Monday, January 13, 2020

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 o
n 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.







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