Romag Fasteners, Inc. v. Fossil, Inc.

• Decision Date: 31 March 2016
• Docket Number: 2014–1857.,Nos. 2014–1856,s. 2014–1856
• Citation: 817 F.3d 782
• Parties: ROMAG FASTENERS, INC., Plaintiff–Appellant v. FOSSIL, INC., Fossil Stores I, Inc., Macy's, Inc., Macy's Retail Holdings, Inc., Belk, Inc., The Bon–Ton Stores, Inc., The Bon–Ton Department Stores, Inc., Dillard's, Inc., Nordstrom, Inc., Zappos.com, Inc., Zappos Retail, Inc., Defendants–Cross–Appellants.
• Court: U.S. Court of Appeals — Federal Circuit

817 F.3d 782

ROMAG FASTENERS, INC., Plaintiff–Appellant

v.FOSSIL, INC., Fossil Stores I, Inc., Macy's, Inc., Macy's Retail Holdings, Inc., Belk, Inc., The Bon–Ton Stores, Inc., The Bon–Ton Department Stores, Inc., Dillard's, Inc., Nordstrom, Inc., Zappos.com, Inc., Zappos Retail, Inc., Defendants–Cross–Appellants.

Nos. 2014–1856

2014–1857.

United States Court of Appeals, Federal Circuit.

March 31, 2016.

Jonathan Freiman, Wiggin and Dana LLP, New Haven, CT, argued for plaintiff-appellant. Also represented by Tonia A. Sayour, Norman H. Zivin, Cooper & Dunham, LLP, New York, NY.

Jeffrey E. Dupler, Gibney Anthony & Flaherty, LLP, New York, NY, argued for defendants-cross appellants. Also represented by Lawrence Brocchini, Reavis Parent Lehrer LLP, New York, NY; Lauren Albert, Law Offices of Lauren S. Albert, New York, NY; Nicholas Geiger, Cantor Colburn LLP, Hartford, CT.

Before DYK, WALLACH, and HUGHES, Circuit Judges.

DYK

, Circuit Judge.

Romag Fasteners, Inc. ("Romag") owns U.S. Patent No. 5,777,126 ("the '126 patent")

on magnetic snap fasteners, which Romag sells under its registered trademark, ROMAG. Romag sued Fossil, Inc. and Fossil Stores I, Inc. (together, "Fossil"), along with retailers of Fossil products, alleging, inter alia, patent and trademark infringement. A jury found Fossil liable for both patent and trademark infringement and made advisory awards. The district court reduced the patent damages because of Romag's laches and held as a matter of law that Romag could not recover Fossil's profits for trademark infringement because the jury had found that Fossil's trademark infringement was not willful. We affirm.

BACKGROUND

Romag sells magnetic snap fasteners (for wallets, purses, handbags, and other products) under its registered trademark, ROMAG. The fasteners are also covered by the claims of Romag's '126 patent

. Fossil designs, markets, and distributes fashion accessories, including handbags and small leather goods, and contracts with independent businesses to manufacture its products. In 2002, Fossil and Romag entered into an agreement to use ROMAG magnetic snap fasteners in Fossil products. Pursuant to the agreement, Fossil instructed its authorized manufacturers of handbags and other products to purchase, where necessary, ROMAG fasteners from Wing Yip Metal Manufactory Accessories Limited ("Wing Yip"), a Romag licensee located in China that manufactures all of Romag's fasteners.

One of Fossil's authorized manufacturers, Superior Leather Limited ("Superior"), purchased tens of thousands of ROMAG fasteners from Wing Yip between 2002 and 2008. However, between August 2008 and November 2010, Superior purchased only a few thousand fasteners. In 2010, Howard Reiter, the founder and president of Romag, discovered that certain Fossil handbags contained counterfeit fasteners. Romag filed suit against Fossil on November 22, 2010, alleging patent infringement, trademark infringement, false designation of origin, common law unfair competition, and violation of Connecticut's Unfair Trade Practices Act. Romag moved for a temporary restraining order and preliminary injunction on November 23, 2010, three days before "Black Friday," the highest-volume shopping day in the United States (when the motion would have maximum impact on Fossil's sales).¹

On April 4, 2014, after a seven-day trial, the jury returned a verdict finding Fossil liable for patent and trademark infringement. For patent infringement, the jury awarded a reasonable royalty of $51,052.14. For trademark infringement, the jury made an advisory award of $90,759.36 of Fossil's profits under an unjust enrichment theory, and $6,704,046.00 of Fossil's profits under a deterrence theory. But, despite determining as part of its deterrence-based award that Fossil had acted with "callous disregard" for Romag's trademark rights, the jury found that Fossil's patent and trademark infringement was not willful. After a two-day bench trial to address equitable defenses and equitable adjustment of the amount of profits awarded by the jury, the district court held that Romag's delay in bringing suit until just before "Black Friday" constituted laches, and reduced the jury's reasonable royalty award for patent infringement by 18% to exclude sales made during the period of delay.² The district court also held as a matter of law that, because Fossil's trademark infringement was not willful, Romag was not entitled to an award of Fossil's profits.

Romag appealed, and Fossil filed a conditional cross-appeal challenging the jury instructions as to the award of profits. We have jurisdiction under 28 U.S.C. § 1295(a)(1)

. We review the district court's legal conclusions de novo. Arkema Inc. v. Honeywell Int'l, Inc., 706 F.3d 1351, 1356 (Fed.Cir.2013). We apply our own law with respect to issues of substantive patent law and the law of the regional circuit with respect to non-patent issues. Baden Sports, Inc. v. Molten USA, Inc., 556 F.3d 1300, 1304 (Fed.Cir.2009).

DISCUSSION

I

We first address Romag's argument that Fossil cannot invoke a laches defense to patent infringement. Romag relies on the Supreme Court's decision in Petrella v. Metro–Goldwyn–Mayer, Inc., which held that the equitable defense of laches cannot be invoked as a defense against a claim for copyright infringement. ––– U.S. ––––, 134 S.Ct. 1962, 1974, 188 L.Ed.2d 979 (2014)

. After briefing in this case, we held en banc that laches remains a defense to legal relief in a patent infringement case because "Congress codified a laches defense in 35 U.S.C. § 282(b)(1)." SCA Hygiene Prods. Aktiebolag v. First Quality Baby Prods., LLC, 807 F.3d 1311, 1321 (Fed.Cir.2015) (en banc). As Romag conceded at oral argument, SCA Hygiene controls here. The district court did not err in holding that Fossil could bring a laches defense to a patent infringement claim.

II

We next address Romag's contention that the district court erred in holding that a trademark owner must prove that the infringer acted willfully to recover the infringing defendant's profits.

A

Before 1999, § 35(a) of the Lanham Act, codified at 15 U.S.C. § 1117(a)

, provided that plaintiffs who had established "a violation of any right of the registrant of a mark registered in the Patent and Trademark Office, or a violation under section § 1125(a) of this title ... shall be entitled ... subject to the principles of equity, to recover (1) defendant's profits, (2) any damages sustained by the plaintiff, and (3) the costs of the action." 15 U.S.C. § 1117(a) (1996) (emphasis added) (amended 1999).

The Supreme Court has never addressed whether proof of willfulness is required to recover the infringer's profits either as a matter of traditional equitable principles or under the pre–1999 version of § 1117(a)

. The closest the Court came was in a pre-Lanham Act decision, Saxlehner v. Siegel–Cooper Co., 179 U.S. 42, 21 S.Ct. 16, 45 L.Ed. 77 (1900). There, the Court held that, under the common law, "an injunction should issue against [three trademark infringers], but that, as [one defendant] appears to have acted in good faith, and the sales of the other[ ] [defendants] were small, they should not be required to account for gains and profits." Id. at 42–43, 21 S.Ct. 16. In contrast, in Hamilton–Brown Shoe Co. v. Wolf Brothers & Co., another pre-Lanham Act decision, the Court affirmed an accounting of the infringer's profits where the "defendant [did] not stand as an innocent infringer" but, rather, "the findings of the court of appeals, supported by abundant evidence, show[ed] that the imitation of complainant's mark was fraudulent, [and the defendant] persiste[d] in the unlawful simulation in the face of the very plain notice of [the trademark owner's] rights." 240 U.S. 251, 261, 36 S.Ct. 269, 60 L.Ed. 629 (1916) ; see also McLean v. Fleming, 96 U.S. 245, 257, 6 Otto 245, 24 L.Ed. 828 (1877) (reversing an award of an accounting of profits where "acquiescence of long standing [was] proved ... and inexcusable laches in seeking redress" and explaining that an accounting is "constantly refused ... in case[s] of acquiescence or want of fraudulent intent").

The Restatement of Unfair Competition, beginning with a tentative draft approved in 1991 and as eventually adopted in 1993, took the position that "[o]ne ... is liable for the net profits earned on profitable transactions resulting from [trademark infringement], but only if ... the actor engaged in the conduct with the intention of causing confusion or deception." Restatement (Third) of Unfair Competition § 37(1) (1995)

; Restatement (Third) of Unfair Competition § 37(1) (Tent. Draft. No. 3, 1991). Before 1999, however, there was a division in the courts of appeals as to whether willfulness was required under the "principles of equity" standard adopted in the statute.

Several courts of appeals determined that a finding of willfulness was required for an award of the defendant's profits. Among these was the Second Circuit, whose law governs here. The Second Circuit took the view that "under [15 U.S.C. § 1117(a)

] of the Lanham Act, a plaintiff must prove that an infringer acted with willful deception before the infringer's profits are recoverable by way of an accounting." George Basch Co. v. Blue Coral, Inc., 968 F.2d 1532, 1540 (2d Cir.1992) ; see also Int'l Star Class Yacht Racing Ass'n v. Tommy Hilfiger, U.S.A., Inc., 80 F.3d 749, 753 (2d Cir.1996) ("In order to recover an accounting of an infringer's profits, a plaintiff must prove that the infringer acted in bad faith."). The Second Circuit reasoned that "this requirement is necessary to avoid the conceivably draconian impact that a profits remedy might have in some cases. While damages directly measure the plaintiff's loss, defendant's profits measure the defendant's gain. Thus, an accounting may overcompensate for a plaintiff's actual injury and create a windfall judgment at the defendant's expense." Id. (citing the Restatement (Third) of Unfair Competition § 37

cmt. e (Tent. Draft....