Speaker 1: Welcome to scot Discast, a project of the Federalist Society
Speaker 1: for Law and Public Policy Studies. Our contributors joined us
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Speaker 2: All expressions are those of the speaker. Hello, and welcome
Speaker 2: to scot Discast. I'm your host, Kyle hammernis On behalf
Speaker 2: of the Faculty division of the Federalist Society. We are
Speaker 2: here today to discuss Duberry Group Incorporated versus Duberry Engineers Incorporated,
Speaker 2: which was decided by the Supreme Court in the nine
Speaker 2: zero decision on February twenty sixth, twenty twenty five. It
Speaker 2: is my honor to introduce our guests today, Professor Jake Lindford.
Speaker 2: Professor Lindford is the Lula Fuller and Dan Meyers Professor
Speaker 2: and Associate Dean for Research at the Florida State University
Speaker 2: College of Law. He focuses a scholarship on trademarks, copyright
Speaker 2: and contract law. He teaches Trademarks and Unfair Competition, Contracts, Copyright,
Speaker 2: information privacy, and various IP and tech related seminars. His
Speaker 2: scholarship empirically tests and theoretically reassesses key trademark and copyright doctrines,
Speaker 2: and has been published in leading law reviews including the
Speaker 2: Georgetown Law Review, New New Dame Law Review, and Minnesota
Speaker 2: Law Review. And with that, I like to hand things
Speaker 2: over to Professor Linford.
Speaker 3: Thank you, Kyle. I'm glad to be with you here today.
Speaker 3: So you brought me here to chat about the Newberry case.
Speaker 3: This is Dewberry Engineering versus Newberry Group, although I think
Speaker 3: when it went to the Supreme Court the parties were
Speaker 3: flipped because Newberry Group is the petitioner. All right, So
Speaker 3: here's the thing. Both of these companies, Dewberry and Dewberry
Speaker 3: not confusing at all. We'll call the plaintiff the party
Speaker 3: claiming trademark infringement, will call him engineers as dubery engineers.
Speaker 3: We'll call the defendant Newberry Group or group. There was
Speaker 3: a settlement between those parties, initially where the group agreed
Speaker 3: not to use trademarks in certain states that included the
Speaker 3: term Newburry for real estate related goods and services. And
Speaker 3: then the group broke that settlement started engaging in trademark infringement.
Speaker 3: So a district court in Virginia concluded, and then we
Speaker 3: get to the question of what's the remedy, and under
Speaker 3: section thirty five A of the LANAMAC this is thirty
Speaker 3: five Usc. Eleven seventeen A, the plaintiff can get defendants profits.
Speaker 3: Now here's the problem for the plaintiff in this case,
Speaker 3: and this is what went all the way to the
Speaker 3: Supreme Court. The defendant group had a bunch of different
Speaker 3: affiliated businesses that were organized into their own corporate entities,
Speaker 3: so they would be engaged in owners basically owners of
Speaker 3: different real estate interests using that Dewberry name. The central organization,
Speaker 3: or the one that was sued with the defendant of
Speaker 3: the case, would handle human resources, stuff, billing. All of
Speaker 3: the entities Group and all of the affiliates were owned
Speaker 3: by the same individual, John Duberry. But John Dewberry wasn't
Speaker 3: a name plaintif either, So just group Group puts provide
Speaker 3: services to these affiliates at a loss. The affiliates would
Speaker 3: get revenue for people paying for real estate services, rental income, etc.
Speaker 3: And each affiliate would keep its separate revenues and would
Speaker 3: pay Group for the services Group provided. But paid less
Speaker 3: than market value for those services, so group would lose money.
Speaker 3: Each of the affiliates would make money. Eventually, as it
Speaker 3: appears to me, the money was flowing back into John
Speaker 3: Dewberry's pockets and John Duberry would make up the difference
Speaker 3: the losses that group suffered from its own pockets. But
Speaker 3: the problem for Engineer Engineering, our plaintiff under the statute,
Speaker 3: is when they went to establish profits from Newberry Group,
Speaker 3: the group didn't have any profits. They were able to
Speaker 3: show losses and no profits. Now it's obvious what's going
Speaker 3: on here. Structurally, there's money coming in for trademark infringement
Speaker 3: to the individual affiliates. That's ending up in John Newberry's pockets.
Speaker 3: But the question is what can you do about that?
Speaker 3: Because we have a principle under corporate law you can
Speaker 3: divide a business into a separate corporate entity and shareholders
Speaker 3: of that corporate entity can't be individually sued generally speaking
Speaker 3: for misbehavior of the corporateentity, and that might very well
Speaker 3: pertain to tort liability. There's a famous case that most
Speaker 3: Corporations class covers. Most corporations classes cover a case called Wolkowski,
Speaker 3: and in Wolkowski, the problem is somebody's taxi cab hits
Speaker 3: a pedestrian injured, and the pedestrian ensues, and the cab
Speaker 3: company has basically divided every two or three cabs into
Speaker 3: their own corporation. So there's a bunch of money that's
Speaker 3: ostensibly owned by one owner, or at least that's the
Speaker 3: claim of our injured tor plaintiff. But he can only
Speaker 3: get at the money that's in the pockets of these
Speaker 3: two cab companies or their insurance value, and it's not
Speaker 3: enough to coverage losses. And he tries to get at
Speaker 3: that money, and the court in New York tells him, what,
Speaker 3: you can't unless you can pierce the corporate veil, unless
Speaker 3: you can kind of get behind this corporate structure. The
Speaker 3: whole point of a corporate structure is to create kind
Speaker 3: of these individual entities that have their own individual liability,
Speaker 3: and we allow them to kind of gather in resources,
Speaker 3: gathering capital by allowing shareholders to buy in, provide money,
Speaker 3: take profits back out without necessarily taking the liability because
Speaker 3: of the company. So we have corporate structure on the
Speaker 3: one hand and trademark ll on the other hand, kind
Speaker 3: of bumping up against each other and this trademark statute
Speaker 3: says that the plan if can get defendants profits, but
Speaker 3: Newberry Group doesn't have any profits. So what do we do?
Speaker 3: The District Court is persuaded that it can reasonably assess
Speaker 3: the actual reality on the ground, which is to say, obviously,
Speaker 3: these affiliates are making income, they are trademark infringers, and
Speaker 3: we can take the profits not only of Group, but
Speaker 3: also of the affiliates. Now, Group didn't. What you can
Speaker 3: do as the defendant in a case like this is
Speaker 3: you can enter into the record expenses profits that are
Speaker 3: not attributable to the trademark infringement, etc. And you can
Speaker 3: get a discount against the net profits or the gross profits.
Speaker 3: Group doesn't do that because of course, group's trying to
Speaker 3: argue that you can't get at the affiliates or we
Speaker 3: shouldn't be able to get at the affiliates. So what
Speaker 3: we have is the court, the District Court basically applying
Speaker 3: a twenty percent discount across the board. So the damages
Speaker 3: award effectively gives engineers are plaintiffs eighty percent of the
Speaker 3: profits from the relative period for each of the affiliates.
Speaker 3: Dwbury Group appeals Fourth Circuit affirms the District Court and
Speaker 3: affirms the district Court's approach to damages, effectively saying, look,
Speaker 3: disgorgement of profits is an equitable remedy, and we're not
Speaker 3: going to require it. Was not necessary, I guess the
Speaker 3: Fourth Circuit says to require piercing the corporate veil. The
Speaker 3: district court can consider the rend renew of the entities
Speaker 3: under common ownership, calculate the true financial gain from the
Speaker 3: infringing activities, and that equitable power. The scope of equitable
Speaker 3: discretion of a district court is broad enough to look
Speaker 3: reasonably at what's going on. And this isn't a crazy
Speaker 3: way to see the world. Let me give you an example.
Speaker 3: So imagine I've decided i want to go into the
Speaker 3: soda business, and I've decided that my winning move is
Speaker 3: to imitate the trademark of a big player in the
Speaker 3: soda industry here, Coca Cola, And so I'm gonna launch
Speaker 3: a coke. I'm gonna call it coke Ford. You know
Speaker 3: that's the last part of my last name. I'm gonna
Speaker 3: have Coke Ford. I'm gonna have coke for zero, I'm
Speaker 3: gonna have diet coke for it. I'm gonna have Vanilla
Speaker 3: Coke for it, I'm gonna have Cherry Coke for it.
Speaker 3: And I'm gonna divide my sales of coke into a
Speaker 3: separate corporation. I'm gonna have one corporate entity that just
Speaker 3: sells coke for another corporate entity that just sells coke
Speaker 3: for zero, another corporate entity that just sells diet coke
Speaker 3: for it. I'm gonna take all the losses to my
Speaker 3: central organization, another corporate entity. We'll call it Cokefort Company,
Speaker 3: and I'm gonna leave all the profits with the individualities.
Speaker 3: You and I both know exactly what I'm doing here,
Speaker 3: and that there's revenue as the sole shareholder of Coke
Speaker 3: Ford and Coke Ford zero and Diet Coke for those money,
Speaker 3: that money is gonna be all the way back in
Speaker 3: my pocket. And to the extent I'm making up the
Speaker 3: difference from my core entity for each of the affiliates
Speaker 3: in the services I provide, that's probably the money coming
Speaker 3: from the affiliates going back to the court. And so
Speaker 3: if we're willing to look at the reality on the ground,
Speaker 3: the result from the district court, result from the Court
Speaker 3: of Appeals doesn't seem crazy. The problem is we've got
Speaker 3: corporate law, and we've got this commitment to treating individual
Speaker 3: corporate entities as individual and insulating them from one another
Speaker 3: with regards to liability. And so that's the case that
Speaker 3: goes up up to the Supreme Court. The District Court says,
Speaker 3: effectively or sorry that the defendant here group says, the
Speaker 3: question before the court, the question that the court should
Speaker 3: answer is whether this award of defendant profit defendants profits
Speaker 3: can include disgorging the distinct profits of legally separate, non
Speaker 3: party corporate affiliates. In other words, really focusing on the
Speaker 3: corporate structure and how we tend to teach these to
Speaker 3: treat these things in the corporate law. Of course, Native says,
Speaker 3: the question is really does the district court have discretion?
Speaker 3: It's that equitable discretion to use financial statements of non
Speaker 3: arms length affiliates. In other words, these things are all
Speaker 3: tied pretty closely, your honors, to adjust the disgorgement award
Speaker 3: in favor of counting up the profits where the infringer
Speaker 3: has claimed zero dollars of profits. So the pointiff's hopeful
Speaker 3: structure of the question was all about the economic realities.
Speaker 3: And like you said, the Supreme Court decided nine zero,
Speaker 3: and they decide nine zero in favor of Newbury Group
Speaker 3: in favor of the petitioner the defendant the loser below
Speaker 3: saying when the statute says defendants profits, we really do
Speaker 3: mean defendants profits. And if the only defendant who against
Speaker 3: whom a claim was brought is this defendant with zero profits,
Speaker 3: well the district Court can't just assume or conclude based
Speaker 3: on its view of the economic realities without some sort
Speaker 3: of analysis that it can get to the affiliates. That's
Speaker 3: the simple hold there. Now that might sound dispositive against Engineers,
Speaker 3: it's not necessarily. Engineers has some options on remand potentially
Speaker 3: the court actually hints at what might be a proper approach. Now,
Speaker 3: the statute I mentioned it gives the plaintiff access to
Speaker 3: defendants profits as a measure damages. It also says, and
Speaker 3: Engineers are plaintiff wanted to argue that the District Court
Speaker 3: and the Court of Appeals effectively applied this provision. It
Speaker 3: also says that if the court shall find the amount
Speaker 3: of recovery based on profits is either inadequate or excessive,
Speaker 3: the court may, in its discretion and are judgment for
Speaker 3: a sum, such as the Court shall find just according
Speaker 3: to the circumstances of the case. In other words, if
Speaker 3: the damage's award is too low, or if the damage's
Speaker 3: award is too high based on profits, the court can
Speaker 3: adjust and has some equitable discretion to adjust. Now, the
Speaker 3: District Court does not say it's relying on this just
Speaker 3: some provision and doesn't make any analysis of the adjustments
Speaker 3: of making because of the just some provision. It just says,
Speaker 3: I'm looking past this corporate screen and I'm counting the
Speaker 3: damages of each of the affiliates. And here's what the
Speaker 3: court says that hints at the potential proper approach. Maybe
Speaker 3: this works for Dwburry Engineers on remand ideally it could
Speaker 3: work for another plaintiff in a similar situation. The District
Speaker 3: Court did not rely on the just some provision or
Speaker 3: suggest it was departing up from defendants reported profits to
Speaker 3: reflect the company's true gains. And perhaps if it had,
Speaker 3: it seems to be the hint of the court that
Speaker 3: might have been sufficient to get us past, to get
Speaker 3: past this question of corporate structure. Now, Dewberry Engineers our
Speaker 3: planet below did not include. They didn't sue John Doberry directly.
Speaker 3: They didn't sue any of the affiliates directly. Had they
Speaker 3: done so, they avoid this problem. They also didn't try
Speaker 3: another move, which is potential, which the Supreme Court said, Look,
Speaker 3: we're not ruling on this move either. There are a
Speaker 3: couple of ways you can get behind the corporate entity.
Speaker 3: One of them we call piercing the corporate veil. Another
Speaker 3: way to phrase this is we think that the individual
Speaker 3: corporations are all alter egos for one another, or there
Speaker 3: are agents from another. In other words, they are closely connected.
Speaker 3: And in both cases we ask questions that are like
Speaker 3: the questions we've been talking about here right. In the
Speaker 3: alter ego case, generally, a plaintiff has to prove that
Speaker 3: there's a parent company that dominates and controls the subsidiary
Speaker 3: to the extent that the subsidiary is just doing business
Speaker 3: for the parent, and that they don't really exist as
Speaker 3: separate legal entities, and there will be an justice or
Speaker 3: a wrong to the plaintiff that will happen if we
Speaker 3: don't pierce today. Right and factors that we might consider
Speaker 3: in cases like this, well, is one corporation adequately capitalized?
Speaker 3: Is there an overlap in ownership or personnel. Are there
Speaker 3: sharing common office space? Is the business discretion? How much
Speaker 3: business discretion does the allegedly dominant corporation have. Are they
Speaker 3: engaging in arms link transactions with one another? Are they
Speaker 3: too close? Does the corporation treat the independent as a
Speaker 3: profit center? Are they paying each other's debts, etc? And
Speaker 3: what I think had you applied this standard in the
Speaker 3: way it could reasonably be applied, I think you'd reach it.
Speaker 3: Now there's a problem for engineering, which is to say,
Speaker 3: in many jurisdictions, courts are very skeptical of veil piercing,
Speaker 3: although there are veil piercing cases that have been successful,
Speaker 3: and these are the sorts of questions we ask in
Speaker 3: a successful veil percent case. So the Supreme Court says,
Speaker 3: you know, veil piercing is potentially an option. We're not
Speaker 3: ruling on it one way or another. We're not ruling
Speaker 3: on whether Doberry engineers on remand could argue for this
Speaker 3: just some application and use that as a justification. There
Speaker 3: is a potential forfeiture problem. They didn't do it below.
Speaker 3: Potentially they didn't preserve that argument below, and therefore the
Speaker 3: district court can't reach it again. There is also future
Speaker 3: in the future for similarly situated plaintiffs, the option of
Speaker 3: you know, you impleade all of the various you bring
Speaker 3: in all the various defendants on the individual corporations. Now
Speaker 3: that's more costly. In a case of trademark infringement. You
Speaker 3: can sometimes under this same statutory provision, get attorney's costs
Speaker 3: and fees. If you can get costs, you might be
Speaker 3: able to pick up the additional revenues for having to
Speaker 3: sue the multiple entities. But you're not guaranteed costs. And
Speaker 3: Supreme Court's jurisprudence on this point requires a case that
Speaker 3: is an unusual or outstanding case. And whether this would
Speaker 3: amount to that sort of outstanding I should say exceptional
Speaker 3: case is a life question. Justice Sodomar had a concurrence,
Speaker 3: and her concurrence effectively it concedes the point that the
Speaker 3: district court's analysis was too shallow, but the trademark law
Speaker 3: should allow for looking at the reality of the situation.
Speaker 3: And that was more or less the argument by the government.
Speaker 3: The government was invited to brief the case, and the
Speaker 3: government's brief effectively said the same thing. We want to
Speaker 3: take seriously. The actual structure of the entity. Courts are
Speaker 3: not required to take whatever accounting tricks or tax structures
Speaker 3: that a defendant presents as the reality of the situation
Speaker 3: when deciding a case like this, and therefore we can
Speaker 3: look at those realities. But the government did argue for
Speaker 3: remand in this case because the district court hadn't been
Speaker 3: hadn't worked through the analysis. And so what we'll see
Speaker 3: on remand is what what the district court thinks it's
Speaker 3: remitted is as far as working through this analysis and
Speaker 3: potentially granting damages under the just SU provision or potentially
Speaker 3: inviting engineers to engage in the veil piercing that it
Speaker 3: didn't think it had to engage in, or argue that
Speaker 3: it didn't have to engage in the first time.
Speaker 2: Right, Well, you know, thank you for going over the case.
Speaker 2: I'm really priding a great detailed overview. You mentioned that
Speaker 2: that engineers could have brought in all of the affiliates
Speaker 2: plausibly plausibly, yes, would that still work if those affiliates
Speaker 2: weren't violating trademark, like if they if they instead of
Speaker 2: being as you were saying, you know, Cokeford and Cherry
Speaker 2: Cokeford and all that it was. You know, I just
Speaker 2: pick another name that it doesn't have coke, right, that
Speaker 2: doesn't have coke in it. Would that then be a
Speaker 2: problem because they're not then violating the trademark. How can
Speaker 2: then you get to them in that way, because then
Speaker 2: you may not even have standing against them. Yes.
Speaker 3: Now, my understanding of the of this case is that
Speaker 3: each of the affiliates for which profits were counted, we're
Speaker 3: using the DeBerry mark. But you're absolutely right, this is
Speaker 3: this is one of the difficulties. If you're not using
Speaker 3: the Dewberry mark, then those affiliates shouldn't be brought in
Speaker 3: unless they're using a mark that's similar enough but different.
Speaker 3: And at that point you've got some messes here where
Speaker 3: it may be plenty of A, B and C are
Speaker 3: using more or less the exact mark, or sorry, Defendants A,
Speaker 3: B and C are using the exact mark. Defendants E
Speaker 3: and F aren't, but potentially close enough. The analysis would
Speaker 3: be different. Defendant G isn't using the market all right,
Speaker 3: and we should treat those different things as different. This
Speaker 3: is one of the points that was raised in the brief.
Speaker 3: On my brief with Professors Baty and Schuster. One of
Speaker 3: the difficulties. It might be the case that say, for example,
Speaker 3: you know the core entity is engaged in willful infringement.
Speaker 3: That's what was determined by the district court. Now, are
Speaker 3: each of the affiliates engaged in willful infringement? I'm not
Speaker 3: sure there's another person there. If we can say each
Speaker 3: of the affiliates is run by John Dewberry, then perhaps yes.
Speaker 3: If we can't say that each of the affiliates is
Speaker 3: run directly by John Newberry, then you may not have
Speaker 3: that same willfulness, and that would change potentially the calculation
Speaker 3: will willful defendants are sometimes on the hook for more
Speaker 3: damages under the statute.
Speaker 2: Right, I guess a little bit more broad than my
Speaker 2: specific example. What do you see as the real consequences?
Speaker 2: Just kind of broad thirty thousand foot view on trademark
Speaker 2: law after this case.
Speaker 3: So there's a danger, and the government brief hit on this,
Speaker 3: and our brief hit on this. There's a danger that
Speaker 3: if you ignore the realities on the ground, you are
Speaker 3: insulating firms that shouldn't be insulated. From my ability, Lots
Speaker 3: of firms structure things exactly the way that Dewberry did,
Speaker 3: exactly the way that my cope for it, example, would
Speaker 3: which is to say, you've got a bunch of affiliate organizations,
Speaker 3: perhaps separate entities, but benefiting from the use of the trademark,
Speaker 3: and the value the profit derived from the trademark may
Speaker 3: very well spill over beyond the bounds of a singular
Speaker 3: corporate entity, and being too formalistic about corporate entities potentially
Speaker 3: undercounts the harm that Congress, the mechanism Congress gives us
Speaker 3: to count this harm, which is the defense profits. On
Speaker 3: the other hand, if you are persuaded, like lots of
Speaker 3: folks are, that one of the keys to American success
Speaker 3: is the corporate structure and the ability of corporate entities
Speaker 3: to bringing capital by insulating those who who buy into
Speaker 3: the corporation from direct liability. Being too casual about how
Speaker 3: we pierce those corporate those corporate barriers can have effects
Speaker 3: that run beyond trademark law and are potentially distortive of
Speaker 3: a kind of a foundational element of the American economic system.
Speaker 3: So I think plaintive situated like Newberry are going to
Speaker 3: have to think more carefully, are probably going to have
Speaker 3: to do more due diligence. It's going to increase litigation
Speaker 3: costs on them to some extent, to make sure we
Speaker 3: don't have a situation, to make sure they're not facing
Speaker 3: a situation. We're a defendant as kind of structured its
Speaker 3: revenues in such a way that you can't get at
Speaker 3: the profits. Because frankly, you can get profits or you
Speaker 3: can get plaintiff's damages. It's much easier to count profits.
Speaker 3: It's much harder to count damages. Damages are rarely granted
Speaker 3: in trademark cases, other than in places where you've got
Speaker 3: like a counterfeiting claim or some other multiplier statutory damage
Speaker 3: for will, for infringement, etc. Injunctions are the most likely
Speaker 3: remedy for a plaintiff, and then disgorgement of profits much
Speaker 3: more likely that damages, So plaintiffs are going to have
Speaker 3: to figure out a way to account for this. Now,
Speaker 3: this may be a rare case, and if it's a
Speaker 3: sufficiently rare case, it won't make much difference at all.
Speaker 3: I suspect that there will be careful and clever attorneys
Speaker 3: who will read these cases and see a loophole and
Speaker 3: then advise their clients who might be flying close to
Speaker 3: a son. In Greek metaphor terms with regard to trademark infringement. Well,
Speaker 3: let's insulate the core business from potential infringement of subsidiary
Speaker 3: businesses and see if we can structure this in a
Speaker 3: way that we can take a Newberry Group style advantage
Speaker 3: that might save some damages on the back end.
Speaker 2: Well, I, well, thank you so much for really just
Speaker 2: proviting a great, great summary of this case and its
Speaker 2: potential consequences, and really thank you so much for joining us.
Speaker 3: Well, thank you, Kyle, really appreciate it.
Speaker 2: Thank you for listening to this episode of SCO Discust.
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