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<v Speaker 1>Welcome to scot Discast, a project of the Federalist Society

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<v Speaker 1>for Law and Public Policy Studies. Our contributors joined us

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<v Speaker 1>from around the country to bring you expert commentary on

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<v Speaker 1>US Supreme Court cases as they are argued and the

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<v Speaker 1>decisions are issued. The Federalist Society takes no position on

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<v Speaker 1>particular legal or public policy issues.

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<v Speaker 2>All expressions are those of the speaker. Hello, and welcome

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<v Speaker 2>to scot Discast. I'm your host, Kyle hammernis On behalf

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<v Speaker 2>of the Faculty division of the Federalist Society. We are

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<v Speaker 2>here today to discuss Duberry Group Incorporated versus Duberry Engineers Incorporated,

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<v Speaker 2>which was decided by the Supreme Court in the nine

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<v Speaker 2>zero decision on February twenty sixth, twenty twenty five. It

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<v Speaker 2>is my honor to introduce our guests today, Professor Jake Lindford.

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<v Speaker 2>Professor Lindford is the Lula Fuller and Dan Meyers Professor

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<v Speaker 2>and Associate Dean for Research at the Florida State University

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<v Speaker 2>College of Law. He focuses a scholarship on trademarks, copyright

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<v Speaker 2>and contract law. He teaches Trademarks and Unfair Competition, Contracts, Copyright,

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<v Speaker 2>information privacy, and various IP and tech related seminars. His

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<v Speaker 2>scholarship empirically tests and theoretically reassesses key trademark and copyright doctrines,

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<v Speaker 2>and has been published in leading law reviews including the

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<v Speaker 2>Georgetown Law Review, New New Dame Law Review, and Minnesota

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<v Speaker 2>Law Review. And with that, I like to hand things

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<v Speaker 2>over to Professor Linford.

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<v Speaker 3>Thank you, Kyle. I'm glad to be with you here today.

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<v Speaker 3>So you brought me here to chat about the Newberry case.

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<v Speaker 3>This is Dewberry Engineering versus Newberry Group, although I think

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<v Speaker 3>when it went to the Supreme Court the parties were

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<v Speaker 3>flipped because Newberry Group is the petitioner. All right, So

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<v Speaker 3>here's the thing. Both of these companies, Dewberry and Dewberry

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<v Speaker 3>not confusing at all. We'll call the plaintiff the party

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<v Speaker 3>claiming trademark infringement, will call him engineers as dubery engineers.

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<v Speaker 3>We'll call the defendant Newberry Group or group. There was

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<v Speaker 3>a settlement between those parties, initially where the group agreed

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<v Speaker 3>not to use trademarks in certain states that included the

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<v Speaker 3>term Newburry for real estate related goods and services. And

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<v Speaker 3>then the group broke that settlement started engaging in trademark infringement.

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<v Speaker 3>So a district court in Virginia concluded, and then we

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<v Speaker 3>get to the question of what's the remedy, and under

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<v Speaker 3>section thirty five A of the LANAMAC this is thirty

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<v Speaker 3>five Usc. Eleven seventeen A, the plaintiff can get defendants profits.

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<v Speaker 3>Now here's the problem for the plaintiff in this case,

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<v Speaker 3>and this is what went all the way to the

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<v Speaker 3>Supreme Court. The defendant group had a bunch of different

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<v Speaker 3>affiliated businesses that were organized into their own corporate entities,

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<v Speaker 3>so they would be engaged in owners basically owners of

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<v Speaker 3>different real estate interests using that Dewberry name. The central organization,

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<v Speaker 3>or the one that was sued with the defendant of

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<v Speaker 3>the case, would handle human resources, stuff, billing. All of

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<v Speaker 3>the entities Group and all of the affiliates were owned

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<v Speaker 3>by the same individual, John Duberry. But John Dewberry wasn't

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<v Speaker 3>a name plaintif either, So just group Group puts provide

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<v Speaker 3>services to these affiliates at a loss. The affiliates would

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<v Speaker 3>get revenue for people paying for real estate services, rental income, etc.

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<v Speaker 3>And each affiliate would keep its separate revenues and would

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<v Speaker 3>pay Group for the services Group provided. But paid less

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<v Speaker 3>than market value for those services, so group would lose money.

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<v Speaker 3>Each of the affiliates would make money. Eventually, as it

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<v Speaker 3>appears to me, the money was flowing back into John

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<v Speaker 3>Dewberry's pockets and John Duberry would make up the difference

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<v Speaker 3>the losses that group suffered from its own pockets. But

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<v Speaker 3>the problem for Engineer Engineering, our plaintiff under the statute,

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<v Speaker 3>is when they went to establish profits from Newberry Group,

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<v Speaker 3>the group didn't have any profits. They were able to

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<v Speaker 3>show losses and no profits. Now it's obvious what's going

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<v Speaker 3>on here. Structurally, there's money coming in for trademark infringement

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<v Speaker 3>to the individual affiliates. That's ending up in John Newberry's pockets.

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<v Speaker 3>But the question is what can you do about that?

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<v Speaker 3>Because we have a principle under corporate law you can

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<v Speaker 3>divide a business into a separate corporate entity and shareholders

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<v Speaker 3>of that corporate entity can't be individually sued generally speaking

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<v Speaker 3>for misbehavior of the corporateentity, and that might very well

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<v Speaker 3>pertain to tort liability. There's a famous case that most

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<v Speaker 3>Corporations class covers. Most corporations classes cover a case called Wolkowski,

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<v Speaker 3>and in Wolkowski, the problem is somebody's taxi cab hits

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<v Speaker 3>a pedestrian injured, and the pedestrian ensues, and the cab

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<v Speaker 3>company has basically divided every two or three cabs into

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<v Speaker 3>their own corporation. So there's a bunch of money that's

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<v Speaker 3>ostensibly owned by one owner, or at least that's the

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<v Speaker 3>claim of our injured tor plaintiff. But he can only

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<v Speaker 3>get at the money that's in the pockets of these

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<v Speaker 3>two cab companies or their insurance value, and it's not

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<v Speaker 3>enough to coverage losses. And he tries to get at

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<v Speaker 3>that money, and the court in New York tells him, what,

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<v Speaker 3>you can't unless you can pierce the corporate veil, unless

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<v Speaker 3>you can kind of get behind this corporate structure. The

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<v Speaker 3>whole point of a corporate structure is to create kind

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<v Speaker 3>of these individual entities that have their own individual liability,

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<v Speaker 3>and we allow them to kind of gather in resources,

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<v Speaker 3>gathering capital by allowing shareholders to buy in, provide money,

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<v Speaker 3>take profits back out without necessarily taking the liability because

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<v Speaker 3>of the company. So we have corporate structure on the

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<v Speaker 3>one hand and trademark ll on the other hand, kind

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<v Speaker 3>of bumping up against each other and this trademark statute

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<v Speaker 3>says that the plan if can get defendants profits, but

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<v Speaker 3>Newberry Group doesn't have any profits. So what do we do?

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<v Speaker 3>The District Court is persuaded that it can reasonably assess

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<v Speaker 3>the actual reality on the ground, which is to say, obviously,

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<v Speaker 3>these affiliates are making income, they are trademark infringers, and

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<v Speaker 3>we can take the profits not only of Group, but

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<v Speaker 3>also of the affiliates. Now, Group didn't. What you can

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<v Speaker 3>do as the defendant in a case like this is

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<v Speaker 3>you can enter into the record expenses profits that are

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<v Speaker 3>not attributable to the trademark infringement, etc. And you can

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<v Speaker 3>get a discount against the net profits or the gross profits.

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<v Speaker 3>Group doesn't do that because of course, group's trying to

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<v Speaker 3>argue that you can't get at the affiliates or we

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<v Speaker 3>shouldn't be able to get at the affiliates. So what

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<v Speaker 3>we have is the court, the District Court basically applying

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<v Speaker 3>a twenty percent discount across the board. So the damages

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<v Speaker 3>award effectively gives engineers are plaintiffs eighty percent of the

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<v Speaker 3>profits from the relative period for each of the affiliates.

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<v Speaker 3>Dwbury Group appeals Fourth Circuit affirms the District Court and

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<v Speaker 3>affirms the district Court's approach to damages, effectively saying, look,

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<v Speaker 3>disgorgement of profits is an equitable remedy, and we're not

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<v Speaker 3>going to require it. Was not necessary, I guess the

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<v Speaker 3>Fourth Circuit says to require piercing the corporate veil. The

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<v Speaker 3>district court can consider the rend renew of the entities

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<v Speaker 3>under common ownership, calculate the true financial gain from the

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<v Speaker 3>infringing activities, and that equitable power. The scope of equitable

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<v Speaker 3>discretion of a district court is broad enough to look

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<v Speaker 3>reasonably at what's going on. And this isn't a crazy

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<v Speaker 3>way to see the world. Let me give you an example.

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<v Speaker 3>So imagine I've decided i want to go into the

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<v Speaker 3>soda business, and I've decided that my winning move is

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<v Speaker 3>to imitate the trademark of a big player in the

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<v Speaker 3>soda industry here, Coca Cola, And so I'm gonna launch

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<v Speaker 3>a coke. I'm gonna call it coke Ford. You know

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<v Speaker 3>that's the last part of my last name. I'm gonna

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<v Speaker 3>have Coke Ford. I'm gonna have coke for zero, I'm

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<v Speaker 3>gonna have diet coke for it. I'm gonna have Vanilla

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<v Speaker 3>Coke for it, I'm gonna have Cherry Coke for it.

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<v Speaker 3>And I'm gonna divide my sales of coke into a

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<v Speaker 3>separate corporation. I'm gonna have one corporate entity that just

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<v Speaker 3>sells coke for another corporate entity that just sells coke

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<v Speaker 3>for zero, another corporate entity that just sells diet coke

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<v Speaker 3>for it. I'm gonna take all the losses to my

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<v Speaker 3>central organization, another corporate entity. We'll call it Cokefort Company,

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<v Speaker 3>and I'm gonna leave all the profits with the individualities.

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<v Speaker 3>You and I both know exactly what I'm doing here,

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<v Speaker 3>and that there's revenue as the sole shareholder of Coke

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<v Speaker 3>Ford and Coke Ford zero and Diet Coke for those money,

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<v Speaker 3>that money is gonna be all the way back in

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<v Speaker 3>my pocket. And to the extent I'm making up the

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<v Speaker 3>difference from my core entity for each of the affiliates

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<v Speaker 3>in the services I provide, that's probably the money coming

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<v Speaker 3>from the affiliates going back to the court. And so

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<v Speaker 3>if we're willing to look at the reality on the ground,

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<v Speaker 3>the result from the district court, result from the Court

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<v Speaker 3>of Appeals doesn't seem crazy. The problem is we've got

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<v Speaker 3>corporate law, and we've got this commitment to treating individual

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<v Speaker 3>corporate entities as individual and insulating them from one another

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<v Speaker 3>with regards to liability. And so that's the case that

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<v Speaker 3>goes up up to the Supreme Court. The District Court says,

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<v Speaker 3>effectively or sorry that the defendant here group says, the

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<v Speaker 3>question before the court, the question that the court should

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<v Speaker 3>answer is whether this award of defendant profit defendants profits

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<v Speaker 3>can include disgorging the distinct profits of legally separate, non

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<v Speaker 3>party corporate affiliates. In other words, really focusing on the

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<v Speaker 3>corporate structure and how we tend to teach these to

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<v Speaker 3>treat these things in the corporate law. Of course, Native says,

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<v Speaker 3>the question is really does the district court have discretion?

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<v Speaker 3>It's that equitable discretion to use financial statements of non

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<v Speaker 3>arms length affiliates. In other words, these things are all

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<v Speaker 3>tied pretty closely, your honors, to adjust the disgorgement award

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<v Speaker 3>in favor of counting up the profits where the infringer

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<v Speaker 3>has claimed zero dollars of profits. So the pointiff's hopeful

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<v Speaker 3>structure of the question was all about the economic realities.

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<v Speaker 3>And like you said, the Supreme Court decided nine zero,

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<v Speaker 3>and they decide nine zero in favor of Newbury Group

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<v Speaker 3>in favor of the petitioner the defendant the loser below

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<v Speaker 3>saying when the statute says defendants profits, we really do

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<v Speaker 3>mean defendants profits. And if the only defendant who against

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<v Speaker 3>whom a claim was brought is this defendant with zero profits,

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<v Speaker 3>well the district Court can't just assume or conclude based

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<v Speaker 3>on its view of the economic realities without some sort

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<v Speaker 3>of analysis that it can get to the affiliates. That's

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<v Speaker 3>the simple hold there. Now that might sound dispositive against Engineers,

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<v Speaker 3>it's not necessarily. Engineers has some options on remand potentially

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<v Speaker 3>the court actually hints at what might be a proper approach. Now,

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<v Speaker 3>the statute I mentioned it gives the plaintiff access to

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<v Speaker 3>defendants profits as a measure damages. It also says, and

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<v Speaker 3>Engineers are plaintiff wanted to argue that the District Court

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<v Speaker 3>and the Court of Appeals effectively applied this provision. It

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<v Speaker 3>also says that if the court shall find the amount

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<v Speaker 3>of recovery based on profits is either inadequate or excessive,

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<v Speaker 3>the court may, in its discretion and are judgment for

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<v Speaker 3>a sum, such as the Court shall find just according

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<v Speaker 3>to the circumstances of the case. In other words, if

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<v Speaker 3>the damage's award is too low, or if the damage's

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<v Speaker 3>award is too high based on profits, the court can

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<v Speaker 3>adjust and has some equitable discretion to adjust. Now, the

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<v Speaker 3>District Court does not say it's relying on this just

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<v Speaker 3>some provision and doesn't make any analysis of the adjustments

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<v Speaker 3>of making because of the just some provision. It just says,

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<v Speaker 3>I'm looking past this corporate screen and I'm counting the

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<v Speaker 3>damages of each of the affiliates. And here's what the

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<v Speaker 3>court says that hints at the potential proper approach. Maybe

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<v Speaker 3>this works for Dwburry Engineers on remand ideally it could

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<v Speaker 3>work for another plaintiff in a similar situation. The District

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<v Speaker 3>Court did not rely on the just some provision or

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<v Speaker 3>suggest it was departing up from defendants reported profits to

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<v Speaker 3>reflect the company's true gains. And perhaps if it had,

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<v Speaker 3>it seems to be the hint of the court that

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<v Speaker 3>might have been sufficient to get us past, to get

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<v Speaker 3>past this question of corporate structure. Now, Dewberry Engineers our

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<v Speaker 3>planet below did not include. They didn't sue John Doberry directly.

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<v Speaker 3>They didn't sue any of the affiliates directly. Had they

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<v Speaker 3>done so, they avoid this problem. They also didn't try

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<v Speaker 3>another move, which is potential, which the Supreme Court said, Look,

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<v Speaker 3>we're not ruling on this move either. There are a

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<v Speaker 3>couple of ways you can get behind the corporate entity.

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<v Speaker 3>One of them we call piercing the corporate veil. Another

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<v Speaker 3>way to phrase this is we think that the individual

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<v Speaker 3>corporations are all alter egos for one another, or there

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<v Speaker 3>are agents from another. In other words, they are closely connected.

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<v Speaker 3>And in both cases we ask questions that are like

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<v Speaker 3>the questions we've been talking about here right. In the

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<v Speaker 3>alter ego case, generally, a plaintiff has to prove that

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<v Speaker 3>there's a parent company that dominates and controls the subsidiary

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<v Speaker 3>to the extent that the subsidiary is just doing business

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<v Speaker 3>for the parent, and that they don't really exist as

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<v Speaker 3>separate legal entities, and there will be an justice or

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<v Speaker 3>a wrong to the plaintiff that will happen if we

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<v Speaker 3>don't pierce today. Right and factors that we might consider

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<v Speaker 3>in cases like this, well, is one corporation adequately capitalized?

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<v Speaker 3>Is there an overlap in ownership or personnel. Are there

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<v Speaker 3>sharing common office space? Is the business discretion? How much

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<v Speaker 3>business discretion does the allegedly dominant corporation have. Are they

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<v Speaker 3>engaging in arms link transactions with one another? Are they

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<v Speaker 3>too close? Does the corporation treat the independent as a

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<v Speaker 3>profit center? Are they paying each other's debts, etc? And

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<v Speaker 3>what I think had you applied this standard in the

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<v Speaker 3>way it could reasonably be applied, I think you'd reach it.

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<v Speaker 3>Now there's a problem for engineering, which is to say,

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<v Speaker 3>in many jurisdictions, courts are very skeptical of veil piercing,

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<v Speaker 3>although there are veil piercing cases that have been successful,

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<v Speaker 3>and these are the sorts of questions we ask in

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<v Speaker 3>a successful veil percent case. So the Supreme Court says,

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<v Speaker 3>you know, veil piercing is potentially an option. We're not

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<v Speaker 3>ruling on it one way or another. We're not ruling

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<v Speaker 3>on whether Doberry engineers on remand could argue for this

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<v Speaker 3>just some application and use that as a justification. There

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<v Speaker 3>is a potential forfeiture problem. They didn't do it below.

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<v Speaker 3>Potentially they didn't preserve that argument below, and therefore the

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<v Speaker 3>district court can't reach it again. There is also future

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<v Speaker 3>in the future for similarly situated plaintiffs, the option of

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<v Speaker 3>you know, you impleade all of the various you bring

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<v Speaker 3>in all the various defendants on the individual corporations. Now

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<v Speaker 3>that's more costly. In a case of trademark infringement. You

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<v Speaker 3>can sometimes under this same statutory provision, get attorney's costs

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<v Speaker 3>and fees. If you can get costs, you might be

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<v Speaker 3>able to pick up the additional revenues for having to

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<v Speaker 3>sue the multiple entities. But you're not guaranteed costs. And

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<v Speaker 3>Supreme Court's jurisprudence on this point requires a case that

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<v Speaker 3>is an unusual or outstanding case. And whether this would

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<v Speaker 3>amount to that sort of outstanding I should say exceptional

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<v Speaker 3>case is a life question. Justice Sodomar had a concurrence,

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<v Speaker 3>and her concurrence effectively it concedes the point that the

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<v Speaker 3>district court's analysis was too shallow, but the trademark law

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<v Speaker 3>should allow for looking at the reality of the situation.

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<v Speaker 3>And that was more or less the argument by the government.

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<v Speaker 3>The government was invited to brief the case, and the

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<v Speaker 3>government's brief effectively said the same thing. We want to

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<v Speaker 3>take seriously. The actual structure of the entity. Courts are

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<v Speaker 3>not required to take whatever accounting tricks or tax structures

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<v Speaker 3>that a defendant presents as the reality of the situation

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<v Speaker 3>when deciding a case like this, and therefore we can

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<v Speaker 3>look at those realities. But the government did argue for

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<v Speaker 3>remand in this case because the district court hadn't been

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<v Speaker 3>hadn't worked through the analysis. And so what we'll see

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<v Speaker 3>on remand is what what the district court thinks it's

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<v Speaker 3>remitted is as far as working through this analysis and

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<v Speaker 3>potentially granting damages under the just SU provision or potentially

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<v Speaker 3>inviting engineers to engage in the veil piercing that it

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<v Speaker 3>didn't think it had to engage in, or argue that

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<v Speaker 3>it didn't have to engage in the first time.

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<v Speaker 2>Right, Well, you know, thank you for going over the case.

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<v Speaker 2>I'm really priding a great detailed overview. You mentioned that

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<v Speaker 2>that engineers could have brought in all of the affiliates

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<v Speaker 2>plausibly plausibly, yes, would that still work if those affiliates

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<v Speaker 2>weren't violating trademark, like if they if they instead of

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<v Speaker 2>being as you were saying, you know, Cokeford and Cherry

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<v Speaker 2>Cokeford and all that it was. You know, I just

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<v Speaker 2>pick another name that it doesn't have coke, right, that

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<v Speaker 2>doesn't have coke in it. Would that then be a

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<v Speaker 2>problem because they're not then violating the trademark. How can

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<v Speaker 2>then you get to them in that way, because then

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<v Speaker 2>you may not even have standing against them. Yes.

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<v Speaker 3>Now, my understanding of the of this case is that

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<v Speaker 3>each of the affiliates for which profits were counted, we're

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<v Speaker 3>using the DeBerry mark. But you're absolutely right, this is

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<v Speaker 3>this is one of the difficulties. If you're not using

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<v Speaker 3>the Dewberry mark, then those affiliates shouldn't be brought in

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<v Speaker 3>unless they're using a mark that's similar enough but different.

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<v Speaker 3>And at that point you've got some messes here where

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<v Speaker 3>it may be plenty of A, B and C are

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<v Speaker 3>using more or less the exact mark, or sorry, Defendants A,

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<v Speaker 3>B and C are using the exact mark. Defendants E

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<v Speaker 3>and F aren't, but potentially close enough. The analysis would

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<v Speaker 3>be different. Defendant G isn't using the market all right,

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<v Speaker 3>and we should treat those different things as different. This

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<v Speaker 3>is one of the points that was raised in the brief.

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<v Speaker 3>On my brief with Professors Baty and Schuster. One of

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<v Speaker 3>the difficulties. It might be the case that say, for example,

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<v Speaker 3>you know the core entity is engaged in willful infringement.

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<v Speaker 3>That's what was determined by the district court. Now, are

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<v Speaker 3>each of the affiliates engaged in willful infringement? I'm not

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<v Speaker 3>sure there's another person there. If we can say each

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<v Speaker 3>of the affiliates is run by John Dewberry, then perhaps yes.

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<v Speaker 3>If we can't say that each of the affiliates is

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<v Speaker 3>run directly by John Newberry, then you may not have

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<v Speaker 3>that same willfulness, and that would change potentially the calculation

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<v Speaker 3>will willful defendants are sometimes on the hook for more

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<v Speaker 3>damages under the statute.

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<v Speaker 2>Right, I guess a little bit more broad than my

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<v Speaker 2>specific example. What do you see as the real consequences?

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<v Speaker 2>Just kind of broad thirty thousand foot view on trademark

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<v Speaker 2>law after this case.

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<v Speaker 3>So there's a danger, and the government brief hit on this,

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<v Speaker 3>and our brief hit on this. There's a danger that

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<v Speaker 3>if you ignore the realities on the ground, you are

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<v Speaker 3>insulating firms that shouldn't be insulated. From my ability, Lots

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<v Speaker 3>of firms structure things exactly the way that Dewberry did,

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<v Speaker 3>exactly the way that my cope for it, example, would

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<v Speaker 3>which is to say, you've got a bunch of affiliate organizations,

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<v Speaker 3>perhaps separate entities, but benefiting from the use of the trademark,

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<v Speaker 3>and the value the profit derived from the trademark may

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<v Speaker 3>very well spill over beyond the bounds of a singular

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<v Speaker 3>corporate entity, and being too formalistic about corporate entities potentially

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<v Speaker 3>undercounts the harm that Congress, the mechanism Congress gives us

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<v Speaker 3>to count this harm, which is the defense profits. On

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<v Speaker 3>the other hand, if you are persuaded, like lots of

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<v Speaker 3>folks are, that one of the keys to American success

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<v Speaker 3>is the corporate structure and the ability of corporate entities

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<v Speaker 3>to bringing capital by insulating those who who buy into

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<v Speaker 3>the corporation from direct liability. Being too casual about how

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<v Speaker 3>we pierce those corporate those corporate barriers can have effects

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<v Speaker 3>that run beyond trademark law and are potentially distortive of

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<v Speaker 3>a kind of a foundational element of the American economic system.

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<v Speaker 3>So I think plaintive situated like Newberry are going to

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<v Speaker 3>have to think more carefully, are probably going to have

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<v Speaker 3>to do more due diligence. It's going to increase litigation

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<v Speaker 3>costs on them to some extent, to make sure we

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<v Speaker 3>don't have a situation, to make sure they're not facing

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<v Speaker 3>a situation. We're a defendant as kind of structured its

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<v Speaker 3>revenues in such a way that you can't get at

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<v Speaker 3>the profits. Because frankly, you can get profits or you

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<v Speaker 3>can get plaintiff's damages. It's much easier to count profits.

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<v Speaker 3>It's much harder to count damages. Damages are rarely granted

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<v Speaker 3>in trademark cases, other than in places where you've got

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<v Speaker 3>like a counterfeiting claim or some other multiplier statutory damage

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<v Speaker 3>for will, for infringement, etc. Injunctions are the most likely

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<v Speaker 3>remedy for a plaintiff, and then disgorgement of profits much

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<v Speaker 3>more likely that damages, So plaintiffs are going to have

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<v Speaker 3>to figure out a way to account for this. Now,

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<v Speaker 3>this may be a rare case, and if it's a

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<v Speaker 3>sufficiently rare case, it won't make much difference at all.

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<v Speaker 3>I suspect that there will be careful and clever attorneys

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<v Speaker 3>who will read these cases and see a loophole and

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<v Speaker 3>then advise their clients who might be flying close to

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<v Speaker 3>a son. In Greek metaphor terms with regard to trademark infringement. Well,

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<v Speaker 3>let's insulate the core business from potential infringement of subsidiary

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<v Speaker 3>businesses and see if we can structure this in a

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<v Speaker 3>way that we can take a Newberry Group style advantage

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<v Speaker 3>that might save some damages on the back end.

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<v Speaker 2>Well, I, well, thank you so much for really just

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<v Speaker 2>proviting a great, great summary of this case and its

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<v Speaker 2>potential consequences, and really thank you so much for joining us.

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<v Speaker 3>Well, thank you, Kyle, really appreciate it.

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<v Speaker 2>Thank you for listening to this episode of SCO Discust.

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<v Speaker 1>Discust is the project of the Federalist Society, a not

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