Dewberry Engineers Inc. (“Dewberry Engineers”), a prominent engineering firm, has been locked in an on-again, off-again trademark dispute with a real estate development firm called Dewberry Group, Inc. (“Dewberry Group”) for nearly two decades. Now the dispute is going to the United States Supreme Court, which has agreed to hear Dewberry Group’s challenge to a $43 million profit disgorgement award a federal district court in Virginia entered in favor of Dewberry Engineers. Dewberry Group, Inc. v. Dewberry Engineers Inc., No. 23-900, 2024 WL 389540 (U.S. June 24, 2024) (granting writ of certiorari). The question presented in the appeal should be of interest to everyone in the franchise community: whether an award of the defendant’s profits under the Lanham Act can include an order for the defendant to disgorge the profits of non-party corporate affiliates.
Dewberry Engineers started in the mid-1950s as a civil engineering and surveying firm in Northern Virginia. Over time, its business expanded to include real estate development services such as architecture and site development, among other offerings. Dewberry Engineers provides its services through affiliated entities under common ownership and control to clients all over the United States—Georgia, Virginia, Florida, and South Carolina in particular.
Dewberry Group similarly provides real estate development services through its affiliates, all of which are owned by real estate developer John Dewberry. The Atlanta, Georgia-based Dewberry Group exclusively serves John Dewberry and Dewberry Group’s affiliates who in turn lease commercial property to tenants in Georgia, Virginia, South Carolina, and Florida.
In 2006, each company confronted the other over their competing “Dewberry” brands in a dispute that escalated into claims and counterclaims for trademark infringement. The parties then signed a confidential settlement agreement in 2007. The settlement allowed Dewberry Engineers to use its registered trademarks freely, and limited Dewberry Group’s use of “Dewberry” to the promotion, offering, and performance of real estate development services, along with some other restrictions, including abandonment of any pending applications to register the DEWBERRY CAPITAL mark for real estate development and/or real estate related services. The dispute was rekindled in 2017, however, when Dewberry Group decided to revamp its brand and started using “Dewberry” in ways to which Dewberry Engineers objected. Ultimately, Dewberry Engineers filed an action in federal court in Virginia in May 2020, claiming breach of contract and trademark infringement under the Lanham Act and Virginia common law.
The district court entered summary judgment in favor of Dewberry Engineers on both claims. After a three-day bench trial to calculate damages, the district court found that profit disgorgement was appropriate. Because Dewberry Group provided its infringing services to affiliate companies under common ownership, the court found that the revenues associated with Dewberry Group’s conduct appeared on the affiliates’ balance sheets. Consequently, the court treated Dewberry Group and its affiliates as a single corporate entity for the purpose of calculating revenues and profits generated by Dewberry Group’s use of infringing marks. The district court reduced Dewberry Engineers’ requested award of $53.7 million by 20%—awarding Dewberry Engineers close to $43 million in disgorgement profits, plus attorneys’ fees.
On appeal, the United States Court of Appeals for the Fourth Circuit affirmed the district court’s judgment in all respects. Dewberry Engineers Inc. v. Dewberry Group, Inc., 77 F.4th 265 (4th Cir. 2023). On the issue of including revenues of Dewberry Group’s affiliates in the disgorgement calculation, the Court ruled that, while Dewberry Group did not receive the revenues from its infringing behavior directly, it still benefited from its infringing relationship with its affiliates. It therefore ruled that the district court acted within its equitable discretion to hold Dewberry Group to account for the revenues generated in part from infringing materials used by its affiliates under common ownership. Admonishing the district court for exercising its discretion in that manner, it ruled, risked “handing potential trademark infringers the blueprint for using corporate formalities to insulate their infringement from financial consequences.”
One member of the appeals court panel, however, dissented on two issues: the district court’s grant of summary judgment on the issue of likelihood of confusion, and on the damages issue. On the damages issue, the dissenting judge said that, if the corporations affiliated with Dewberry Group participated in the infringing activity, they would be subject to Lanham Act claims themselves, and all that Dewberry Engineers had to do was to sue them, or to try to pierce the Dewberry Group’s corporate veil to eliminate the corporate separateness between it and those entities. But, the judge said, “I know of no law that allows court, in assessing the profits of a defendant, to disregard those options and simply add the revenues from non-parties to a defendant’s revenues for purposes of evaluating the defendant’s profits.” Id. at 299-300 (Quattlebaum, J., dissenting).
In its petition for a writ of certiorari, Dewberry Group echoed the views of the dissenting judge. It argued that the Fourth Circuit’s opinion “silently invites courts to ignore corporate separateness without regard to veil-piercing principles.” Two Notre Dame law professors filed an amicus brief in support of Dewberry Group, arguing that equity “has never authorized courts to run roughshod over foundational principles of corporate separateness based on a sense of what would be most fair in an individual case.” (Brief for Professors Samuel L. Bray and Paul B. Miller as Amici Curiae in Support of Petitioner, at 3.) In its opposition, Dewberry Engineers argued that the Lanham Act expressly provides that “[if] the court shall find that the amount of recovery based on profits is either inadequate or excessive the court may in its discretion enter judgment for such sum as the court shall find to be just, according to the circumstances of the case.”
The Supreme Court granted Dewberry Group’s petition for a writ of certiorari on June 24, 2024.
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