Dewberry Group, Inc. v. Dewberry Engineers Inc.
604 U.S. 321 (2025)
Rule of Law:
Under the Lanham Act’s provision for awarding a prevailing plaintiff the “defendant’s profits,” a court may only award profits properly ascribable to the named defendant itself, strictly adhering to principles of corporate separateness for affiliated entities unless traditional grounds for piercing the corporate veil are met.
Facts:
- Dewberry Engineers provides real-estate development services and owns a registered trademark in the word "Dewberry."
- Dewberry Group, a commercial real-estate company owned by John Dewberry, provides financial, legal, operational, and marketing services to approximately 30 separately incorporated affiliates in John Dewberry's portfolio.
- Each of these affiliates owns commercial property for lease and generates rental income, while Dewberry Group itself receives only agreed-upon fees, often operating at a loss, and survives through cash infusions from John Dewberry.
- Dewberry Group infringed Dewberry Engineers' trademark rights by resuming use of the "Dewberry" name in marketing and materials for its affiliates' properties, reneging on a prior settlement agreement.
- The District Court found Dewberry Group's trademark infringements to be intentional, willful, and in bad faith.
- The profits from Dewberry Group’s illicit conduct, as well as its general services, appeared exclusively on the books of its property-owning affiliates, not Dewberry Group’s.
Procedural Posture:
- Dewberry Engineers Inc. sued Dewberry Group, Inc. (and its former name, Dewberry Capital Corporation) in District Court for trademark infringement and unfair competition under the federal Lanham Act, as well as breach of contract under state law.
- The District Court found Dewberry Group liable on all counts, including willful and bad-faith trademark infringement.
- The District Court calculated a profits award of nearly $43 million by treating Dewberry Group and its separately incorporated affiliates "as a single corporate entity" for the purpose of tallying profits.
- A divided panel of the U.S. Court of Appeals for the Fourth Circuit affirmed the District Court’s profits award, approving the treatment of Dewberry Group and its affiliates "as a single corporate entity."
- Dewberry Group, Inc. then filed a petition for writ of certiorari to the U.S. Supreme Court, which was granted.
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Issue:
Does the Lanham Act's provision allowing a prevailing plaintiff to recover the "defendant's profits" permit a court to include the profits of separately incorporated affiliates of the named defendant, absent a showing sufficient to pierce the corporate veil?
Opinions:
Majority - Elena Kagan
No, a court cannot include the profits of separately incorporated affiliates when awarding "defendant's profits" under the Lanham Act, as the statute refers only to the profits of the named defendant. The term "defendant" bears its usual legal meaning as the party against whom relief is sought (here, Dewberry Group), and Dewberry Engineers chose not to add the affiliates as defendants. The Court emphasizes that background corporate law principles dictate that separately incorporated organizations are distinct legal units with distinct rights and obligations, even if commonly owned. While corporate veil-piercing is an exception to this principle, Dewberry Engineers admitted it never sought to make the necessary showing for it. The lower courts erred by treating Dewberry Group and its affiliates as a single corporate entity to calculate a $43 million award, disregarding corporate formalities. The "just-sum provision" in §1117(a) was not invoked by the lower courts as the basis for their award and therefore does not support their calculation, which was based on a single-step assessment of aggregated profits. The Court explicitly leaves open questions regarding the proper application of the just-sum provision, looking behind a defendant's records to find true financial gain, or the availability of veil-piercing on remand.
Concurring - Sonia Sotomayor
Justice Sotomayor fully joined the majority opinion but wrote separately to emphasize that principles of corporate separateness do not require courts to ignore economic realities or clever accounting schemes designed to obscure a defendant’s true financial gain through arrangements with affiliates. She suggested that courts, while respecting corporate separateness, might consider evidence of non-arm's-length relationships—for instance, if the defendant charged below-market rates for infringing services to affiliates, which could be seen as an anticipatory assignment of earnings. Such analysis would help determine the profits properly attributable to the defendant itself, drawing guidance from tax precedent like Commissioner v. Banks. Similarly, evidence of indirect compensation, such as cash infusions from a common owner to make up for below-market rates charged to affiliates, could inform the calculation of the defendant’s profits. These approaches align with equitable principles that prioritize substance over form and prevent wrongdoers from profiting from their actions, as well as the Lanham Act’s goal of robust trademark protection. The concurrence underscores that the Lanham Act directs courts to calculate profits “subject to the principles of equity,” allowing for a nuanced approach to accounting realities without impermissibly attributing affiliate profits to the defendant. She suggests lower courts may explore these issues on remand.
Analysis:
This decision significantly clarifies the scope of “defendant’s profits” under the Lanham Act, reinforcing the foundational principle of corporate separateness. It restricts plaintiffs from automatically recovering profits from affiliated, non-party entities, even in cases of willful infringement and apparent economic integration, without meeting strict legal thresholds like corporate veil-piercing. For future trademark infringement suits, this case will likely prompt plaintiffs to either join all relevant affiliated entities as defendants or meticulously build a case for veil-piercing when seeking disgorgement from a larger corporate enterprise. While maintaining corporate distinctness, the concurring opinion provides important guidance, suggesting that courts are not entirely precluded from considering how a named defendant’s accounting arrangements with affiliates might obscure its “true financial gain,” potentially opening avenues for plaintiffs to demonstrate the defendant’s indirect enrichment without directly aggregating affiliates’ profits.
