ARE Law Alert: Supreme Court Clarifies the Scope of “Defendant’s Profits” in Dewberry Grp., Inc. v. Dewberry Eng’rs Inc.
Author(s): Anthony F. Lo Cicero, Charles R. Macedo, Douglas A. Miro, Chloe A. Vizzone*
On February 26, 2025, the Supreme Court issued its ruling in Dewberry Grp., Inc. v. Dewberry Eng’rs Inc., No. 23-900, 604 U.S. ___, slip op. (Feb. 26, 2025), addressing the scope of what may be considered “defendant’s profits” under the Lanham Act. In a unanimous opinion by Justice Kagan, the Court held that profits of the named defendant, and not any of its affiliates, shall be the basis for such an award.
Factual and Procedural Background
This case arose from a dispute between two real estate companies. Plaintiff Dewberry Engineers (“Engineers”) engages in commercial real-estate development nationwide, and particularly in several southern states. Defendant Dewberry Group (“Group”) provides commercial real estate services solely to the thirty or so separately incorporated companies also owned by Group’s owner, John Dewberry. A key detail about Group lies in its financials. “Group has operated at a loss for decades; it survives only through occasional cash infusions from John Dewberry himself. Meanwhile, the affiliates—which, recall, he also owns—have racked up tens of millions of dollars in profit.” Slip op. at 2.
Engineers owns a registered trademark for the word “DEWBERRY.” In connection with that registration, Engineers sued Group for trademark infringement, which resulted in a settlement restricting Group’s use of the mark. Roughly 10 years later, Group rebranded, reneging on the agreement, and resumed its use of the DEWBERRY trademark in marketing and business-related materials. Engineers sued again and won, alleging trademark infringement, unfair competition, and breach of contract.
At issue before the Supreme Court was the District Court’s award of $43 million in profits. Since Group reports no profits, the District Court reasoned that profits from Group’s infringement appear instead on the books of the affiliate companies. Addressing this “economic reality,” the court treated Group and its affiliates “as a single corporate entity” to calculate an award of profits. 2022 WL 1439826, *9 (E.D. Va. Mar. 2, 2022). Accordingly, the court totaled the affiliates’ real-estate profits for the years of Group’s infringement, which resulted in the $43 million award. A divided panel of the Fourth Circuit affirmed, reiterating the “economic reality” of the relationship between Group and the affiliates. 77 F.4th 265, 290 (4th Cir. 2023).
The Supreme Court accepted certiorari on the question “[w]hether an award of ‘defendant’s profits’ under the Lanham Act, 15 U.S.C. § 1117(a), can include an order for the defendant to disgorge the distinct profits of legally separate non-party corporate affiliates.”
Justice Kagan’s Opinion of the Court
Justice Kagan delivered the opinion for a unanimous court holding “that the [lower] court erred … Under the pertinent statutory provision, the court could award only profits properly ascribable to the defendant itself.” Slip op. at 1.
After providing the background for the profit calculations issue as discussed above, the Court turned to its statutory analysis of the text of the Lanham Act. Turning to the plain text of Section 1117(a), the Court noted that it provides that the Trademark Owner is “entitled” to “recover [the] defendant’s profits.” The Court reasoned that the term “defendant” is not defined in the Lanham Act, and thus relied on the ordinary legal definition (provided by Black’s Law Dictionary) as “the party against whom relief or recovery is sought in an action or suit.” Slip op. at 4 (quoting Black’s Law Dictionary 541 (3d ed 1933)). Under that definition, as applied to the facts of the case, the Court reasoned that the “defendant’s profits” as ordinary understood would be the profits of only Group, which was a party to the lawsuit, and not include the profits of Group’s property-owning affiliates which were not parties to the lawsuit. Slip op. at 4-5.
Next, the Court confirmed that “background principles of corporate law [do not] convert” the profits of non-party affiliates into “defendant’s profits”. Slip op. at 5. Interestingly, the Court noted “[w]e have often read federal statutes to incorporate such principles, on the view that Congress would not have wanted to displace ‘bedrock’ features of the common law.” Id. (citing U.S. v. Bestfoods, 524 U.S. 51, 61 (1998)). Applying that principle, the Court found that corporate law went against the broader view of including affiliates. “(I)t is long settled as a matter of American corporate law that separately incorporated organizations are separate legal units with distinct legal rights and obligations.” Slip op. at 5 (quoting Agency for Int’l Development v. Alliance for Open Society Int’l Inc., 591 U.S. 430, 435 (2020)). While the Court recognized this principle is subject to limited exceptions, such as to “pierce the corporate veil,” Engineers never tried to make such a showing and thus it did not apply here.
The Court also rejected Engineers’ “just sum” argument that referenced a later sentence in the Lanham Act: “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). Engineers argued that this “just-sum provision” provides for a two-step approach where the court first evaluates the defendant’s profits to determine if they are appropriate, and second, may consider the profits of related entities as relevant evidence of a more appropriate figure to reflect the true financial gain. The Court rejected Engineers’ attempt to recharacterize the lower court holdings as merely awarding the affiliates profits under step two of the just sum analysis, since “that is not a tenable take on why Dewberry Engineers got a $43 million award.” Slip op. at 6. The Court determined that neither the District Court nor the Fourth Circuit considered the just-sum provision or took the two-step approach. Based on the foregoing, the Court vacated the Fourth Circuit judgment and remanded the case for a new award proceeding to answer “a number of questioned unaddressed”, including the “just-sum provision” for which the Court “express no view”, whether the courts “can look behind a defendant’s tax or accounting records to consider ‘the economic realities of a transaction’ and identify the defendant’s ‘true financial gain.’”, and whether “corporate veil-piercing is an available option”. Slip op. at 8.
Justice Sotomayor’s Concurrence
Justice Sotomayor joined the Court’s opinion in full, but wrote separately “to underscore that principles of corporate separateness do not bind courts to economic realities. Nor do they force courts to accept clever accounting, including efforts to obscure a defendant’s true financial gain through arrangements with affiliates.” Slip op. at 1-2 (Sotomayor, J. concur). Specifically, Justice Sotomoyor noted that principles of corporate separateness do not force courts to accept tactics employed by parties to obscure true financial gain, and identified two representative examples of the various ways in which courts may consider financial arrangements between a defendant and its affiliates in calculating profits.
Practical Significance
In short, this decision stands for the principle that “defendant” within the meaning of the Lanham Act shall mean the named defendant, not the defendant and its affiliates. While a court may adjust the profit award for equity, that does not imply that it may pull profits from others without proper justification. Trademark plaintiffs therefore must be especially careful to name all possibly infringing parties so that they can be considered “defendants” for purposes of Section 1117. It also offers the Court’s take on statutory interpretation of undefined terms and the impact that other legislation can have as a backdrop to such interpretation.
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We will continue to monitor developments and provide further updates regarding this case. In the meantime, please feel free to contact us if you have questions regarding issues raised by this case.
* Messrs. LoCicero, Macedo and Miro are partners, and Ms. Vizzone is an associate at Amster, Rothstein & Ebenstein, LLP, where they practice intellectual property law including trademark law. They may be reached at [email protected], [email protected], [email protected], and [email protected], respectively.