Romag v Fossil and the two things I would like to see in a 9-0 opinion.

I expect the opinion will be 9-0 and issue in early May. 

Note: I'm hoping the Court explains in the opinion that yes, buying handbags is difficult, what with so many factors going into the purchasing decision. This should be an idea example suitable for opinion, see point 6 below. 

I don't expect that to be the first part of the opinion. Just hoping it's somewhere in the opinion. Then I can point to the U.S. reports on R's birthday (instead of McCarthy's once again). 

Here's what I do expect the opinion to address.

1. First, while it would be great for the Court to use the "hot mess" description that Romag's counsel gave to the common law (on whether willfulness requirement existed way back when), that's not needed. 

Even without that label, the Court will probably acknowledge that the Lanham Act and predecessor trademark laws aren’t built on a clear common law foundation when it comes to willfulness being a precondition for disgorgement. 

As Justice Kagan commented to Fossil’s counsel, "although you point to a lot of cases in which the results come out your way, there are comparatively few where the court sets out the [willfulness as a prerequisite to disgorgement] rule as a categorical one. You know, in many of these cases, the courts do seem to be thinking of willfulness as a factor, a significant factor, but not a gateway requirement. So those results might come out your way, but they don't articulate the rule that you propose, do they?" 

The Court will probably state that the canon of construction cited by Fossil isn't working. As Romag’s counsel noted: "And I think in at least in the -- the -- Justice Scalia and Garner book, it says, when you're talking about clarity, it's something that all the members of the bar had to agree was settled, and if the very case as it's -- that was conflicted, if the treatises say it wasn't clear, and if the cases are all over the map, again, the fact that we have three cases where they award profits is kind of either here nor there when we had eight cases that are just inconsistent with the willfulness requirement, including, I will end with, I will sit down early, this Champion Sparkplug case. It's a case in 1947, it was construing the 1905 Act, said it's relevant. And then it cited two other factors as part of the equities. That's, to me, you know, just -- it would be hard to find a settled rule from 40 years of silence under the Lanham Act's predecessor..."

(Emphasis added.)

But maybe the Court does go far enough to agree with Romag’s line about older cases being a "hot mess." It could be the second best part of the opinion. 

2. I think the Court will agree with Romag’s points about willfulness being in § 1125(c) arguments, but this will not play a large issue because of the above. Lack of background clarity removes the foundation of important arguments by Fossil. 

3. More importantly, the Court will see that they are asking for line drawing cases if Fossil wins and willfulness is now a prerequisite to disgorgement. As Justice Kavanaugh said: “there is a gray area of behavior that's not good faith or innocent but reckless but nonetheless is not willful.” Because a win for Fossil demands the next case on willfulness, the Court will not want to ask for more line-drawing. Let's keep in mind that the Lanham Act is a body of law that covers advertising of satellites, too, and not just retail goods like handbags, or components, like fasteners. Let's leave the details to district courts. 

4. District courts are, in any event, given explicit authority to question when a reward is inadequate or excessive in 15 USC § 1117(a). Justice Breyer noted this provision in the statute. "Let’s not make this overly complicated," I read him as suggesting. Entirely reasonable. 

5. Fossil’s counsel said that it’s unfair and tactical for plaintiffs to seek disgorgement from innocent infringers, but externality-tactics go both ways. If Fossil wins, isn't this imposing the burden on trademark owners to police innocent infringement, requiring the Romags of the world to obtain the injunction for such innocent infringement and other Lanham Act violations before they start? How are the brand owners or victims of innocent but wrongful advertising in a good position to deal with this? 

The tactics should be a non-factor for another reason. The Lanham Act doesn't exist in a vacuum. I still think citing to UCC § 2-312(3) helps here. If Macy’s is an “innocent” infringer, to counter Fossil's example, Macy's can look to the merchant supplier for liability through the UCC or through contracts. Maybe a footnote issue, but it's important context about the Lanham Act world: 

"Unless otherwise agreed a seller who is a merchant regularly dealing in goods of the kind warrants that the goods shall be delivered free of any rightful claim of any third person by way of infringement ... " UCC § 2-312 (3)

6. Fossil suggested damages were not hard to prove in Lanham Act cases at one point. I think the case law will show otherwise and I’m not sure I know any trademark lawyers that would disagree this. Justice Kavanaugh’s suggestion is correct: 

Justice Kavanaugh: "But damages is notoriously hard to prove, correct?" 

[Fossil/Respondent]: "Well, I actually disagree with that. She doesn't cite any study or anything. The only study I'm aware of is the Lex Machina study in 2017, which surveyed 2009 to 2017, and every trademark award and found that profits accounted for a total of 13 percent of profits awards and also 13 percent of the dollars. And so to the extent you think that's somehow, you know -- you know, worth the candle or something and you should bump that up, that's something that I think Congress should be dealing with, but of course here they did. They have a statutory damages provision to deal with low damages awards – […]"

Which leads me to why the Court should agree that buying presents is difficult.  

After any finding of infringement, any requested award of compensatory damages requires some degree of quantification. Did the purchase occur because there is a small fastener on the handbag, or, was the purchase made because the handbag has that inside lining with the same value as red under-soles on footwear, or because it came in a box with the cache of a robin’s egg blue jewelry box? 

It's tremendously difficult to identify how many handbag sales happened not because of a fastener but because of the design, the size, the weight, or the pocket features. This is part of why damages are hard to prove. There's also the loss of goodwill and reputational harm damage. 

<rant> So here's the thing I'd like the Court to explain -- consumers have so many options that it is entirely reasonable to have trouble buying certain presents. This is part of why damages are hard to prove. And plus, it would really help to show my wife if the U.S. Supreme Court agrees that birthdays are hard. I keep citing McCarthy's to her but a little extra would help. 

It starts weeks before. You know? Like, WEEKS. And the Court does not have to name the issue, just agree with the principle that a dizzying number of factors go into a purchase of handbags. So many factors. I'm sweating. Her birthday is in July, which is plenty of time (for the Court). </rant>

Plus, there is a common understanding by all trademark lawyers that yes, damages are hard to prove. 

See § 30:46, 5 McCarthy on Trademarks and Unfair Competition § 30:46 (5th ed.) (“difficult, if not impossible, to adequately compensate for after the fact of injury”); § 30:47.50 (“damage to business goodwill and commercial reputation cannot easily be remedied by monetary compensation after the damage is done”); George Basch Co., Inc. v. Blue Coral, Inc., 968 F.2d 1532, 1539, 23 U.S.P.Q.2d 1351 (2d Cir. 1992) (“Due to the inherent difficulty in isolating the causation behind diverted sales and injured reputation, damages from trademark or trade dress infringement are often hard to establish.”).
  
The Court should leave discretion in this area to the trial courts. Again, the Lanham Act covers trademark and competition rights for handbags and satellites, this is a broad swath. 

Some thoughts on Romag v Fossil

1. Prediction is that Romag wins. Both sides have text-based arguments on the statute, but Romag's are slightly better. I haven't seen "a hot mess" used so effectively in SCOTUS briefs before, but maybe I missed one.

  Prof. Lemley supports Romag’s view with historical analysis (I bet the whisperers on both sides wanted that support), but regardless of textual arguments, INTA’s brief puts the core issue best. INTA asks the Court for “a balanced and flexible interpretation of the phrase ‘subject to equitable principles’ that recognizes the importance of willfulness evidence, but does not make it a rigid precondition to a profits award.” And on the point of a balanced approach to remedies under the Lanham Act…

2. Fossil has a big ask. If Fossil wins, a successful plaintiff cannot receive a disgorgement remedy under the Lanham Act even if

· the successful plaintiff proved specific harm of lost sales (not easy to do in infringement or false advertising cases),

· the plaintiff scrupulously did everything it could to protect itself (it registered its marks and designs, gave immediate notice and obtained an immediate preliminary injunction), and yet

· the innocent defendant-infringer still received a windfall due to the infringement.

Romag has a lower hurdle, it seems, like in eBay v. MercExchange, where the Federal Circuit had applied an inflexible rule to prevent the district court from considering a multi-factored test. And like eBay, the Court may just …

3. Let the District Courts consider the factors and decide on the equities. District Courts know how to do this, and I doubt it will get much traction to argue that the Court must prevent trial court judges from operating on a “whim.” These courts decide on equity and principled fairness issues regularly (injunctions, exceptional case determinations, remedies for fraud, imposing criminal sentences, etc.). Wouldn’t want to try to keep equitable discretion powers away from someone like…

4. Judge Sotomayor, who would recognize that sometimes the inability to show compensatory damages (the plaintiff’s lost sales, for example) is inherent to Lanham Act cases, not just to the defendant’s wrongdoing. Judge Sotomayor at the 2nd Circuit joined a panel opinion citing how the district court “may,” if it found lost profits to be “inadequate or excessive,” “in its discretion enter judgment for such sum as the court shall find to be just, according to the circumstances of the case.”[2] What’s the practical difference between this and disgorgement remedy?[3] Pretty broad discretion there.
 

Damage caused by an innocent infringer occurs frequently in false advertising cases, and in Lanham Act cases courts may “engage in some degree of speculation” in assessing damages. Id.

Yet still Fossil wants to preclude disgorgement without willfulness, at one point suggesting that it’s unfair to impose disgorgement damages on the downstream retailer that may know nothing of the infringement.

But isn't that why we have UCC 2-312 (3)[4] and why big chains impose insurance requirements on vendors, on top of the vendor sometimes being forced to sell on consignment ("on wheels"), for example? The Court trusts District Court judges a great deal on equitable discretion. Judge Sotomayor ably handled equitable remedies of gravity and knows the District Courts can make these decisions.

5. If willfulness is required for disgorgement, what marginal incentives result? Fossil may say that in circuits where willfulness is required, there’s no evidence that companies avoid conducting trademark searches and such. That said, what happens after a clear national rule is given on the issue by the Court? Could this marginally push incentives for manufacturers and retailers toward avoiding opinions about their competitors’ branding rights? If a company stops asking for trademark or trade dress opinions from IP counsel for new products, does that indicate willfulness? Certainly not in many cases.

Yes, there are still other reasons to be mindful in marketing (class actions, state consumer fraud acts, FTC actions, state authorities), but what causes of action can be brought by competitors, who may be the only parties who really pay attention to a competitor stretching the truth on a “scientific benefit” of product x?

6. What are the teeth in the “willfulness” prerequisite? What about a hypo on how much recklessness, or voluntary and intentional conduct, is enough to show willfulness. How about Banjo Buddies (3d Circuit, in the briefs). The district court did not, according to then-Circuit Judge Chertoff, find willfulness for the defendant’s Lanham Act violation. But the defendant did not act terribly appropriately and was faulted for intentionally performing other bad acts. Can Fossil explain whether the case should have otherwise been decided? Was the willfulness decision wrong?

In a case without clear and convincing evidence of willfulness on the Lanham Act violation, but bad faith on other causes of action, should the trial court not consider disgorgement, even if it’s the only way to make the plaintiff whole?

7. Questions for Romag:

· How many times have courts approved disgorgement damages without a finding of willfulness? Fossil argues that Romag cites no cases for this. What about state law practice?

· Under pre-Lanham Act practice, how much of a factor was willfulness for awards of infringers' false advertisers' profits?

· Aren’t there other causes of action available if the defendant is unjustly enriched? Can’t we look to them to fill in the gap if willfulness is required for disgorgement? 

8. Questions for Fossil:

· List for the the other causes of action that are available if the defendant is unjustly enriched. Which ones can a competitor (or a Lexmark plaintiff in the “zone of interest”) bring?

· Assume Fossil received $100M in profits on the products, due entirely to innocent infringement. Under what mechanism could an award of plaintiff’s profits be awarded? Why can’t the trial court use § 1117's provision concerning inadequate remedies to award the equivalent of disgorgement profits?[5]

· Romag says pre-Lanham Act law, “At bottom … is a hot mess.” Why is your friend wrong?

My prediction is that the Court will decide that willfulness is not required, that it’s up to the District Court to decide when the accounting of profits is appropriate. Here that will happen on remand. This is chiefly based on the practical outcome, not the historical analysis of whether willfulness is a factor but not a prerequisite. It seems too close to call on history alone.[6]

[1] Issue: Whether, under Section 35 of the Lanham Act, 15 U.S.C. § 1117(a), willful infringement is a prerequisite for an award of an infringer’s profits for a violation of Section 43(a), 15 U.S.C. § 1125(a). A Romag win means willful infringement is NOT a prerequisite for an award of an infringer’s profits for a violation of § 43(a).

[2] Idaho Potato Comm'n v. M & M Produce Farm & Sales, 335 F.3d 130, 141 (2d Cir. 2003)

[3] Braun, Inc. v. Optiva Corp., No. 98 CIV. 4070 (RCC), 2000 WL 1234590, at *1 (S.D.N.Y. Aug. 31, 2000) (taking over the case after Judge Sotomayor's elevation to the appellate court).

[4] § 2-312, “Warranty of Title and Against Infringement; Buyer's Obligation Against Infringement”(3) Unless otherwise agreed a seller who is a merchant regularly dealing in goods of the kind warrants that the goods shall be delivered free of the rightful claim of any third person by way of infringement or the like but a buyer who furnishes specifications to the seller must hold the seller harmless against any such claim which arises out of compliance with the specifications."

This is a well-known tool that, in the absence of an agreement, forces the retailer to own the risk of infringement for purse zippers, shoe designs, the look and feel of watches, etc.

[5] “If the court shall find that the amount of the recovery based on profits is either inadequate or excessive the court may in its discretion enter judgment for such sum as the court shall find to be just, according to the circumstances of the case.”

[6] That said, both sides have titans leading the cases, so let’s see what happens.

Patents - Good or Bad

In 1851, an editorial in The Economist argued that the granting of patents: 

inflames cupidity, excites fraud, stimulates men to run after schemes ... begets disputes and quarrels betwixt inventors, provokes endless lawsuits [and] makes men ruin themselves for the sake of getting the privilege of a patent.

The editorial sought the end of patents.  

A prominent law professor in the field recently said (June 2, 2015), albeit with an eye toward a balanced approach to patent laws: 

The fact that the law encourages inventors to file first and figure out later how (or even if) the invention works for its intended purpose is unfortunate. It produces underdeveloped patent applications that do not communicate useful information to the world. It facilitates the rise of patent trolls who obtain patents but never bother to produce a product, instead making a business of suing those who do.

And it pushes people to patent things just in case, adding more patents into a system already overburdened with them.

Grim fortunes for the patent system. Nevertheless, the problems are not likely solved with doing away with the entire system, unless we conclude that the world would be better off without the patent system. Can we say that? Empirical evidence may suggest serious costs, but evidence on pharmaceutical and chemical patents suggests a great value does exist in at least some parts of the patent world. 

Silicon Valley businesses, by and large, disfavor patents because they present a substantial tax on innovative business ideas that are incredibly helpful. 

Pharmaceutical and medical companies are just as vociferous in their need to maintain the patent system because it takes billions in research and FDA processes (especially the arduous clinical trials process), to find a single new drug worth the investment.

This conflict is not a new debate. Patents do spur invention to a certain degree, and patents do create a costly right to exclude others. In some cases that costly right is burdensome because the rights cannot be understood. As Professors bessen and Meurer argue, if you can’t tell the boundaries, it ain’t property. [See Bessen and Meurer, Patent Failure].

To thread the needle, one idea is to award different time limits for different fields. For example, keep the 20-year time for pharmaceuticals requiring large investment, but shorten the time for business methods, or software patents. One problem is what to do when inventions merge ideas from the fields. 

International (PCT) Filings

  What follows is a brief discussion of international patent application costs and tactics. Because there is so much more information about costs and benefits of international patent applications, I cannot put it all in one brief section. But the complexity should further questions with a registered patent attorney. 

 

  Also, one quick point before I discuss international issues: patent attorneys may recommend filing a provisional application in the U.S., which seizes a priority date, and gives an inventor options over the next 12 months. The options include filing a non-provisional U.S. patent application, filing a PCT application, or both. If inventors would like to proceed with the provisional filing, discuss this option with knowledgeable counsel.

 

  PCT Costs and Considerations

 

  A PCT application allows an inventor to file one PCT application, which acts as a placeholder for about 30 to 31 months, depending on the country. By the 30- or 31- month deadline, the inventor must decide the countries in which to file. It is the process of entering countries where this can get expensive. That is, the inventor may be charged for each nation’s filing fees, which are often between $2,000 and $7,000. European Patent Office fees, like the US Patent Office fees, fluctuate. Also, there are sometimes expensive translation requirements.

 

  Here is a good description of the PCT process: http://www.wipo.int/pct/en/faqs/faqs.html 

  And in even more detail: http://documents.epo.org/projects/babylon/eponet.nsf/0/7C5EF05581E3AAC0C12572580035C1CE/$File/euro-pct_guide_2015_en.pdf

 

  A PCT application’s filing fees can be approximately $3,000, without attorney costs. Here is an example of a fee breakdown:

 

              Transmittal fee is $120 for small entity

Search fee is $1,040 for small entity

International fee is $1,176

Preliminary Examination: $300

 

               Total filing fees: $2,636

(Note that USPTO PCT fees are subject to change.)

 

  Legal fees, as with a provisional, may be from $4,000 to $8,000, and sometimes well over $10,000 for complex patent applications, or even because the inventor and patent counsel simply needed time to refine the concepts into the best possible application. 

 

  If an inventor files a U.S. provisional application, an international PCT application may maintain the priority date of the U.S. provisional’s filing date, if the PCT is filed within one year of the provisional. So, within one year of filing a provisional application in the U.S., an inventor would file a U.S. non-provisional application, or a PCT application, or both.

 

  One strong tactic is to file the PCT based on the provisional. The PCT is often more expensive than a non-provisional, but it may reduce the cost of the non-provisional fee from $730 to about $100 if a PCT examination opinion is favorable. Also, a PCT opinion should be returned to the inventor before the USPTO would respond to a non-provisional application. That is, the USPTO typically responds within 18 months of the non-provisional filing, while the PCT may respond within 16 months of the earlier, provisional filing.

 

  Further complicating matters: it is now possible to file accelerated U.S. non-provisional applications, for approximately a $2,000 filing fee. The accelerated examination may reduce the time for issuance of a patent from 2-3+ years, down to one year. However,  such a "Track One" prioritized application, at least as of this writing, can have no more than 4 independent claims and no more than 30 total claims.

 

  As I mentioned earlier, this is a lot of information. There are costs and benefits to filing a provisional, followed by a PCT application, but a good rule of thumb is that a U.S. non-provisional patent application may cost $8,000 to $15,000+, and protection in multiple countries may be a multiplication of that due to the entry fees. The inventor may choose to enter only the EU and Japan, or only the U.S., France, the U.K., and Germany, or may choose other variations, depending on the business strategy.

 

Further background:

 

USPTO’s current international PCT fees: http://www.uspto.gov/patents-getting-started/international-protection/patent-cooperation-treaty/pct-fees-us-dollars 

WIPO’s fee table: http://www.wipo.int/export/sites/www/pct/en/fees.pdf  

Goodlatte bill scenario and Coase

Goodlatte bill scenario below.

Professor Crouch provides the bill: http://patentlyo.com/media/2015/02/InnovationAct2015.pdf

§ 285. Fees and other expenses 5 (a) AWARD.—The court shall award, to a prevailing 6 party, reasonable fees and other expenses incurred by that 7 party in connection with a civil action in which any party 8 asserts a claim for relief arising under any Act of Con- 9 gress relating to patents, unless the court finds that the 10 position and conduct of the nonprevailing party or parties 11 were reasonably justified in law and fact or that special 12 circumstances (such as severe economic hardship to a 13 named inventor) make an award unjust.

1. Inventor A's patent, which issued in 2006, is pre-KSR (obviousness), pre-Myriad/Alice (101), and pre-Nautilus (112). The patent is invalidated on re-exam. All claims. Defendant B seeks an award as prevailing party.

(3) EFFECTIVE DATE.—The amendments made 21 by this subsection shall take effect on the date of the 22 enactment of this Act and shall apply to any action 23 for which a complaint is filed on or after the first 24 day of the 6-month period ending on that effective 25 date.

Consider the above without respect to the financial size of A or B.

2. This is not a Coasean world of no transactions costs. However, if Inventor A's patents are enforceable, could A get a bidding war started on A's patent between Defendant B and B's competitor C? B and C may more favorably seek an injunction under eBay.

Slices of Professor Manne's thoughtful WSJ articles...

...may be read through Google's access to the WSJ 

No 3D printing of Legos yet

http://webtrough.wordpress.com/2015/01/08/why-you-cant-3d-print-lego-yet/

Because Lego bricks are made to really tight tolerances – 0.01mm. That fraction of a millimetre is the difference between them falling apart, and being too stiff to snap together at all.

You’re not going to get that accuracy with your 3D printer, so you won’t be able to torrent a working lego set any time soon.

From a reddit discussion

Economics of Brand Names

http://cafehayek.com/2014/12/quotation-of-the-day-1211.html

Professor Boudreaux's thoughts on brand names and health:

I’m sure that somewhere someone has tried to document or to measure the contribution to food safety of brand names (and other private quality-assurance methods) relative to the contribution of government regulation, such as that supplied in the U.S. by inspectors for the U.S.D.A. and various state and local bureaucrats.  But I’m unfamiliar with any such studies.  My strong prior is that the contribution of brand names and other private-sector institutions far outstrips that of government regulation.

More from the post:

Brand names are one of the many ways that markets supply public goods – solve free-rider problems – internalize externalities.  If, say, dairies all sold milk in homogeneous containers, then Jones the dairy farmer would have less incentive to incur costs to improve or to maintain the quality of his milk: because his milk is indistinguishable, in consumers’  eyes, from other-producers’ milk, Jones personally pockets all the money he saves by not spending it on quality enhancement and assurance, while the costs of his actions are spread out among countless consumers and other dairy farmers.  The reason is that Jones’s low-quality milk reduces the average quality of the milk supply available to consumers, so consumers’ demand for milk falls from what it would have been were the quality of milk higher.  All dairy farmers suffer from the lower price they get for their milk.

Of course, what’s true for farmer Jones is true for all other dairy farmers.  All dairy farmers have incentives to skimp on quality.  So milk’s quality is kept low.
But now comes farmer Smith who markets his milk in branded packages with a unique design, logo, color scheme, and slogan (“Smith’s – The Yummiest Milk!”).  If Smith acts as Jones does, Smith suffers more than Jones does.  Smith would, like farmer Jones, pocket all the money saved by scrimping on maintaining his milk’s quality, but unlike Jones, Smith would also suffer the full consequence of his scrimping on quality.  Consumers, tasting Smith’s poor-quality milk and being able to identify it as coming from Smith’s farm, would reduce their demands for Smith’s milk and increase their demands for milk other than Smith’s.  Therefore, Smith has much less incentive than does Jones to supply poor-quality milk.  Smith’s branding keeps Smith honest.  And Smith himself has the incentive to devise and use this means of keeping himself honest.  No top-down command from government officials was necessary.

TRADEMARKS - Dep't of Marketing Failures

Business Insider, here: http://www.businessinsider.com/the-15-worst-corporate-logo-fails-2014-1?op=1