Branding Blind: The Cost of Neglecting Trademark Due Diligence Just Went Up

Written by Noel French

April 26, 2020

Takeaway for Businesses and Brand Owners

If you are launching a new brand, it has become more important than ever to do some basic due diligence to reduce the risk you are infringing someone’s existing trademark rights. In all U.S. jurisdictions, you can now be forced to pay profits earned from your infringement to the existing rights holder even if you were not aware that you were infringing their rights.

The takeaway for anyone launching a new brand is that the value of trademark due diligence just increased, and that should be taken into consideration when deciding whether a trademark search is worth the cost.

Example: You launch a business called Eversoft that builds and sells computers. A small company is already selling computers under the name “Eversopht.” They are a small company with little market share or web presence, but they do have a valid trademark registration. You did not notice their registration because its unusual spelling did not appear in your very limited trademark search. They sue you for trademark infringement in the second circuit and, after making their case, they win. You may have to pay them some or all of your profits generated using the infringing mark.

What Happened

The Supreme Court recently issued an opinion (Romag v. Fossil, opinion available here) that trademark infringers can be forced to pay profit damages for infringing another’s trademark even if infringement was “innocent,” meaning unintentional. This means that if you are infringing someone else’s trademark, you cannot avoid paying profit damages just because you did not know you were infringing.

Previously, U.S. circuits were split on this issue. In some circuits, profit damages could only be awarded if the plaintiff could prove willful infringement, while in other circuits profit damages could be awarded regardless of whether infringement was willful. Because of this split, the same case could receive different treatment depending on the circuit in which the case was heard.

What Now

This decision creates a unified rule in all circuits: infringement is not required.

Profit damage awards can still be limited by “principles of equity,” so profit damages are not guaranteed whether infringement was willful or not. The court offered little insight into how lower courts should factor the innocence and willfulness of infringement when deciding whether to award profit damages, so treatment of willfulness as a factor in the principles of equity analysis may ultimately vary between circuits.

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