The U.S. Supreme Court's unanimous decision in Dewberry Group Inc. v. Dewberry Engineers Inc. was limited to answering one question: whether the trial court erred in treating the profits of the defendant's affiliates as a defendant's profits within the meaning of Section 1117(a) of the Lanham Act.
The court found that the U.S. District Court for the Eastern District of Virginia erred for two primary reasons.
First, because "defendant" is not a defined term in the Lanham Act, courts must give it its common legal meaning, i.e., the party named in the complaint — in this case, the Dewberry Group.
And second, the common law principle of corporate separateness mandates that courts treat parties and their nonparty affiliates as separate legal entities or persons when they are separately incorporated or organized — this was the case for Dewberry Group and its affiliates. The Supreme Court vacated the trial court's monetary award and remanded the case for further decisions consistent with the opinion.
Justice Sonia Sotomayor concurred with the court but wrote a separate opinion to "underscore 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."
The concurrence went further to suggest several factual scenarios where a court might exercise its equitable powers to disregard the corporate separateness of a defendant and its affiliates and award the affiliates' revenues as part of the defendant's profits. These include situations where a company "received direct compensation for infringing services through related entities" or "where there is evidence that a company charged below-market rates for infringing services to affiliates."
The court's cabined holding in Dewberry leaves open a number of questions for the district court to determine on remand.
Notably, the Supreme Court declined to make any determination as to whether the trial court could have awarded the affiliates' profits as part of the defendant's profits under the just-sums provision of Section 1117(a) of the Lanham Act, which states that "[i]f 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 of the case."
Although the Dewberry Group had briefed this issue on appeal, the court held that neither the district court nor the U.S. Court of Appeals for the Fourth Circuit had found the affiliates' revenues in the profits award based on an interpretation of the just-sums clause, and thus the Supreme Court did not need to address the issue.
The Supreme Court also did not touch the question of whether Dewberry Engineers had set forth sufficient facts for the district court to pierce the corporate veil, i.e., disregard the corporate separateness of defendant and its affiliates, leaving that issue, if appropriate, for consideration on remand.
The Dewberry decision raises several issues for trademark litigants and practitioners in the near term.
First, the Supreme Court's punting of the just-sums issue to the lower courts signals that litigants and courts pay increased attention to the just-sums provision in Section 1117(a) when addressing equitable determinations on monetary relief, including in those situations where corporate separateness might serve as a barrier to recovery.
Although that specific issue is unlikely to promptly return to the Supreme Court, Justice Sotomayor's concurrence suggests that the court could well find that a trial court acted within its equitable discretion when appropriately navigating around corporate separateness and awarding relief under the just-sums clause.
Readers will recall Justice Sotomayor's concurrence in Romag Fasteners Inc. v. Fossil Inc. in 2020, where she laid out her thoughts on the historical underpinnings of trial court equitable powers when fashioning trademark infringement remedies.
This decision is also instructive, as the Supreme Court clearly walked a fine line between emphasizing the importance of corporate separateness as a core tenet of common law but also emphasizing that substance can prevail over form when it comes to deciding monetary relief.
Here, corporate separateness was clearly too weighty to disregard in this case, as allowing the district court award to stand against affiliates' profits where the record evidence did not support it would have resulted in far-reaching implications for corporate law generally.
On the other hand, the Supreme Court opted to avoid addressing the question of whether the Dewberry Engineers could properly pierce the corporate veil in this case, leaving that open for not just the trial court at issue, but all trial courts asserting their equitable discretionary powers, including those expressed by Justice Sotomayor in her concurrence.
Still another significant takeaway is the importance for plaintiffs to identify early in the case all the relevant corporate family actors, including those with recoverable assets.
While the Supreme Court refrained from holding that Dewberry Engineers waived or should have named the affiliates as defendants, the case is a powerful reminder of the importance of early due diligence and discovery to learn the corporate structures and organizational relationships between a defendant and its related entities.
Enterprising defendants will, no doubt, continue to attempt to cabin liability to one or few entities. So too will such defendants endeavor to undermine, frustrate and obstruct legitimate discovery into such corporate relationships. As such, plaintiffs need to stand ready to engage in early motion practice and promptly amend pleadings if an appropriate basis is learned.
Finally, Dewberry was the third decision handed down by the Supreme Court over the past five years addressing monetary relief under the Lanham Act, after Romag Fasteners in 2020 and Abitron Austria GmbH v. Hetronic International Inc. in 2023.
Such focus signals that the court considers monetary damages an important measure of relief in addition to lynchpin injunctive relief, given the inherently irreparable nature of trademark infringement. While trademark owners have traditionally eyed injunctions as the primary focus, Dewberry serves as another wakeup call that monetary relief should be treated with significant weight too.
Originally published by Law360
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