The term “disgorgement” (sometimes referred to as “disgorgement of ill-gotten gains”) is used when a party is required by the court or a regulatory authority to repay those from whom they’ve illegally profited. It’s often used in fraud cases involving embezzlement, insider trading and other illegal or unethical activity.
Disgorgement can also be part of a remedy ordered in cases of intellectual property (IP) infringement. For example, if an individual or entity used someone else’s trademark and profited from doing so, they may be ordered (or agree) to pay the owner of the trademark the amount of money they made by wrongfully using their IP.
Disgorgement is usually just one type of monetary relief that the infringer has to pay the IP owner. They generally must pay other types of damages as well. For example, an owner of a trademark may have lost money because their brand was “diluted” by having an inferior or just an additional product on the market that people mistook for theirs.
Calculating the amount of disgorgement damages due can be complicated. That’s because it involves the amount of profit made solely because of the wrongful activity – in this case, trademark or other IP infringement.
The battle of the guitar makers
This year, the famous guitar maker Gibson was awarded over $168,000 in disgorgement damages to be paid by the company that makes Dean Guitars. That company was found to have used multiple Gibson trademarked shapes and wordmarks for its own instruments without authorization.
The jury in the case initially awarded Gibson only $1 because it waited decades to take legal action. A judge subsequently increased the award substantially to include disgorgement of profits earned as a result of the IP infringement.
Certainly, victims of trademark or other IP infringement should act as soon as possible. Some cases can be resolved without having to go to court. The best first step, however, is to get experienced legal guidance.