The United States Supreme Court issued a unanimous decision in Dewberry Engineers Inc. v. Dewberry Group, Inc. on Feb. 26, 2025, clarifying the scope of damages available under the Lanham Act in trademark infringement cases. The Court held that nonparty affiliates’ profits should not be used to calculate a defendant’s profit for damages purposes.
Background
The dispute involved two competitor real estate development companies using the identical trademark, DEWBERRY. The plaintiff, Dewberry Engineers Inc. (Engineers), owns the registered trademark DEWBERRY in connection with real estate development services. The defendant, Dewberry Group Inc. (Group), also uses DEWBERRY in connection with its real estate-related services. The parties reached a settlement in 2007 limiting Group’s use of the term “Dewberry.” A decade later, however, Group resumed using “Dewberry” in its promotional materials, thus prompting Engineers to sue for trademark infringement and unfair competition under the Lanham Act as well as breach of contract under state law. Engineers pursued the profits of Group’s nonparty affiliates since Group’s profits were recorded on its affiliates’ accounts and Group operated at a loss.
The District Court for the Eastern District of Virginia found Group liable for trademark infringement and awarded nearly $43 million in damages, attributing the profits generated by nonparty affiliates of Group to Group itself. A divided Fourth Circuit Court of Appeals affirmed this decision, treating Group and its affiliates as a single corporate entity to reflect the “economic reality” of their relationship.
Supreme Court Decision
The Supreme Court reversed the Fourth Circuit’s ruling, emphasizing that damages should be limited to the defendant’s profits and should not include profits generated by its nonparty affiliates. In its ruling, the Supreme Court stated that as a matter of “long settled” American corporate law, each incorporated entity is treated as a separate legal entity. The Supreme Court further noted that only in certain limited circumstances, such as fraudulent conduct, may the corporate veil be pierced and liability flow to an affiliate or subsidiary. The Supreme Court also found that Engineers had not made such an argument and had not named the affiliates as defendants.
Instead, Engineers had argued that, under the Lanham Act, if the recovery amount based on profits is inadequate or excessive, a court may find a “just-sum” in its discretion. Engineers further argued that an actual “just-sum” as the Lanham Act provides is a fact-specific finding that accounts for the defendant’s actual financial gain from their infringing acts, which may include the profits of nonparty affiliates. The Supreme Court found that the lower courts failed to analyze the case using this just-sum approach and, therefore, erred in awarding Engineers the amount that included the nonparty affiliates’ profits.
In her concurring opinion, Justice Sonia Sotomayor emphasized the importance of maintaining corporate separateness in calculating trademark damages, but cautioned the courts against “clos[ing] their eyes to practical realities in calculating a defendant’s profits,” as the Lanham Act directs courts to calculate such profits “subject to the principles of equity.” Her concurrence signals that future cases may still allow for veil-piercing where corporate separation is used to diminish profits and limit liability.
Conclusion
The Supreme Court’s decision in Dewberry Engineers Inc. v. Dewberry Group, Inc. is a reminder to maintain corporate distinctiveness among affiliated entities by observing corporate formalities to limit damage assessments and potential liability in trademark infringement cases. Corporate structuring should be done for bona fide corporate purposes, as courts may still scrutinize corporate relationships where there is evidence of manipulation to shield profits from liability.
For trademark plaintiffs seeking damages, it is important to include as defendants in the suit the infringing company’s affiliates whose profits are relevant to the misuse of the trademark. Businesses should seek legal counsel for navigating the issues that impact damages calculations, including veil-piercing and the just-sum analysis.
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