademarks to distinguish their products from others available on the market.² When investigating allegations of trademark infringement, courts embark on a case-by-case inquiry that considers a number of factors surrounding marketplace conditions and behavior.³ The inquiry overall seeks to reduce consumer research costs by evaluating whether or not consumers would be confused by the infringing mark.⁴

When Congress enacted the Lanham Act in 1946, it streamlined existing trademark legislation⁵ and codified certain prevailing common law consumer protections.⁶ Two provisions stemming from the common law provide remedies to mark owners: § 1116 for injunctive relief and § 1117 for monetary relief.⁷ Specifically, § 1117 provided for damages through disgorgement, which allows a mark owner to recover the percentage of its economic loss attributable to an infringer's illegal activities.⁸ Historically, mark owners were only eligible to receive disgorgement damages in instances of willful infringement.⁹ Innocent infringement could not be subject to disgorgement.

To ensure effective consumer protection, Congress has amended the Lanham Act nearly twenty times since its inception.¹⁰ An amendment in 1999 sought to clarify the statute's protections regarding trademark dilution, defined as the diminished distinctiveness of famous trademarks.¹¹ Because Congress sought to criminalize only willful instances of dilution, it added additional

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language to § 1117.¹² However, this addition perplexed courts, making judges unsure whether or not the amendment removed the need for mark owners to prove willfulness before receiving disgorgement damages.¹³ For the past fifteen years, this uncertainty has created a frustrating circuit split that has divided judges on the interpretation of a willfulness requirement.

A June 2014 decision from the district court of Connecticut, Romag Fasteners, Inc. v. Fossil, Inc., provides a clear illustration of the confusion caused by the Lanham Act's 1999 amendment.¹⁴ In that case, Romag Fasteners designed patent-protected magnetic purse fasteners.¹⁵ It distinguished its fasteners from others on the market by using a "Romag" trademark.¹⁶ In 2002, Romag entered an agreement with Fossil, Inc., another handbag manufacturer,¹⁷ permitting Fossil's use of Romag fasteners in its products.¹⁸ Several years later, Romag Fasteners discovered Fossil counterfeited and purchased fasteners beyond the scope of their agreement.¹⁹ The parties reached a settlement agreement regarding the use of these counterfeited fasteners.²⁰ Romag Fasteners, however, continued to find its fasteners in Fossil products in department stores in the years following their initial allegations.²¹ As a result, it filed suit in the district court of Connecticut.²²

Romag Fasteners raised a number of claims against Fossil, including trademark infringement.²³ In the first phase of the trial, the jury found that Fossil infringed Romag Fasteners' mark²⁴ and determined that one percent of Fossil's profits were attributable to its infringing actions.²⁵ This percentage constituted disgorgement damages, requiring the jury to award Romag Fasteners a portion of Fossil's profits to compensate for its economic losses.²⁶

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The jury's disgorgement calculations returned $90,759.36 of Fossil's profits under an unjust enrichment rationale and $6,704,046.00 under a deterrence theory.²⁷ Fossil contested this award.²⁸ Although the jury found Fossil liable for trademark infringement, it did not find this infringement was willful.²⁹ Fossil then questioned the jury's damage award by arguing that willfulness was a prerequisite for awarding disgorgement.³⁰ However, Romag Fasteners countered, stating that the 1999 amendment to the Lanham Act effectively abrogated any preexisting willfulness requirement.³¹

In its lengthy discussion of disgorgement, the District Court of Connecticut highlighted the uncertainty surrounding willful infringement resulting from the 1999 amendment and the resulting circuit split.³² After considering the various approaches employed by the circuit courts, the Romag Fasteners, Inc. court held willfulness was a prerequisite for awarding disgorgement damages.³³ This finding was based on the court's interpretation of the 1999 amendment, which did not indicate an abrogation of the willfulness requirement.³⁴ Because the jury did not find Fossil had willfully infringed Romag Fastener's mark, the court concluded that Romag Fasteners was not eligible to receive disgorgement damages at Fossil's expense.³⁵

Although this case was decided within the Second Circuit, Romag Fasteners, Inc. highlights the universal need for clarity in the relationship between willful infringement and disgorgement damages across circuits. Originally, § 1117 of the Lanham Act did not contain any language pertaining to willfulness, as the statute imputed the willfulness requirement contained in the common law.³⁶ While Congress's 1999 amendment intended to criminalize willful instance of trademark dilution,³⁷ judges remain confused about whether the amendment had any effect on the disgorgement of profits unlawfully gained from non-famous marks.

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The perplexity experienced by circuit courts is apparent in other non-dilution infringement actions decided after Congress's amendment. Since 1999, only one circuit court, the Tenth, has affirmatively retained a willfulness requirement in the disgorgement context.³⁸ Three circuits have abrogated willfulness from its disgorgement analysis completely.³⁹ More starkly, four circuits have expressly declined to address the role of willfulness, which serves as evidence of the ambiguity resulting from Congress's actions in 1999.⁴⁰ Specifically, courts within the Second Circuit remain deeply divided over willfulness's proper place in awarding disgorgement damages.⁴¹ This ambivalence and uncertainty has plagued courts for far too long. To properly inform mark owners of disgorgement's availability and potential infringers of potential liability, a clear stance on the requirement of willfulness for the disgorgement remedy is necessary.

This Note seeks to determine willfulness' proper place when awarding damages disgorged from an infringer's profits. Part II of this Note will provide the necessary context for the willfulness debate. It describes the purpose of trademark protection and various legislative actions taken to properly preserve that protection. In addition, it also details the three ways circuit courts have approached willfulness in the disgorgement context.

Part III then argues that courts should require a showing of willfulness before awarding disgorgement damages in infringement actions. More specifically, it will argue that Congress's silence on willful infringement beyond...