On February 26, the U.S. Supreme Court in Dewberry Group, Inc. v. Dewberry Engineers Inc. unanimously held that an award of “defendant’s profits” under the Lanham Act in a trademark infringement suit is only ascribable to the “defendant” itself—not its affiliates.
Dewberry Engineers, Inc. sued Dewberry Group for trademark infringement and unfair competition for its unauthorized use of the term “Dewberry” for related real estate services, as well as breach of contract. The District Court ruled in favor of Dewberry Engineers and awarded the plaintiff nearly $43 million based on the total profits of the defendant, Dewberry Group, and its affiliates, which it viewed, collectively, “as a single corporate entity.” The Court of Appeals for the Fourth Circuit affirmed the award.
On certiorari, the Court reversed the Fourth Circuit’s decision and determined that the district court erred in granting Dewberry Engineers the $43 million award. The Lanham Act provides that a plaintiff is entitled to recover the defendant’s profits in a trademark infringement lawsuit. However, the Court clarified that the term “defendant,” as referenced in the statutory text, is “the party against whom relief or recovery is sought in an action or suit.” Therefore, since Dewberry Engineers did not add Dewberry Group’s separately incorporated affiliates as defendants in the lawsuit, the only named defendant in this case was Dewberry Group.
To support its ruling, the Court analyzed the principles of corporate law and concluded that “separately incorporated organizations are separate legal units with distinct legal rights and obligations.” Although there may be circumstances that allow a court to “pierce the corporate veil,” the plaintiff here did not demonstrate a need for such veil-piercing. Instead, Dewberry Engineers argued that the Lanham Act includes a “just-sum provision” or “second-step analysis” that enables a court to grant an award in an amount that “better reflects the ‘defendant’s true financial gain.’” In its determination of such an award, a court may consider the profits of a defendant’s related entities, or affiliates, as evidence. Thus, Dewberry Engineers contended that the District Court and Fourth Circuit employed the just-sum provision in assessing an award based on evidence of Dewberry Group’s affiliates’ profits.
The Court disagreed and found that the lower courts did not assess the $43 million award based on the just-sum provision, but calculated it based on the theory that Dewberry Group and its affiliates should be treated as one corporate entity. The Court further concluded that granting an award including non-defendants’ profits exceeded the scope of the Lanham Act. Based on its finding, the Court vacated the judgment of the Fourth Circuit and remanded the case for further proceedings to determine a new award and consider several unanswered questions concerning the just-sum provision, a defendant’s tax records in the determination of its “true financial gain,” and the availability of corporate veil-piercing as an option on remand.
In a concurring opinion, Justice Sotomayor highlighted the principles of corporate separateness and emphasized that such principles do not prevent courts from considering economic realities in assessing a defendant’s profits. Justice Sotomayor also concluded that courts might consider other accounting arrangements between a defendant and its affiliates to determine the defendant’s profits.
With the Court’s clarification of “defendant’s profits” under the Lanham Act, plaintiffs should consider different options to maximize awards in trademark infringement suits. Such options may include naming multiple defendants, as well as any affiliates, in a complaint, or demonstrating a need to pierce the corporate veil. On remand, the lower courts will provide further guidance on a plaintiff’s available remedies, as well as an understanding of the statutory language regarding profits under the Lanham Act.
