Last week, the U.S. Supreme Court issued an opinion in Dewberry Group, Inc. v. Dewberry Engineers Inc., 2023-900 (Feb. 26, 2025), vacating and remanding an appeals court ruling affirming a $43 million judgment for trademark infringement.
Dewberry Engineers sued Dewberry Group, a competitor real-estate development company, for infringement of the trademark “Dewberry.” Liability was not contested, and the central issue became the damages due to Dewberry Engineers. Under the Lanham Act, a prevailing trademark plaintiff is entitled to recover the defendant’s profits, any damages to the plaintiff, and costs of the action. 35 U.S.C. § 1117(a). With respect to defendant’s profits, the district court found that Dewberry Group had no profits, but Dewberry’s thirty affiliates collectively had $43 million in profits. This district court thus treated Dewberry Group and its affiliates as “a single corporate entity” in awarding profits to Dewberry Engineers. A divided Fourth Circuit Court of Appeals affirmed the award.
The Supreme Court vacated, holding that the statutory text of § 1117(a) dictated that a court can award only profits ascribable to the “defendant” itself, not the defendant’s affiliates. The Court determined that a “defendant” is “the party against whom relief or recovery is sought in an action or suit.” Moreover, the Court explained that “it is long settled as a matter of American corporate law that separately incorporated organizations are separate legal units with distinct legal rights and obligations.” As such, the Court found error in treating Dewberry Group and its affiliate as one corporate entity.
The Court noted that the plaintiff had legal avenues to recover from the affiliates, but it chose not to pursue them. For example, the plaintiff could have named the affiliates as defendants in the lawsuit or argued for piercing the corporate veil of Dewberry Group to get to the affiliates. Additionally, the district court could have considered a separate “just-sum provision” in § 1117(a), which allows the court to determine if the amount of a defendant’s profits is “inadequate” and then “enter judgment for such sum as the court shall find to be just, according to the circumstances of the case.” But none of these alternatives were utilized.
Justice Sotomayor joined the Court’s opinion but wrote a separate concurrence emphasizing her view that “principles of corporate separateness do not force courts to close their eyes to practical realities in calculating a ‘defendant’s profits.’”
