On February 26, 2025, in Dewberry Group v. Dewberry Engineers, the Supreme Court unanimously vacated a $43 million damages award for trademark infringement, ruling that the lower court improperly conflated the defendant with its affiliates when calculating the profits award. The court held that disgorgement of the trademark infringer’s profits must be limited to the named defendants only. Even in light of this decision, however, the door is still open for plaintiffs to broaden their potential recovery in similar situations by adding additional defendants to the suit or by pursuing alternative theories, such as piercing the corporate veil or invoking the Lanhan Act’s “just-sum” provision.

Background

Dewberry Engineers successfully sued its competitor real estate development company Dewberry Group for willful trademark infringement of its DEWBERRY marks. Dewberry Group provides services needed to generate rental income for properties owned by separately incorporated affiliates. Both Dewberry Group and its affiliates are owned by a single individual – John Dewberry. The rental income goes directly to the affiliates, whereas the Group has always operated at a loss, kept afloat only with cash infusions from its owner. Through this corporate gamesmanship – which the Supreme Court noted was arguably illicit – John Dewberry was able to report no profits for Dewberry Group.

To reflect this “economic reality” when evaluating damages, the district court decided to treat Dewberry Group and its affiliates as a “single corporate entity” for the purposes of calculating a profits award for trademark infringement. The district court explained that if those companies were viewed separately, the “entire Dewberry Group enterprise” would “evade the financial consequences of its willful, bad faith infringement.” Instead, treating the companies together would prevent the “unjust enrichment” that the Act was meant to target. Thus, the courts totaled the real estate profits from all affiliates over the years of infringement, which produced an award of nearly $43 million.

The Fourth Circuit affirmed the decision to include the affiliates’ profits, lest this serve as a “blueprint for using corporate formalities to insulate their infringement from financial consequences.”

SCOTUS review

In vacating the damages award, Supreme Court focused on the statutory language of the Lanham Act, which states that a successful plaintiff in a trademark infringement suit is “entitled” to “recover [the] defendant’s profits.” §1117(a). Citing Black’s Law Dictionary, the Court held that there is no reason to define “defendant” as anything other than “the party against whom relief or recovery is sought in an action or suit.” In this case, that party is Dewberry Group alone, since the plaintiff chose not to include the affiliates as named defendants.

The Court acknowledged that there can be exceptions to the principle of corporate separateness, such as “piercing the corporate veil” to “prevent corporate formalities from shielding fraudulent conduct.” Here, however, the plaintiff admitted that they never tried to make the showing needed for veil piercing.

Instead, the plaintiff relied on different statutory language from the Lanham Act, coined the “just-sum” provision in the Act’s remedies section: “If the court shall find that the amount of the 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.” §1117(a). The problem, however, is that neither the District Court nor the Court of relied on this provision when arriving at the damages number. Rather, the lower courts simply decided to forgo corporate formalities and treat Dewberry Group and its affiliates as “a single corporate entity.” The $43 million award was simply a sum of all the affiliates’ profits, without regard to what was “just” in these circumstances. That treatment, the Supreme Court held, violates the “principle of corporate separateness” and goes beyond the confines of the Lanham Act.

In coming to its decision, the Supreme Court explicitly left a number of questions “unaddressed,” including “whether or how the courts could have used the just-sum provision to support a profits award; whether or how courts can look behind a defendant’s tax or accounting records to consider a defendant’s true financial gain even without relying on the just-sum provision; and whether veil-piercing remains an available option.”

The Supreme Court clearly recognizes that corporate gamesmanship should not shield a bad actor; however, courts must do more than simply treat various affiliates as a single entity without proper analysis and legal rigor. It remains to be seen how the district court will solve this problem on remand, and whether these legal theories were adequately preserved in this case.