• Paul Peter Nicolai

Uncertainty Over Defendant’s Profits in Trademark Cases Remains

Updated: Sep 14

The federal trademark law was passed in 1946. Through the 1980s an order telling and infringer to stop was the preferred way to end trademark cases. Most courts required a finding of intentional, or bad faith infringement for any monetary award

After 1995 this requirement started to dissolve away for awards of a plaintiff’s actual damages or lost profits. Different courts did it in different ways and not all of them did it at the same time.

Recently, the US Supreme Court, in a unanimous decision, noted the split between courts resolved the dispute over the law’s demands. The Court concluded that proof of willfulness is a consideration but not a requirement for disgorgement of an infringer’s profits.

This decision could be seen as favoring a plaintiff’s ability to get a money award in trademark cases. Starting from a preference for injunction, the courts subsequently dispensed with a willfulness requirement for recovery of actual damages. In addition, the burden was put on the defendant to prove both cost of goods sold to calculate profits and allotment of those profits between infringing and non-infringing elements.

In fact, a willfulness requirement for awarding defendant’s profits to the plaintiff was frequently justified by courts as a way of recognizing the difficulty of allocation and avoiding windfall awards. It is interesting that a current Supreme Court member voiced this concern while a member of a lower court, saying that a finding of willful, targeted wrongdoing should be a prerequisite for the severe and often cumbersome remedy of a profits award.

Has the Court now universally removed the willfulness requirement as well? Not exactly. As one justice noted, the weight of authority which indicates that profits are hardly, if ever, awarded for innocent infringement. Nor would doing so seem to be consistent with longstanding equitable principles which, after all, seek to deprive only wrongdoers of their gains from misconduct. Thus, a district court’s award of profits for innocent or good-faith trademark infringement would not be consonant with the principles of equity and reflected in the cases the majority cites. 17

So, although the Court said willfulness should is not a requirement for disgorgement, it agreed that willfulness is still a critical consideration without saying what its proper application should be. The decision is not guaranteed to change the end result at lower courts given the importance of principles of equity to determining monetary awards under the law.

Although this may not have been the Court’s intent, its agnosticism could leave room for bias to continue among lower courts. Those courts that found willfulness to be an absolute prerequisite could choose to more heavily weigh evidence of it in practice. Because disgorgement is an equitable rather, judges have nearly unlimited power to increase, decrease, or eliminate it.

The defendant in the Supreme Court case warned that eliminating the willfulness requirement would lead to baseless trademark litigation. It may be the decision will mean an increase in trademark cases where the plaintiff forgoes any attempt to claim actual damages and asks only for disgorgement of the defendant’s profits. The law already puts a light burden on plaintiffs on disgorgement calculations, requiring only a calculation of the infringing sales. The defendant must prove deductions to reduce sales to profits and show what part of these profits are due to use of the disputed mark rather than legitimate factors.

Relieved of the willfulness requirement, plaintiffs will find it easier to bring a case for monetary award in a trademark case, but not easier to bring a winning case. As long as willfulness is still seen as an important consideration, wise parties on both sides will address it.

Based on the Court’s desire to resolve differences between lower courts on awards of defendant’s profits, it may consider cases that address other discrepancies like the proper deductions from sales and apportionment of profits. While incremental profits are a near certain standard for estimating plaintiff’s lost profits, a number of methods of calculating defendant’s profits have been used by various courts.

Likewise, apportionment is a difficult issue sometimes called inherently impossible, leaving the courts to either impose a willfulness requirement or pick from available evidence a portion of profits that seems justified.

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