Note from the Editor: The Federalist Society takes no positions on particular legal and public policy matters. Any expressions of opinion are those of the author. We welcome responses to the views presented here. To join the debate, please email us at [email protected].

This is a tale of two Dewberrys before the Supreme Court. Dewberry Engineers (“Engineers”), founded in 1956 by Sidney Dewberry and partners, is a real-estate development services company based in Virginia, with registered trademarks including “Dewberry.” Atlanta-based real estate developer John Dewberry’s use of his surname in construction ventures organized under Dewberry Group (“Group”) brought him squarely into conflict with Engineers, and eventually before the Supreme Court. The Court’s opinion, issued on February 26, held the calculation of profits under federal trademark law to determine damages for trademark infringement can only consider profits of the defendants and not related entities. The court made clear that additional damages may be available under the “just sum” provision though, and remanded for such a determination.

For many years, Group was known as Dewberry Capitol Corporation (DCC), and under a 2007 settlement with Engineers could only call itself DCC in the DC metro region. In 2018, DCC filed trademark applications for four marks incorporating the name “Dewberry” with the U.S. Patent and Trademark Office. All were refused for having a likelihood of confusion with the registered trademarks of Engineers. Engineers then brought suit in 2020 when Group continued to use the Dewberry name.

In the course of litigation, it became clear that John Dewberry owned a complex web of corporate entities that own and lease commercial properties, with Group providing services to these nonparty entities. This is not unusual, but it is notable that although these entities saw substantial profits, DCC/Group had never been profitable in its decades of operations. In fact, John Dewberry put at least $23 million into Group to cover its losses, leading the district court to conclude that “no real estate or other business could continue as a going concern after decades of losses like these, [and Group’s] tax returns, standing alone, do not tell the whole economic story.”

The district court found Group’s trademark infringement was willful and intentional, a finding upheld by the Fourth Circuit and not in dispute before the Supreme Court. The issue of damages was more complicated. Federal trademark law, under the Lanham Act of 1946 as amended, typically allows plaintiffs “to recover (1) defendant’s profits, (2) any damages sustained by the plaintiff, and (3) the costs of the action.” Defendant’s profits are simply gross receipts of the defendant, and the burden is on the defendant to show any costs which would offset these receipts to show actual net profits.

The problem in this case is that Group never had any profits; all profits went to the other commonly owned entities. The district court awarded Dewberry Engineers nearly $43 million in profits, treating the Group and its affiliates as a “single corporate entity” to account for the “economic reality” of their operations. The Fourth Circuit affirmed this approach, arguing it prevented the Group from evading financial consequences through corporate formalities.

The central question presented to the Supreme Court was whether, under the Lanham Act (15 U.S.C. § 1117(a)), a court can award the profits of a defendant’s separately incorporated affiliates as part of the “defendant’s profits” in a trademark infringement case, absent a legal basis to disregard corporate separateness (e.g., veil-piercing).

As the case entered the briefing stage before the Supreme Court, Engineers understood the difficulty of its position. There is an argument that they were not asking for veil-piercing. After all, the other entities would not be liable; their profits would simply be imputed to Group for purposes of calculating damages for the trademark infringement. However, the case raised awkward questions of federal courts ignoring state law regarding corporate separateness. And in any case, § 1117(a) refers specifically to “defendant’s profits”—not profits attributable to defendant or flowing to defendant’s owner. Accordingly, Engineers argued that its damages award should be upheld under the court’s general power to order damages “for such sum as the court shall find to be just,” if “recovery based on profits is either inadequate or excessive.” This “just sum” provision is also found in § 1117(a), but it was not the rationale for either the district or circuit court opinions below.

It was thus unsurprising that Justice Kagan, writing for a unanimous Court, vacated the Fourth Circuit’s decision and remanded the case. The key holdings of the opinion were that (1) the Lanham Act limits recovery to the “defendant’s profits,” meaning only the profits of the named defendant—here, the Group—can be awarded, and (2) affiliates’ profits cannot be included in a damages award unless their corporate separateness is legally disregarded (e.g., through veil-piercing), which Engineers did not pursue.

The Court held that term “defendant” in § 1117(a) of the Lanham Act has its ordinary legal meaning: the party sued (here, Group alone). Group’s affiliates were not named as defendants. Furthermore, under established principles, separately incorporated entities are distinct legal units, even if commonly owned. Without veil-piercing (e.g., for fraud), affiliates’ profits remain separate. The Court ruled that the lower courts erred by treating Group and its affiliates as one entity from the outset rather than calculating only Group’s profits. The Court declined to uphold the damages award based on the “just sum” provision, noting that the lower courts had not used this provision—they had simply redefined the term “defendant.”

The Court remanded the case for recalculation of damages. The Court declined to address the scope of the “just sum” provision to justify this damages award or a different one, whether courts can look beyond a defendant’s tax records to assess “true financial gain,” or whether veil-piercing was still an option. The result was a short opinion answering the question presented and avoiding broader ones.

Justice Sotomayor wrote a concurrence urging courts not “to close their eyes to practical realities in calculating a ‘defendant’s profits.’” She recognized that this case did not offer the “right framework” for considering the scope of the equitable powers of the court, but she urged courts to “be attentive to practical business realities” in calculating trademark judgments. One suspects the scope of the “just sum” provision may be before the Court soon enough.