Recalibrating the Disgorgement Remedy in Intellectual Property Cases

Abstract

The five major US intellectual property (IP) regimes — trademark, trade secrecy, copyright, design patent, and utility patent laws — have quite different rules about the availability of disgorgement of infringer profits as a remedy. Traditional principles of restitution and unjust enrichment support awards of disgorgement of profits insofar as they are (1) levied against conscious wrongdoers, (2) attributable to the wrongful conduct, and (3) subject to equitable discretion. Unlike awards of actual damages, which aim primarily to compensate plaintiffs for harms suffered because of a defendant’s wrongdoing, disgorgement awards primarily seek to deter wrongdoing by ensuring that wrongdoers do not profit thereby. This Article presents a formal model that supports our judgment that these principles are consistent with the goal of optimal deterrence of IP infringement. Much of the Article presents a close study of the doctrinal structure of the five IP regimes’ approach to disgorgement. We find that trademark law is the most consistent of the five regimes with traditional restitutionary principles and the goal of optimal deterrence. Trade secrecy law, like trademark law, is substantially consistent. Design patent, copyright, and patent laws deviate in more significant ways. Disgorgement awards are always available to owners of copyrights or design patents, even against innocent infringers. Moreover, design patent law even deviates from traditional approaches to restricting awards to amounts attributable to infringement: instead, design patent law requires awards of total profits on the manufacture or sale of whatever “article of manufacture” to which an infringing design has been applied. Further, courts have thus far rarely recognized that disgorgement awards should be subject to equitable adjustments in copyright and design patent cases, although this may change after the Supreme Court’s characterization of disgorgement as an equitable remedy for copyright infringement. Patent law deviates from traditional restitutionary principles in a very different way: courts have ruled that Congress repealed disgorgement as a remedy for utility patent infringement in 1946, but patent law’s reasonable royalty awards can, in effect, effect a partial disgorgement of infringer profits. The Article makes recommendations about how courts can, within the statutory bounds of each IP regime, render disgorgement awards that are more consistent with traditional restitutionary principles in a manner that will promote the overall goals of the IP laws.