By Bill Donahue
Law360, New York (September 1, 2017, 8:26 PM EDT) -- Trademark attorneys would love to give their clients hard answers, but many legal issues are unresolved. In Part 3 of a three-part series, Law360 wraps up its look at some of the biggest open questions that courts and lawmakers have yet to definitively answer.
Is Willfulness Required for Profits?
There are open questions, and then there’s The Open Question: Must a trademark owner prove an infringer acted willfully to win an award of profits?
The unresolved issue, raised more than any other by attorneys who weighed in with Law360 for the "Open Questions" series, has divided appellate courts for decades, pushing the country’s circuits into two broad camps.
In one, the Second, Eighth, Ninth, Tenth, Federal and D.C. circuits have made willfulness a hard threshold for an award of profits, saying it would be inequitable to hand down a huge fine without such wrongful intent. In the other, the Third, Fourth, Fifth, Sixth, Seventh and Eleventh circuits view willfulness as only one factor to be considered when weighing an award of profits.
“While some courts have held that a finding of willfulness is a prerequisite, many consider it merely a relevant factor to be considered in balancing the equities,” said Lauren Emerson, an attorney with Leason Ellis.
Going into 2017, many hoped this might be the year we got an answer. In August 2016, a company called Romag Fasteners Inc. took the issue to the U.S. Supreme Court, urging the justices to weigh in on a situation that had left the circuit courts “intractably divided.”
Romag, which makes magnetic fasteners for watches and wallets, had won a trademark infringement verdict against Fossil Inc., but a federal judge later vacated a $6.8 million award of profits on the grounds that Romag hadn’t shown that Fossil acted willfully. The judge was inside the Second Circuit, one of the courts that requires willfulness.
“The answer to the question is critical to trademark holders’ abilities to enforce their intellectual property rights and to protect the public from counterfeit goods,” Romag wrote in asking the high court to take the case.
Sadly, it was not to be. In March, the Supreme Court vacated and remanded the case over an entirely separate issue; in June, the damages order was reinstated by the lower court, and Romag has not refiled a petition with the high court.
Adding to the gravity of the uncertainty over willfulness is the importance that profits play in trademark litigation. Actual damages, the alternative form of monetary remedy, are notoriously difficult to show in trademark cases, meaning profits are often the only viable route to a substantial award.
Whether they are even available is a question many trademark attorneys would like settled for good.
“Given the difficulty many plaintiffs have in establishing actual financial damage in trademark cases, the potential ability to go after an infringer’s profits is significant,” Emerson said.
How Do You Show Irreparable Harm?
It’s been more than a decade since the Supreme Court ruled that injunctions shouldn’t be automatic in patent cases, but the fallout for trademark law is still up in the air.
The high court’s 2006 ruling in eBay Inc. v. MercExchange overturned the long-standing presumption of “irreparable harm” for patent owners who successfully prove infringement, meaning they need to actually show such harm if they want to win an injunction.
Successful trademark plaintiffs had enjoyed the same presumption, and over the intervening years, courts have slowly begun to rule that Lanham Act litigants, too, must offer a more detailed showing in order to win an injunction.
Most notably, the Ninth Circuit applied eBay in December 2013 to reverse a preliminary injunction granted to the estate of musician Herb Reed in a trademark case over a promoter’s use of Reed’s former band’s name, The Platters.
In tossing out the injunction, the appeals court said a trial judge’s look at the irreparable harm had been “cursory and conclusory, rather than being grounded in any evidence or showing.” The ruling went so far as to say that the lower judge had effectively re-created the presumption struck down by the eBay ruling.
For trademark attorneys, the Herb Reed ruling has raised a lot of questions — particularly its holding that mark owners must show something else beyond likely consumer confusion and loss of goodwill if they want to win an injunction.
It’s easy to say that eBay calls for evidence beyond what is needed to show a likelihood of success, but it's been harder to figure out what exactly that means in the trademark context.
“We know it cannot be presumed any more, but exactly how to evidence it is a mystery for practitioners and the courts,” said Jane Shay Wald, the chair of the trademark practice at Irell & Manella LLP. “Especially if the defendant has not yet used its mark and the point of the preliminary injunction is to preclude an infringing launch.”
The Reed estate took its case to the U.S. Supreme Court in 2014, warning the justices that there are “significant differences” between patent law and trademark law that make it hard to rigidly push eBay from one to the other.
“In patent cases, irreparability of harm does not necessarily flow from the evidence showing infringement,” the estate wrote. “But in a trademark case, the plaintiff must show ... customer confusion impairing control over the mark or goodwill. As a result, the same evidence ... will often show irreparable harm.”
In October 2014, however, the high court turned down the case, leaving the Ninth Circuit’s ruling in place.
How other courts continue to rule on injunctions in trademark cases, and whether some form of presumption of irreparable harm survives eBay, is “the big issue that is still unresolved” in trademark law, said David H. Bernstein, chair of the IP litigation group at Debevoise & Plimpton LLP.
“For reasons that we have written about in amicus briefs and law review articles, we strongly believe that [the presumption] is still viable, notwithstanding some circuit court decisions to the contrary,” Bernstein said.
--Editing by Philip Shea and Sara Ziegler.