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Raising The Trademark Stakes

It sometimes seems that branding is everything today – everyone from automakers to social media influencers devotes exorbitant effort to cultivating their brand, along with the words and symbols that personify it.

This applies to even the most mundane and (to an outsider) seemingly generic of items. Consider the magnetic fasteners sometimes used in handbags. As someone who has never purchased or carried a handbag himself, I had never given such items a second thought. But there are people who pay close attention to handbags and their closure mechanisms. To those people, the name Romag Fasteners means something. Not surprisingly, it also means quite a bit to the people who make Romag fasteners.

Which is how this topic made its way to the U.S. Supreme Court.

Sometime back, Romag made a deal with Fossil Group, Inc. to use Romag fasteners in Fossil’s leather goods. That sounds like a good arrangement for both sides. Ultimately, though, Fossil manufactured its bags in China, at facilities that routinely used counterfeit fasteners instead of purchasing them from Romag. Understandably, this made Romag unhappy, but complaints to Fossil were apparently unavailing. So Romag took Fossil to court and won.

The issue that reached the Supreme Court turned on the question of damages. Romag sought to recover the profits Fossil made on goods produced with counterfeit components that infringed Romag’s trademarks. Fossil argued that, under the precedents of the 2nd U.S. Circuit Court of Appeals (which controlled because the suit was brought in Connecticut), the court can only award profits for trademark infringement done willfully. Fossil pleaded ignorance. The trial jury found that while Fossil acted with “callous disregard” of Romag’s trademark, its conduct did not meet the court’s definition of willful action. The district court thus declined to award Romag the profits it asked for.

If you think this is a pretty technical issue that could not conceivably matter to you, consider this: You probably shop online on marketplaces – such as Amazon – that offer goods of their own, as well as goods from third-party sellers. When you buy, say, a Fossil handbag with a Romag fastener, you expect to receive a Fossil handbag with a Romag fastener, and nothing else.

Thanks to the Supreme Court’s ruling in Romag Fasteners, Inc. vs Fossil, Inc., your chances have recently improved. The high court ruled 9-0 that the rule followed by the 2nd Circuit and some others in the country is incorrect. The trademark owner whose rights are infringed can collect damages based on the infringing party’s profits, even if the infringement is not willful.

That doesn’t mean every infringement will result in such damages. Justice Neil Gorsuch’s decision notes that even if willful misconduct is not an absolute prerequisite for an award of profits, the defendant’s mental state will remain “a highly important consideration in determining whether an award of profits is appropriate.” In other words, willfulness or the lack of it can serve as a contributing factor, even if the law does not mandate it in every case. Note, too, that Romag brought its case against the party that both manufactured (through its subcontractors) and marketed the goods, not a retailer like Amazon or a department store that merely sold them.

Even so, if I were managing a marketplace similar to Amazon’s, this case would give me one more reason to be transparent, vigilant and efficient at keeping counterfeits and other trademark-infringing goods off my platform. Good faith and good conduct are always a good defense against claims of bad business practices.

Larry M. Elkin is the founder and president of Palisades Hudson, and is based out of Palisades Hudson’s Fort Lauderdale, Florida headquarters. He wrote several of the chapters in the firm’s recently updated book, Looking Ahead: Life, Family, Wealth and Business After 55. His contributions include Chapter 1, “Looking Ahead When Youth Is Behind Us,” and Chapter 4, “The Family Business.” Larry was also among the authors of the firm’s book The High Achiever’s Guide To Wealth.

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