L. P. Larson, Jr., Co. v. Wm. Wrigley, Jr., Co.

Background

The dispute is between the Wrigley Company, which sold Doublemint gum in a package dress, and the Larson Company, which owned the Wintermint gum package design. After long litigation, Wrigley was ordered to account for net profits from sales that used the infringing package. During the accounting process, a question arose about whether Wrigley could deduct federal income and excess profits taxes from the profits it must turn over. The case reached this Court to decide that tax-deduction question.

Reasoning

The Court focused on whether treating the infringer as an agent or trustee requires allowing the tax deduction. It said calling the wrongdoer an agent is only an analogy and that the actual circumstances matter, including what the infringer knew and did. The Court agreed that necessary production costs may be allowed, but refused to let the infringer deduct taxes it paid for the chance to do what it knew it had no right to do. Because the record showed conscious and deliberate wrongdoing, the Court concluded that allowing the further tax deduction would be unjust and reversed the lower court’s allowance of that deduction.

Real world impact

The ruling stops an infringing company from lowering the profits it must give up by claiming federal tax deductions in this kind of deliberate-copying case. That makes rights holders more likely to recover the full profits from copying. The decree as to the tax allowance was reversed, resolving the accounting issue in favor of the packaging owner.