Overview
The U.S. Supreme Court held unanimously in Dewberry Group, Inc. v. Dewberry Engineers Inc. (Case No. 23-900) that an award of “defendant’s profits” under federal trademark law is limited to the profits of the named defendant and excludes those of its non-defendant corporate affiliates. That is so even where, as here, the defendant has engaged in willful infringement and yet has generated—at least as a matter of accounting, to the great benefit of its corporate affiliates—no profits for itself whatsoever.
Dewberry Engineers, the plaintiff, provides real estate development services to other businesses nationally. It owns a registration for the mark “Dewberry” for real estate-related services. Dewberry Group, the defendant, also provides real estate-related services. This case arose from Dewberry Group’s repudiation of a settlement agreement arising from a trademark infringement lawsuit Dewberry Engineers filed against it in 2007. The U.S. District Court for the Eastern District of Virginia found Dewberry Group’s conduct here to be “intentional, willful, and in bad faith,” in an opinion that Justice Elena Kagan, who authored the majority opinion for the Supreme Court, characterized as “scathing.”
As to damages, although Dewberry Group itself generates no profits, it is part and parcel of a distributed yet unified business enterprise that is profitable. Dewberry Group provides operational services exclusively to approximately 30 of its own corporate affiliates. Dewberry Group and the affiliates share the same owner. Each affiliate owns real property for the purpose of generating rental income. None of the affiliates has any employees. During the relevant period of infringement, the affiliates combined to generate $43 million in profits, and the District Court awarded that amount to Dewberry Engineers to reflect the “economic realities” of Dewberry Group’s financial arrangement with its affiliates; the Fourth Circuit Court of Appeals affirmed.
In February, the Supreme Court vacated that award and remanded the case for further proceedings in the U.S. District Court. Citing the principle of corporate separateness and taking a textualist approach to the Lanham Act’s damages provision, the Supreme Court found no basis for the District Court’s damages award. It found that Section 1117(a) of the Lanham Act provides for an award only of “defendant’s profits,” and the District Court’s decision amounted to an award of non-defendant’s profits.
The Supreme Court expressly declined to decide whether, on other theories, a court may award a prevailing trademark plaintiff the profits of the named defendant’s non-defendant affiliates, including under the “just sum” provision of the Lanham Act, which empowers a district court to “enter judgment for such sum as the court shall find to be just, according to the circumstances,” notwithstanding the quantum of the named defendant’s profits. The Court also did not consider whether Dewberry Engineers’ award could be sustained on a corporate veil-piercing theory, i.e., that principles of corporate separateness should be disregarded where the purported corporate formalities are a sham. In fact, the Court expressly noted the plaintiff made no showing of veil piercing at the District Court level.
The case is now back in the U.S. District Court for the Eastern District of Virginia for a new damages award proceeding.
Professionals
Tatsuya Adachi
Associate
