Tag Archives: Remedies
Jeanne L. Schroeder, Taking Misappropriation Seriously: State Common Law Disgorgement Actions for Insider Trading
(Feb. 11, 2021) Cardozo Legal Stud. Rsch. Paper No. 625, available at SSRN
The disgorgement remedy strips a defendant of unjust profits. Disgorgement is gaining prominence as a civil remedy across a varied body of substantive laws, including intellectual property, contracts, fiduciary duties, as well as in government enforcement litigation to battle fraud and corruption. Disgorgement’s provenance ties to restitution and the equitable accounting for profits remedy. Even as memory of its equitable history fades, modern and novel applications of disgorgement flourish. Disgorgement relies on restitutionary principles because its primary goal is to undo unjust gain. It also deters opportunism and disincentivizes misconduct.
But if not applied properly, the danger is that disgorgement may punish, which is explicitly not a goal of the law of unjust enrichment and restitution. The Securities and Exchange Commission (SEC) has faced, and continues to face, an array of criticisms for aggressive uses of its disgorgement remedy pursuant to statutory authorization. Such concerns led to several Supreme Court rulings requiring adjustments to the SEC’s approach to disgorgement—most recently in Kokesh v. SEC, 137 S. Ct. 1635 (2017) and Liu v. SEC, 140 S. Ct. 1936 (2020). Congress subsequently amended the remedy to solidify the SEC’s authority to seek disgorgement, though the clarification oddly appears to classify the statutory disgorgement remedy as legal rather than equitable. This congressional revision is housed in a massive piece of unrelated legislation, the 2021 National Defense Authorization Act (“NDAA”), which Congress passed over a presidential veto. A parallel expansion of disgorgement remedies by the Federal Trade Commission (FTC) faced increased judicial scrutiny and ultimately a rebuff by the Supreme Court in AMG v. FTC, No. 19-508 (April 22, 2021) (narrowly interpreting the statute’s injunction power as not encompassing FTC authority to seek equitable disgorgement), with congressional restoration of full disgorgement power anticipated.
Much is changing rapidly, and it is unclear how successful the SEC will be at navigating new strictures while advancing enforcement goals. To be clear, the landscape is complex. In a forthcoming article, Taking Misappropriation Seriously: State Common Law Disgorgement Actions for Insider Trading, Professor Jeanne Schroeder seeks a solution to the complexities. She advances private state common law actions for disgorgement as a cleaner way to remedy insider trading violations. The potential advantages of private state-based litigation with application of the disgorgement remedy are worth serious consideration. And the notion of parallel pursuit of state common law remedies may well be a wise approach for other governmental enforcement regimes.
To lend credence to this proposal, Professor Schroeder argues that a state common law disgorgement action would align with the Supreme Court’s “largely property-based theory of insider trading.” Regardless of the asserted narrative fit, Professor Schroeder offers six compelling reasons why an action at common law for restitution would avoid many of the complexities of federal insider trading enforcement actions. For example, the Supreme Court’s insider trading jurisprudence requires fraud, violation of a fiduciary duty, as well as misappropriation of information. Under state law, each of those elements provides an independent ground for private redress.
The common law of restitution therefore streamlines the inquiry to “the person to whom the duty is owed or the owner of the information who should have a cause of action.” In highlighting such improvements, Professor Schroeder provides a useful, thorough overview of federal and state insider trading jurisprudence. According to Professor Schroeder, state common law of restitution would simplify remedying insider trading wrongs. Specifically, a state disgorgement approach would eliminate the Supreme Court’s multi-factor standard for insider trading and provide much greater flexibility in proof thresholds. For restitution and disgorgement, state common law standards are less onerous than federal statutory requirements and the Supreme Court’s strictures. Still, federal law leaves space for concurrent jurisdiction and the continuation of common law efforts to disgorge improper gains.
Of course, to suggest that this alternative approach could replace the SEC’s enforcement regime would be extreme. Professor Schroeder wisely notes that her solution of private disgorgement actions should supplement SEC enforcement, not supplant it entirely. The SEC would remain responsible for a host of remedial efforts including injunctions, bars, suspensions, penalties, and more. Meanwhile, state courts could continue to develop the contours of the common law of restitution and the important remedy of disgorgement.
The force of Professor Schroeder’s approach is that it offers viable alternatives with much simpler proof requirements. Additional benefits may flow from a state common law restitution approach. Such benefits are not the focal point of the article but include the potential avoidance of Liu constraints. For example, a state law approach would obviate the mandate to present evidence of concerted wrongdoing in order to obtain joint and several disgorgement liability as well as the Supreme Court’s directive to return funds to victims, both of which present unique challenges in insider trading cases.
Still, it is worth considering whether the Supreme Court’s commands are wise policy. Though not bound by those strictures, state common law decisions would be free to engage in parallel tightening. But any such efforts can vary by state and would tie to the goals of restitution and unjust enrichment rather than the language of federal statutes. No matter what the underlying frame of the cause of action and remedy sought, courts must balance the law’s mission against concerns about overreach, plaintiff windfalls, and punitive results.
Professor Schroeder emphasizes a core restitution principle: that her approach will restore the private claimant to the status quo ante. In some of these cases though, courts should conduct more refined analysis to evaluate whether the application of restitution works if the property—material nonpublic information—is of less value when it is not traded than when it is. In some cases, the inside trader’s proceeds may not be “the fungible equivalent of personal property previously transferred to the other party,” because material nonpublic information that has not been traded upon does not (yet) have monetary value to the issuer. Still, as Professor Schroeder’s work demonstrates, meaningful and powerful remedies for wrongdoing such as insider trading are worthy state law aims. Thus, Professor Schroeder’s work will still resonate as the state common law continues to honor the goals of restitution while working in the shadows of federal statutes.
Professor Schroeder’s scholarship is vital in that it reminds readers to consider forgotten remedies and lesser worn paths. Federal enforcement should not be the sole vehicle to strip gain, deter wrongdoing, and benefit victims. If private litigants can effectively pursue remedies on the state level, the SEC may be able to direct its resources to more challenging or important targets. Not only might those paths be easier in the pursuit, but the seeker may also more likely reach the ultimate goal of disgorging the improper gain from insider trading.
In a delightful article recently published in the Florida International Law Review, Professor Russell Weaver has done a great service to us all by helpfully summarizing the current state of the law concerning nationwide injunctions, drawing on and summarizing recent scholarship and numerous cases in the field. His article should prove to be of great value to the practitioner and the professor alike and, given its length and clarity (at seventeen pages, Prof. Weaver’s article packs quite a punch), those teaching in the area may even consider assigning it to their students. I probably will, because although many of my students seem to grasp the logic of compensatory damages due to some exposure in their first-year contracts and torts classes, they often seem mystified, at least initially, when it comes to injunctions, which is to say nothing of nationwide injunctions!
Part of this mystery, it seems, stems from the fact that injunctions grew up in courts of equity, whereas damages (primarily) grew up in common law courts, and the first-year curriculum (outside of a few contracts cases on specific performance) largely focuses on the latter at the expense of the former. This means that although students are familiar with the idea that compensatory damages should generally try to return an injured party to the position it would have occupied but for the wrongful harm inflicted by the wrongdoer, they have a harder time understanding why an injunction should be issued before a wrongful harm has ever come to pass. But the difficulties do not stop here. Unlike damages, which can be measured in dollars, they also find measuring the “amount” of an injunction to be counterintuitive. In theory, a court should award the “amount” of injunction needed to prevent the plaintiff from suffering from a potential future wrongful harm. But even talking about injunctions in this way seems odd, for injunctions cannot be “counted” in the same way that dollars can, and therefore determining the proper scope of an injunctive remedy is incredibly difficult.
Which brings us to another point: in theory, the scope of an injunction should not exceed the scope of the threatened harm, so that (for example) a company-wide injunction would only be appropriate where a company-wide wrong is taking place. In practice, however, it is easy to game the system, especially in the area of national injunctions, which has seen tremendous growth over the past several decades. This is so because plaintiffs can (and frequently do) seek, for example, a nationwide injunction in one jurisdiction, fail to obtain it, and then bring suit in another jurisdiction several years later. Then, in this new jurisdiction, plaintiffs win, and have their “win” extended throughout the United States (including, it should be noted, the jurisdiction in which their original suit previously failed). Although these cases are extremely interesting, productive, and fun to talk about in class, they are difficult to summarize (much less make sense of) for the students, not to say anything of the professor’s ability to understand them!
Enter Professor Weaver. Not only does his article do a fabulous job summarizing the current state of the law, but he helpfully spends a good deal of space discussing the policy implications of nationwide injunctions, canvassing the pros and cons of allowing district and circuit courts to set policy on the national legal stage.
So, for instance, against the argument that nationwide injunctions might be necessary to promote uniform laws designed to protect large numbers of otherwise powerless individuals from “unconstitutional” government policies, Prof. Weaver balances the argument that these lower-court decisions are sometimes found to have been “wrong,” in that the actions deemed “unconstitutional” by a district or circuit court is found to have been, according to the Supreme Court, perfectly legal, with the result that the uniformity that was imposed by lower courts was, in point of fact, without a legal basis. Similarly, Prof. Weaver discusses how, on the one hand, allowing a lower court to make a decision for the entire nation may promote “judicial economy” by having a “single judge hear and decide the issue” before it, which, in turn, can save the judicial resources of all the other courts around the country who no longer need to “consider and decide the same issue.” (P. 111.) On the other hand, however, Prof. Weaver points out that such judicial economy comes at a price: specifically, allowing the precipitous review of important national issues without adequately developing the issue in other districts and circuits. Sometimes, as where a more complete and thorough understanding of the issues can be developed in multiple district and circuit courts, a little inefficiency can be a good thing!
Prof. Weaver discusses a number of other important issues created by nationwide injunctions as well (the potential for nationwide injunctions to politicize courts, encourage forum shopping by litigants, and over-empowering individual district and circuit judges), and I would encourage any interested readers to check out and read his entire article. Not only is it a quick and delightful read, but it is one that I your remedies students will likely enjoy as well. It is probably the most accessible summary of these issues I have seen in a single place.
Bernard Chao, Privacy Losses as Wrongful Gains
, (forthcoming), available at SSRN
Here’s the problem: data breaches are on the rise, but they may not cause provable losses. This gap exists because traditional legal theories do not adequately protect the privacy interests at stake. Should the law have a method for identifying and capturing wrongful gain from those breaches? If so, should private plaintiffs be able to strip such gains in order to undo unjust enrichment and deter opportunism? Bernard Chao articulates why the law of unjust enrichment and restitution present a viable pathway for plaintiffs to hold data breachers accountable by disgorging gains earned from the breach. As Chao’s article shows, the law of unjust enrichment will provide both a basis for a more viable cause of action and a preferred remedy. The preferred remedy is disgorgement of profits.
Chao effectively shows the need for this paper as well as the justification for the lure of restitution. The lack of familiarity with and misconceptions about this body of law make Chao’s task a difficult one. Redesigning the solution requires an appreciation of law that is beyond the working knowledge of countless law professors, litigators, and judges. Scholars bemoan data breach laws as insufficient. Some scholars and judges see data breach problems as governed by common doctrinal boxes such as tort, privacy, and contract law, and assume one or more of those boxes forecloses any ability to pursue unjust enrichment paths. This limited conception needs to change. Unjust enrichment and restitution law is equally applicable, and ultimately, more advantageous as a pathway to recovery. Restitution has the ability to address the wrong, and shape an ideal remedy that overcomes otherwise insurmountable obstacles for the victims of data breach. It is not without limits. Once raised properly, judges and juries can effectively fashion the relief to avoid unjust enrichment. Chao’s work will go far in achieving this critical repositioning of the law of restitution.
Existing scholarship suggests broadening conceptions of privacy harms. Rethinking what constitutes harms adds value to the scholarly dialogue. But, as Chao demonstrates, those theories will continue to encounter obstacles of proof given the elements of such causes of action. It is true that judicial interpretations of harm are sometimes restricted unnecessarily to financial losses. Incorporating intangible harms is a step in the right direction, but it does not solve all of the possible proof problems. Unjust enrichment law avoids this roadblock by removing the focus from compensating for plaintiff’s losses to preventing the wrongdoer’s unjust gains made as a result of the data breach.
The first part of Chao’s article describes typical privacy losses and how establishing the proof of those losses will be the downfall of most plaintiffs. Both the law of contract and tort pose barriers to recovery for victims: The goals of such causes of action have traditionally been to compensate victims for loss. As he wisely notes, these barriers have no real connection to the underlying merits of the privacy victims’ allegations of wrongdoing. Conventional bodies of law view plaintiffs’ intangible or hard-to-prove damages as not cognizable. If an individual can’t sell her own data, how can she prove that misuse of that data has caused her to sustain a financial loss? Further, the fact that she has not sold her own data shows that she values it above the market price; thus demonstrating that a market-price measure of damages would also be inadequate. This is the problem the classic doctrines of compensatory remedies pose for plaintiffs.
Further, Chao addresses the obstacle of constitutional standing as it relates to plaintiff’s need to show actual injury. He usefully explores Clapper v. Amnesty International, and Spokeo, Inc. v. Robins. Chao builds on the critiques raised by other scholars such as Felix Wu who criticize standing doctrine’s current strictures. As Chao notes, standing requirements continue to pose significant hurdles for plaintiffs. Chao then suggests the law of unjust enrichment and restitution as the best solution to all these problems. Gain-based theories add a wrinkle to standing jurisprudence, but unjust enrichment claims meet standing strictures, as the Spokeo amicus brief filed by restitution and remedies scholars demonstrated.
Instead of focusing on plaintiff’s harm, unjust enrichment keys to defendant’s wrongful gain. Chao asserts that privacy scholars have ignored unjust enrichment and forgotten restitution remedies. According to Chao, Daniel Solove and Danielle Keats Citron’s important contribution on data breach harms only notes unjust enrichment in passing as one possible way to address the injury. Unfortunately, they are not alone. Lawyers and courts, too, fail to treat restitution seriously. As Chao explains, the law of unjust enrichment and restitution disappeared from the American legal mindset. Doug Laycock documented this lamentable absence from our collective imaginations in his important work: Restoring Restitution to the Canon. Chao is correct that there is much work needed to rebuild this foundation.
It starts with education. Chao’s article offers definitions to assist readers with both the underlying theories of restitution as well as its remedies including disgorgement. He also explores exactly how the law of restitution applies to privacy breaches, and how it overcomes many of the doctrinal hurdles found in tort, contract, and constitutional law. The incredible work of the American Law Institute’s Restatement (Third) of Restitution and Unjust Enrichment (2011) is another amazing resource with over 1,400 pages of applications and related commentary. American law schools should offer courses in restitution again. Andrew Kull, the Reporter for the Restatement, and Ward Farnsworth authored a wonderful restitution casebook in the hopes that if you build it, they will come. I was lucky enough to teach this material in an advanced course at the University of Florida Levin College of Law. My students frequently wondered why they hadn’t studied any of the restitution cases before. They appreciated the variety of scenarios that could raise unjust enrichment, and the ways that the law of unjust enrichment and its remedies could offer relief where other bodies of law failed. The remedial power of restitution’s disgorgement and its constructive trust have undeniable appeal. We also spent much time discussing viable defenses to restitution claims and remedies. The law of unjust enrichment contains its own doctrinal hurdles, and company defendants will raise a host of defenses including efforts to offset profits with those it had every right to make. Courts are capable of balancing the interests of justice with doctrines of limitation such as attribution. But unjust enrichment will go far to open more access to claims and remedies than more traditional claims covering data breaches.
Until more are able to offer courses in restitution, we are fortunate to have thoughtful articles like Bernard Chao’s that conduct inquiries in the forgotten corners of the law. Restitution may not be a panacea, but restitution has more than enough to offer to solve many thorny problems raised by privacy and data breaches. If a company improperly uses a victim’s data and profits from that wrongful use, why shouldn’t the law honor a claim to disgorge that unjust gain? Chao concludes that the law should, and I agree.
As tort reform heated up in the United States late in the last century, so too did the debate over the appropriateness of punitive damages awards, especially where those damages were seen to be excessive. Complicating the picture, of course, is what it means for such damages to be excessive in the first place, for, unlike traditional damages intended to compensate the injured party, punitive damages are intended to punish and deter the wrongdoing party. As a starting point, most courts and scholars are in agreement that the reprehensibility of the wrongdoing party and the amount needed to deter similar conduct in the future are important considerations that should be taken into account before awarding punitive damages. After this, however, all bets are off. For instance, scholars disagree with one another as to whether punitive damages are really out of control in the first place (most, but not all, seem to think that they are), and even if they are, they further disagree on what should be done about the problem. For instance, how predictable should punitive damages awards be, and what role, if any, should be played by the defendant’s wealth, or by other civil or criminal penalties the wrongdoer might be subject to, or by the probability of the defendant’s behavior escaping detection, or by the ratio between the compensatory and punitive damages, or by whether the claim is being reviewed as excessive on common law grounds or as unconstitutional on due process grounds, and how does all of this tie in to the twin (but frequently at odds) goals of punishment and deterrence? Indeed, there are few principles in all of remedies more contentious (and confusing!) than those governing the current punitive damages landscape, as a stack of recently-graded remedies exams sitting next to my desk will readily attest.
It is in part due to this confusion that hundreds of law review articles have been written on punitive damages since the 1980s alone—just when tort reform started to find its feet under the Reagan administration—initiating a cataclysmic shift in the punitive damages landscape whose aftershocks are still being felt today. Fortunately, one of the newest contributions to the literature—a well-researched, enjoyably-written, and cogently-argued Article called Taming Blockbuster Punitive Damages Awards by Professors Benjamin J. McMichael and W. Kip Viscusi—has found something new to say. The Article not only provides “the first empirical analysis of the effect of state punitive damages caps on blockbuster awards” (i.e., those awards exceeding $100 million, which arguably pose the biggest threat to fundamental notions of fairness), but also is the first to explore the dynamic interplay between the attempt of individual states to rein in and render more predictable punitive damages awards “with the effect of the Supreme Court’s current constitutional doctrine on punitive damages.” (P. 171.)
First, a little background. When it comes to federal constitutional law, the Supreme Court in State Farm tried to rein in the excessiveness of punitive damages award by holding that “few awards exceeding a single-digit ratio (i.e., 10:1) between punitive and compensatory damages … will satisfy due process,” and even suggested in Haslip that an award exceeding a 4:1 ratio between punitive and compensatory damages might come close to stepping over the line of constitutional impropriety. However, most state legislatures have dealt with the problem of excessive punitive damages awards quite differently. On the one hand, many have tried to rein in punitive damages by passing legislation capping the total amount of punitive damages (e.g., to $1 million) and/or by setting the ratio of punitive to compensatory damages much lower than that of the Supreme Court (e.g., 3:1 and 2:1 ratios are fairly typical). On the other hand, many legislatures have also provided statutory exceptions to these ratios to provide for larger awards in certain cases. Until Professors McMichael and Viscusi, nobody has thought to explore how these very different regulatory regimes have interacted with one another, especially as concerns blockbuster awards. So, what did they find?
Applying multivariate regression models, the authors found several interesting things worth the price of admission. First, they found that since State Farm, both the frequency and the size of blockbuster punitive damages awards has been reduced. This was about what one would expect: the combination of State Farm and Haslip suggests that a punitive award in excess of $100 million would typically only be available where compensatory damages already exceeded $25 million, but historically, where compensatory damages were this significant, courts and juries more frequently than not demonstrated a general reluctance to impose punitive awards with high punitive-compensatory ratios. More surprising, however, was the authors’ second finding that although state punitive damages caps reduced the frequency of blockbuster punitive damages awards (as should be expected), they had “no effect on the size of the awards that [did] cross this threshold,” a result that contrasted both with “earlier evidence suggest[ing] that State Farm ha[d] little effect on either the frequency with which punitive damages are imposed or the size of these awards” and with evidence suggesting that “caps ha[d] a statistically significant and negative impact on award size.” (P. 175.)
Based on their findings, the authors quite sensibly argue that if the Court really is serious about reining in outlier awards and rendering punitive damages awards that are more predictable, they should “take advantage of the available empirical evidence to formulate a new approach to governing punitive damages under the Due Process Clause.” (P. 175.) Specifically, they argue that because State Farm tends to do a better job of policing larger punitive awards while caps tend to do a better job policing smaller awards, they should combine these two approaches and reduce the punitive-compensatory ratio to 3:1 while providing an exception for wrongful death cases. But even here, the authors argue, the combined value of the punitive and compensatory damages should be set to “equal the value of a statistical life,” a proposal designed to “enable punitive damages to fulfill their proper deterrence role.” (P. 210.) Such a proposal, it is true, will limit the Court’s ability to punish and deter particularly egregious conduct (a fact that the authors are careful to point out at several places in their article), but if we are willing to trade off these goals for more predictability in the law, a step the Supreme Court seems already to have taken, then the authors’ provide a sensible way of accomplishing this goal. The Article is highly recommended!
Pamela Samuelson & Mark P. Gergen, The Disgorgement Remedy of Design Patent Law
, 108 Calif. L. Rev.
__ (forthcoming, 2020), available at SSRN
The law of design patents continues to evolve in dramatic ways. The law of remedies must also adapt to serve the underlying goals of design patent law and restitution. In creating and interpreting the disgorgement remedy, Congress and the Supreme Court have caused a crisis with unintended consequences. They have provided insufficient guidance on how to construe the remedy. Congress added this remedy to cure a perceived remedy deficit, but Congress crafted it too bluntly—authorizing disgorgement of “total profit” from one who sells, without a license from the owner, articles of manufacture that apply a patented design or colorable imitation. Meanwhile, the Court splintered the design patent right into smaller fragments without suggesting how to align the remedy.
In a thought-provoking critique, Professors Pamela Samuelson and Mark Gergen present a compelling, detailed argument for applying causation and apportionment to limit restitutionary disgorgement awards in partial design patent cases. This narrowing is essential to maintaining the utility of restitution in design patent law. The authors’ proposed solution also advances the normative purposes of restitution and its disgorgement remedy in design patent cases.
As Samuelson and Gergen demonstrate, a total-profits remedy risks overserving patent purposes and failing to adhere to restitution’s boundaries. The fragmentation of design patent rights calls for more precisely tailored remedies. The modern trend, as examined by Sarah Burstein, is to issue design patents on small parts of complex products and also on functionality more than ornamental designs. Samuelson and Gergen offer a thoughtful method of interpretation of the total-profits disgorgement remedy of § 289 of U.S. patent law.
But first they explore the flaws of recent judicial interpretation. They focus on the Apple v. Samsung case to reexamine the history and use of the disgorgement of total-profits remedy in design patent law. The Samsung Court construed “article of manufacture” for determining § 289’s disgorgement remedy so that it could be a component of the marketplace product rather than simply the end product. In other words, the infringement and remedy may be key to an element such as the Apple-inspired shape of the flat face of the smartphone rather than the Samsung phone itself. In so ruling, the Court vacated the lower court’s $399 million award that was intended to constitute Samsung’s total profit from sales of its phones that included infringing elements. The lower court judge had already remitted the jury verdict that exceeded $1 billion, which was the jury’s assessment of Samsung’s total profits. The Court vacated the award as remitted, but either award would be problematic under the Court’s new interpretation. It remanded for determination of the proper disgorgement amount in light of its narrowing of the right to the infringed elements (even if not separately salable) rather than the end product.
But as Samuelson and Gergen note, the Court fails to guide adjudicators on how to evaluate the relevant article of manufacture if not sold on the market and on how to determine the profits to disgorge where the infringement is partial rather than whole. On remand, the jury awarded $533 million in disgorgement of profits for Samsung’s infringement of Apple’s design patents. The parties settled after this verdict. Another case, Columbia Sportswear, raises similar concerns about a $3 million total-profits jury award for sales of gloves that infringed on a design patent on the lining material. The law remains unsettled and is also inconsistent with a Federal Circuit ruling.
The various awards during the Apple v. Samsung litigation process demonstrate the lack of precision in assessing the proper amount for disgorgement of profits under the Court’s new frame. Samuelson and Gergen forcefully critique the Court’s decision as “historically ill-informed and normatively unpersuasive.” (P. 3.) They lament that these flaws will lead to unsatisfying inquiries in complex technology cases. Further, the elusiveness of the examination will cause unpredictable, inconsistent, and occasionally grossly excessive awards. Instead, they advocate a more complete and detailed method for honoring the normative goals of restitution law that underlie the disgorgement remedy for design patent infringements.
Courts and scholars would be wise to incorporate restitution concepts to better protect the rights at stake. Restitution is not compensatory, but instead seeks to undo unjust benefits and deter wrongful behavior without punishing the infringer. A restitutionary disgorgement remedy like the one adopted by Congress for design patents alleviates proof problems for design patent owners who cannot prove actual damages with reasonable certainty and might otherwise be left with nominal recoveries. As Samuelson and Gergen’s article details, the legislative history confirms that Congress desired a meaningful remedy for design patent owners, but Congress did not intend the total profit remedy to be punitive.
It is key that a gain-based remedy of disgorgement of profits conform to restitution’s purposes—preventing unjust enrichment by stripping profits from wrongful infringement but not by punishing. The lack of guidance coupled with the greater fragmentation of the right is likely to result in inflated disgorgement awards. As the authors aptly state, disgorgement’s function is not compensatory but rather to erase the incentive to act wrongfully by stripping “from a wrongdoer profit that is causally attributable to his wrong, but not more than this (and sometimes less if apportionment is warranted).” (P. 3.) Accordingly, under a restitution frame using a counterfactual analysis, “wrongdoers are allowed to retain costs of committing the wrong and profits they would have made had they chosen to behave lawfully.” (P. 3.)
Proper calibration of disgorgement requires careful causation and apportionment analysis. Samuelson and Gergen acknowledge that determining causation and apportionment with precision will be challenging and inherently discretionary. For the interested reader, the authors meticulously explore the Solicitor General’s suggested test and VW Beetle design-patent hypothetical, and they compare various scenarios through a thought experiment with the famous restitution case of The Great Onyx Cave. This exploration demonstrates the distinction between causation and apportionment, the importance of alternative framing, and the correlation of these doctrines to goals such as fairness, efficiency, and desert. The legislative history does not foreclose this analysis, and if it does, Congress should amend this section to allow this inquiry especially for partial design infringement cases.
Who should conduct this remedial inquiry? The authors maintain that judges are better suited to make these assessments and attain more reasonable approximations than juries. Further, they show historical markers that support characterizing the remedy as equitable in this context. Despite the practice of using juries in determining design patent disgorgement awards, Samuelson and Gergen are convinced that a jury is not constitutionally required. The wise exercise of equitable discretion will go far in maintaining disgorgement as a powerful, yet restrained remedy to deter taking without asking, while preventing only the enrichment that is truly unjust.