Key takeaways
- Supreme Court limits trademark damages to named defendants, excluding unnamed affiliates
- Corporate separateness upheld — affiliates' profits not subject to disgorgement without being named defendants
- Naming all relevant parties as defendants is crucial for potential profit recovery in trademark cases
On February 26, 2025, the U.S. Supreme Court issued a unanimous decision vacating a $43 million award in a trademark dispute involving Dewberry Engineers Inc. and competing real estate developer Dewberry Group Inc. The case centered on whether affiliates of Dewberry Group should be liable for trademark infringement damages despite not being named as defendants in the lawsuit. The Supreme Court remanded the case to the Fourth Circuit, ruling that federal trademark law does not authorize the disgorgement of profits from non-defendant affiliates.
The District Court previously ruled in Dewberry Engineers’ favor, holding that Dewberry Group willfully infringed the registered DEWBERRY trademark, and awarded damages in the amount of defendant’s profits. However, Dewberry Group operated at a loss for decades, solely providing services to its separately incorporated affiliates, and the affiliates reap the rental profits. Though Dewberry Group’s affiliates were not named as defendants, to reflect the economic reality of the situation and ensure Dewberry Group did not evade the consequences of its infringement, the Court treated the Group and affiliates as one entity, aggregating their profits to award $43 million to Dewberry Engineers. The Fourth Circuit affirmed, Dewberry Group appealed and the Supreme Court granted certiorari.
While the Lanham Act, 15 U.S.C. section 1117(a), provides that successful plaintiffs are entitled to recover defendant’s profits in infringement cases, the Supreme Court clarified that a court can only award profits attributable to the “defendant” itself. Since Dewberry Engineers did not name Dewberry Group’s affiliates as defendants, their profits could not be considered for disgorgement.
Dewberry Group argued that the Fourth Circuit’s ruling misinterpreted the Lanham Act by disregarding principles of corporate separateness. The Supreme Court agreed, holding that treating the Group and its affiliates as a single entity for damage calculations overlooks the fact that they are separate legal entities with separate rights and obligations.
Dewberry Engineers contended that federal trademark law grants courts broad discretion to set damages awards that reflect defendants’ financial gain, and that corporate formalities shouldn’t insulate companies from the repercussions of infringement. The Supreme Court emphasized that this discretion does not extend to imposing liability on non-defendant affiliates without proper legal grounds. Dewberry Engineers did not provide sufficient evidence to show that damages should be recovered from the Group’s affiliates, and the lower courts erred in doing so of their own accord.
Takeaway
The decision underscores two key points: (1) the necessity of naming all relevant parties as defendants to ensure that any potential profits subject to disgorgement are within the court’s authority, and (2) the significance of maintaining clear corporate separateness to protect affiliates from liability in trademark disputes. The ruling may influence strategic considerations and clients should work closely with their legal teams to develop comprehensive strategies that account for the complexities of corporate relationships and potential liabilities.
Client Alert 2025-065