The Supreme Court on February 26, 2025, overturned a nearly $43 million award granted in a decadeslong trademark dispute between two real estate companies. The unanimous ruling emphasized that under the Lanham Act section §1117(a), only profits ascribable to the named defendant can be disgorged.
The Court found that ordering disgorgement of profits from companies affiliated with the defendant was improper because it violated principles of corporate separateness. Still, plaintiffs have other ways to recover damages from non-party affiliates, such as piercing the corporate veil, naming them as defendants, or potentially a “just-sum” theory.
Dewberry Group, Inc. v. Dewberry Engineers, Inc. dates back to 2006 and involves a trademark infringement suit between two real estate development businesses over the name, Dewberry. In 2007, Dewberry Engineers sued Dewberry Group (originally named Dewberry Capital Corp.) for trademark infringement.
Dewberry Group had operated at a loss for decades and only survived through occasional cash infusions from its owner, John Dewberry. The District Court found that the affiliate companies of Dewberry Group, which are also owned by John Dewberry, had profited tens of millions of dollars. The parties settled in 2007, which limited Dewberry Group’s use of the word “Dewberry.”
About a decade later, Dewberry Group, in a rebranding effort, resumed its use of the “Dewberry” name in marketing and other materials that were used to lease to its affiliates’ properties. Dewberry Engineers sued Dewberry Group again, alleging trademark infringement and unfair competition under the federal Lanham Act.
The District Court found Dewberry Group had violated the Lanham Act and that those violations were “intentional, willful, and in bad faith” because Dewberry Group had been alerted to “numerous red flags alerting it to the illegality of its conduct.”
Under the Lanham Act section §1117(a), a prevailing plaintiff is entitled to recover the defendant’s profits derived from a trademark violation. In this case, Dewberry Engineers only named Dewberry Group as the defendant in the complaint. In order to reflect the “economic reality,” the District Court treated Dewberry Group and its affiliates as “a single corporate entity” for purposes of calculating a profits reward (since Dewberry Group had essentially reported no profits).
The lower court reasoned that by treating the companies as a single entity, Dewberry Group and its affiliates could not be unjustly enriched, serving the overall purpose of the Lanham Act. The lower court calculated the real-estate profits from Dewberry Group during the years that they had infringed the Dewberry mark and awarded Dewberry Engineers an award of nearly $43 million.
A divided Court of Appeals affirmed the nearly $43 million award and reiterated the “economic reality” of Dewberry Group’s relationship with its affiliates. The Court of Appeals reasoned that it did not matter that it was the affiliates who received the revenues (rather than Dewberry Group), because to hold otherwise would allow businesses to use corporate formalities to insulate their infringement from financial consequences.
In its unanimous decision, SCOTUS vacated and remanded the lower court’s decision in and held that the lower courts did not have the authority under federal trademark law to order the disgorgement of profits from the affiliates of the only named defendant, Dewberry Group, Inc.
Under the Lanham Act section §1117(a), a court can award a prevailing plaintiff in a trademark infringement suit only profits ascribable to the “defendant” itself. Although the term ‘defendant’ is not specially defined under the Lanham Act, it bears its usual legal meaning: a party against whom relief or recovery is sought in an action or suit—here, Dewberry Group. Because Dewberry Engineers only named Dewberry Group in their complaint, only Dewberry Group could be held liable for infringing the “Dewberry” trademark. This made the disgorgement of profits from Dewberry Group’s affiliates improper.
The Court explained that the affiliates’ profits are not “statutorily disgorgable” profits and cannot be treated as Dewberry Group’s own profits. The Court underscored 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,” even if the entities are affiliated and have a common owner. There are exceptions to the notion of corporate separation, such as “piercing the corporate veil,” but Dewberry Engineers never raised or addressed this issue.
Instead, Dewberry Engineers argued that under the Lanham Act section §1117(a), a court in its discretion could enter a judgment that the court found just if the amount of the recovery was either inadequate or excessive. Dewberry Engineers argued that under this “just-sum” provision, a court could determine a monetary judgment that better reflected Dewberry Group’s true financial gain after reviewing their profits, which included reviewing its affiliates’ profits. The Court refused to address this “just-sum” issue since the lower courts did not rely on the “just-sum” provision and instead treated Dewberry Group and its affiliates as a single corporate entity.
The Court explained that the lower courts went further than the Lanham Act permits because federal trademark law only allows courts to disgorge profits to plaintiffs from defendants named in the complaint.
SCOTUS left a few questions unanswered. The Court did not address whether or how courts could have used the “just-sum” provision to support a profits award or whether or how courts could look beyond a defendant’s financial records to consider a defendant’s true “economic reality,” even without relying on the “just-sum” provision.
Justice Sonia Sotomayor, in her concurring opinion, underscored that the “principles of corporate separateness do not blind courts to economic realities.” While the Supreme Court did not go so far as to explicitly state an alternative theory, Justice Sotomayor’s concurrence hints that “just-sum” theories may one day be interpreted to reach damages in future trademark cases. Thus, at least some SCOTUS Justices caution against clever accounting to obscure a company’s true financial gain.