Dewberry Group, Inc. v. Dewberry Engineers Inc. - Post-Decision SCOTUScast

Professor Lindford is the Lula Fuller and Dan Meyers Professor and Associate Dean for Research at the Florida State University College of Law. He focuses a scholarship on trademarks, copyright and contract law. He teaches Trademarks and Unfair Competition, Contracts, Copyright,

information privacy, and various IP and tech related seminars. His scholarship empirically tests and theoretically reassesses key trademark and copyright doctrines, and has been published in leading law reviews including the Georgetown Law Review, New New Dame Law Review, and Minnesota Law Review. And with that, I like to hand things over to Professor Linford.

We'll call the defendant Newberry Group or group. There was a settlement between those parties, initially where the group agreed not to use trademarks in certain states that included the term Newburry for real estate related goods and services. And then the group broke that settlement started engaging in trademark infringement. So a district court in Virginia concluded, and then we get to the question of what's the remedy, and under section thirty five A of the LANAMAC this is thirty

five Usc. Eleven seventeen A, the plaintiff can get defendants profits. Now here's the problem for the plaintiff in this case, and this is what went all the way to the Supreme Court. The defendant group had a bunch of different affiliated businesses that were organized into their own corporate entities, so they would be engaged in owners basically owners of different real estate interests using that Dewberry name. The central organization, or the one that was sued with the defendant of

the case, would handle human resources, stuff, billing. All of the entities Group and all of the affiliates were owned by the same individual, John Duberry. But John Dewberry wasn't a name plaintif either, So just group Group puts provide services to these affiliates at a loss. The affiliates would get revenue for people paying for real estate services, rental income, etc. And each affiliate would keep its separate revenues and would

pay Group for the services Group provided. But paid less than market value for those services, so group would lose money. Each of the affiliates would make money. Eventually, as it appears to me, the money was flowing back into John Dewberry's pockets and John Duberry would make up the difference the losses that group suffered from its own pockets. But the problem for Engineer Engineering, our plaintiff under the statute, is when they went to establish profits from Newberry Group,

the group didn't have any profits. They were able to show losses and no profits. Now it's obvious what's going on here. Structurally, there's money coming in for trademark infringement to the individual affiliates. That's ending up in John Newberry's pockets. But the question is what can you do about that?

Because we have a principle under corporate law you can divide a business into a separate corporate entity and shareholders of that corporate entity can't be individually sued generally speaking for misbehavior of the corporateentity, and that might very well pertain to tort liability. There's a famous case that most

Corporations class covers. Most corporations classes cover a case called Wolkowski, and in Wolkowski, the problem is somebody's taxi cab hits a pedestrian injured, and the pedestrian ensues, and the cab company has basically divided every two or three cabs into their own corporation. So there's a bunch of money that's ostensibly owned by one owner, or at least that's the

claim of our injured tor plaintiff. But he can only get at the money that's in the pockets of these two cab companies or their insurance value, and it's not enough to coverage losses. And he tries to get at that money, and the court in New York tells him, what, you can't unless you can pierce the corporate veil, unless

you can kind of get behind this corporate structure. The whole point of a corporate structure is to create kind of these individual entities that have their own individual liability, and we allow them to kind of gather in resources, gathering capital by allowing shareholders to buy in, provide money, take profits back out without necessarily taking the liability because

of the company. So we have corporate structure on the one hand and trademark ll on the other hand, kind of bumping up against each other and this trademark statute says that the plan if can get defendants profits, but Newberry Group doesn't have any profits. So what do we do?

The District Court is persuaded that it can reasonably assess the actual reality on the ground, which is to say, obviously, these affiliates are making income, they are trademark infringers, and we can take the profits not only of Group, but

also of the affiliates. Now, Group didn't. What you can do as the defendant in a case like this is you can enter into the record expenses profits that are not attributable to the trademark infringement, etc. And you can get a discount against the net profits or the gross profits. Group doesn't do that because of course, group's trying to argue that you can't get at the affiliates or we shouldn't be able to get at the affiliates. So what we have is the court, the District Court basically applying

a twenty percent discount across the board. So the damages award effectively gives engineers are plaintiffs eighty percent of the profits from the relative period for each of the affiliates. Dwbury Group appeals Fourth Circuit affirms the District Court and affirms the district Court's approach to damages, effectively saying, look, disgorgement of profits is an equitable remedy, and we're not going to require it. Was not necessary, I guess the

Fourth Circuit says to require piercing the corporate veil. The district court can consider the rend renew of the entities under common ownership, calculate the true financial gain from the infringing activities, and that equitable power. The scope of equitable discretion of a district court is broad enough to look reasonably at what's going on. And this isn't a crazy way to see the world. Let me give you an example.

So imagine I've decided i want to go into the soda business, and I've decided that my winning move is to imitate the trademark of a big player in the soda industry here, Coca Cola, And so I'm gonna launch a coke. I'm gonna call it coke Ford. You know that's the last part of my last name. I'm gonna have Coke Ford. I'm gonna have coke for zero, I'm gonna have diet coke for it. I'm gonna have Vanilla Coke for it, I'm gonna have Cherry Coke for it. And I'm gonna divide my sales of coke into a

separate corporation. I'm gonna have one corporate entity that just sells coke for another corporate entity that just sells coke for zero, another corporate entity that just sells diet coke for it. I'm gonna take all the losses to my central organization, another corporate entity. We'll call it Cokefort Company, and I'm gonna leave all the profits with the individualities.

You and I both know exactly what I'm doing here, and that there's revenue as the sole shareholder of Coke Ford and Coke Ford zero and Diet Coke for those money, that money is gonna be all the way back in my pocket. And to the extent I'm making up the difference from my core entity for each of the affiliates in the services I provide, that's probably the money coming

from the affiliates going back to the court. And so if we're willing to look at the reality on the ground, the result from the district court, result from the Court of Appeals doesn't seem crazy. The problem is we've got corporate law, and we've got this commitment to treating individual corporate entities as individual and insulating them from one another with regards to liability. And so that's the case that

goes up up to the Supreme Court. The District Court says, effectively or sorry that the defendant here group says, the question before the court, the question that the court should answer is whether this award of defendant profit defendants profits can include disgorging the distinct profits of legally separate, non party corporate affiliates. In other words, really focusing on the corporate structure and how we tend to teach these to

treat these things in the corporate law. Of course, Native says, the question is really does the district court have discretion? It's that equitable discretion to use financial statements of non arms length affiliates. In other words, these things are all tied pretty closely, your honors, to adjust the disgorgement award in favor of counting up the profits where the infringer

has claimed zero dollars of profits. So the pointiff's hopeful structure of the question was all about the economic realities. And like you said, the Supreme Court decided nine zero, and they decide nine zero in favor of Newbury Group in favor of the petitioner the defendant the loser below saying when the statute says defendants profits, we really do

mean defendants profits. And if the only defendant who against whom a claim was brought is this defendant with zero profits, well the district Court can't just assume or conclude based on its view of the economic realities without some sort of analysis that it can get to the affiliates. That's the simple hold there. Now that might sound dispositive against Engineers, it's not necessarily. Engineers has some options on remand potentially

the court actually hints at what might be a proper approach. Now, the statute I mentioned it gives the plaintiff access to defendants profits as a measure damages. It also says, and Engineers are plaintiff wanted to argue that the District Court

and the Court of Appeals effectively applied this provision. It also says that if the court shall find the amount of recovery based on profits is either inadequate or excessive, the court may, in its discretion and are judgment for a sum, such as the Court shall find just according to the circumstances of the case. In other words, if the damage's award is too low, or if the damage's award is too high based on profits, the court can

adjust and has some equitable discretion to adjust. Now, the District Court does not say it's relying on this just some provision and doesn't make any analysis of the adjustments of making because of the just some provision. It just says, I'm looking past this corporate screen and I'm counting the damages of each of the affiliates. And here's what the court says that hints at the potential proper approach. Maybe this works for Dwburry Engineers on remand ideally it could

work for another plaintiff in a similar situation. The District Court did not rely on the just some provision or suggest it was departing up from defendants reported profits to reflect the company's true gains. And perhaps if it had, it seems to be the hint of the court that might have been sufficient to get us past, to get past this question of corporate structure. Now, Dewberry Engineers our planet below did not include. They didn't sue John Doberry directly.

They didn't sue any of the affiliates directly. Had they done so, they avoid this problem. They also didn't try another move, which is potential, which the Supreme Court said, Look, we're not ruling on this move either. There are a couple of ways you can get behind the corporate entity. One of them we call piercing the corporate veil. Another way to phrase this is we think that the individual corporations are all alter egos for one another, or there

are agents from another. In other words, they are closely connected. And in both cases we ask questions that are like

the questions we've been talking about here right. In the alter ego case, generally, a plaintiff has to prove that there's a parent company that dominates and controls the subsidiary to the extent that the subsidiary is just doing business for the parent, and that they don't really exist as separate legal entities, and there will be an justice or a wrong to the plaintiff that will happen if we

don't pierce today. Right and factors that we might consider in cases like this, well, is one corporation adequately capitalized? Is there an overlap in ownership or personnel. Are there sharing common office space? Is the business discretion? How much business discretion does the allegedly dominant corporation have. Are they engaging in arms link transactions with one another? Are they too close? Does the corporation treat the independent as a

profit center? Are they paying each other's debts, etc? And what I think had you applied this standard in the way it could reasonably be applied, I think you'd reach it. Now there's a problem for engineering, which is to say, in many jurisdictions, courts are very skeptical of veil piercing, although there are veil piercing cases that have been successful, and these are the sorts of questions we ask in a successful veil percent case. So the Supreme Court says,

you know, veil piercing is potentially an option. We're not ruling on it one way or another. We're not ruling on whether Doberry engineers on remand could argue for this just some application and use that as a justification. There is a potential forfeiture problem. They didn't do it below. Potentially they didn't preserve that argument below, and therefore the

district court can't reach it again. There is also future in the future for similarly situated plaintiffs, the option of you know, you impleade all of the various you bring in all the various defendants on the individual corporations. Now that's more costly. In a case of trademark infringement. You can sometimes under this same statutory provision, get attorney's costs and fees. If you can get costs, you might be able to pick up the additional revenues for having to

sue the multiple entities. But you're not guaranteed costs. And Supreme Court's jurisprudence on this point requires a case that is an unusual or outstanding case. And whether this would amount to that sort of outstanding I should say exceptional case is a life question. Justice Sodomar had a concurrence, and her concurrence effectively it concedes the point that the district court's analysis was too shallow, but the trademark law should allow for looking at the reality of the situation.

And that was more or less the argument by the government. The government was invited to brief the case, and the government's brief effectively said the same thing. We want to take seriously. The actual structure of the entity. Courts are not required to take whatever accounting tricks or tax structures that a defendant presents as the reality of the situation when deciding a case like this, and therefore we can

look at those realities. But the government did argue for remand in this case because the district court hadn't been

hadn't worked through the analysis. And so what we'll see on remand is what what the district court thinks it's remitted is as far as working through this analysis and potentially granting damages under the just SU provision or potentially inviting engineers to engage in the veil piercing that it didn't think it had to engage in, or argue that it didn't have to engage in the first time.

doesn't have coke in it. Would that then be a problem because they're not then violating the trademark. How can then you get to them in that way, because then you may not even have standing against them. Yes.

B and C are using the exact mark. Defendants E and F aren't, but potentially close enough. The analysis would be different. Defendant G isn't using the market all right, and we should treat those different things as different. This is one of the points that was raised in the brief. On my brief with Professors Baty and Schuster. One of the difficulties. It might be the case that say, for example, you know the core entity is engaged in willful infringement.

That's what was determined by the district court. Now, are each of the affiliates engaged in willful infringement? I'm not sure there's another person there. If we can say each of the affiliates is run by John Dewberry, then perhaps yes. If we can't say that each of the affiliates is run directly by John Newberry, then you may not have that same willfulness, and that would change potentially the calculation will willful defendants are sometimes on the hook for more damages under the statute.

insulating firms that shouldn't be insulated. From my ability, Lots of firms structure things exactly the way that Dewberry did, exactly the way that my cope for it, example, would which is to say, you've got a bunch of affiliate organizations, perhaps separate entities, but benefiting from the use of the trademark, and the value the profit derived from the trademark may very well spill over beyond the bounds of a singular

corporate entity, and being too formalistic about corporate entities potentially undercounts the harm that Congress, the mechanism Congress gives us to count this harm, which is the defense profits. On the other hand, if you are persuaded, like lots of folks are, that one of the keys to American success is the corporate structure and the ability of corporate entities to bringing capital by insulating those who who buy into

the corporation from direct liability. Being too casual about how we pierce those corporate those corporate barriers can have effects that run beyond trademark law and are potentially distortive of a kind of a foundational element of the American economic system. So I think plaintive situated like Newberry are going to have to think more carefully, are probably going to have

to do more due diligence. It's going to increase litigation costs on them to some extent, to make sure we don't have a situation, to make sure they're not facing a situation. We're a defendant as kind of structured its revenues in such a way that you can't get at the profits. Because frankly, you can get profits or you can get plaintiff's damages. It's much easier to count profits.

It's much harder to count damages. Damages are rarely granted in trademark cases, other than in places where you've got like a counterfeiting claim or some other multiplier statutory damage for will, for infringement, etc. Injunctions are the most likely remedy for a plaintiff, and then disgorgement of profits much more likely that damages, So plaintiffs are going to have

to figure out a way to account for this. Now, this may be a rare case, and if it's a sufficiently rare case, it won't make much difference at all. I suspect that there will be careful and clever attorneys who will read these cases and see a loophole and then advise their clients who might be flying close to

a son. In Greek metaphor terms with regard to trademark infringement. Well, let's insulate the core business from potential infringement of subsidiary businesses and see if we can structure this in a way that we can take a Newberry Group style advantage that might save some damages on the back end.

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