What Did Dewberry Do?

The US Supreme Court’s (SCOTUS) decision in Dewberry Group v. Dewberry Engineers was narrowly focused on one question: whether the trial court erred in treating the profits of defendant’s affiliates as “defendant’s profits” within the meaning of Section 1117(a) of the Lanham Act.

SCOTUS unanimously held that the trial court erred. Writing for the majority, Justice Kagan based this holding on two key rules:

1. The word “defendant” is not a defined term in the Lanham Act and must, therefore, be given its usual legal meaning, that is, the party against whom relief is sought in the action—here, the Dewberry Group
2. The common-law principle of corporate separateness—which must be construed as background law to the Lanham Act—requires that the defendant and its non-party affiliates be treated as separate legal entities or persons when they are separately incorporated and organized. The Supreme Court, therefore, vacated the trial court’s monetary award and remanded the case for further factual determinations consistent with the opinion.

In deciding only that narrow issue, SCOTUS declined to answer several open questions, leaving them for the trial court to determine on remand. Interestingly, the court declined to consider whether the district court, in its equitable discretion, could properly include the affiliates’ revenues in the defendant’s disgorgement of profits under the “just sum” provision of Section 1117(a) of the Lanham Act. While the “just sums” argument was briefed on appeal and before the Supreme Court, neither the trial court’s award of profits nor the Fourth Circuit’s opinion affirming the same was based on or applied the “just sum” provision of the Lanham Act.

SCOTUS also made no determination as to whether the plaintiff could “pierce the corporate veil” (treat the defendant and its affiliates as “alter egos” for disgorgement purposes). The court reasoned that Dewberry Engineers had not made this argument before the trial court or on appeal, and, thus, that issue should return to the district court for consideration on remand.

Justice Sotomayor concurred with the court’s decision but wrote separately to drive home an important reminder that “principles of corporate separateness do not blind courts to economic realities” or force them to “accept clever accounting, including efforts to obscure a defendant’s true financial gain through arrangements with affiliates.”

To illustrate this point, Justice Sotomayor provided specific examples pointing to a lack of corporate separateness between a defendant and its affiliate bearing on the defendant’s profits (e.g., a company charging below-market rates to its affiliate for infringing services) and where a court could exercise its equitable powers to hold that an affiliate’s revenues are properly within the defendant’s profits. And the concurrence specifically directs the lower courts to “explore that important issue and consider reopening the record if appropriate” on remand.

The Dewberry decision carries several important implications for trademark owners and trademark attorneys in the US.

First, Dewberry is the third decision handed down from the Roberts Court delving into monetary remedies under the Lanham Act (after Romag Fasteners, Inc. v. Fossil, Inc. (2020) and Abitron Austria GmbH, et al. v. Hetronic International, Inc. (2023)). In granting cert for three Lanham Act damages cases, SCOTUS has dedicated significant energy to a remedy traditionally positioned as a distant second to the primary injunctive relief (which is ideally suited to the inherently irreparable nature of trademark infringement). The Supreme Court’s focus on such cases should not escape notice by litigants and practitioners alike. Increased due diligence needs to be paid to Lanham Act monetary relief, including the slate of Defendants to be named and those additional potential parties identified during fact discovery, who should be promptly joined.

Second, Justice Sotomayor’s concurrence sends a powerful message to infringers who read the court’s decision as an invitation to abuse corporate separateness as monetary-liability safe-havens. Justice Sotomayor did not mince words in proclaiming that courts have the equitable power to decide when to pierce the corporate veil and disregard the separate corporate existence of two entities when the facts suggest it is necessary to do justice.

Finally, the carefully crafted (and no doubt purposeful) silence over corporate veil piercing spoke volumes on the court’s reluctance to wade into that thorny question given the significant and predictable ripples that, no doubt, would result far beyond the pond of trademark law.