Supreme Court Nixes Lanham Act Profit Disgorgement from Non-Parties

By Gregory Feit

When a plaintiff wins a trademark infringement case against a corporation under the Lanham Act, can it seek the disgorgement of profits from a corporate affiliate that was not named as a defendant in the suit?  In its February 26, 2025 decision in Dewberry Group, Inc. v. Dewberry Engineers Inc.,^[1] the United States Supreme Court unanimously answered in the negative.

Dueling Dewberrys: Legal & Factual Background

Under the Lanham Act, a prevailing plaintiff in a trademark infringement case is entitled to recover, among other things, “defendant’s profits” derived from the improper use of a mark.  15 U.S.C. § 1117(a).

In the Dewberry litigation, plaintiff Dewberry Engineers – owner of a registered mark in the word “Dewberry” – won its Lanham Act case against defendant Dewberry Group, a competitor real-estate development company.  Dewberry Group offered services generating rental income on properties owned by separately incorporated affiliates, and that income was booked to those affiliates.  The Dewberry Group entity itself, by contrast, received only agreed-upon fees from its affiliates and consistently operated at a loss.

Taking this “economic reality” into account, the district court and the Fourth Circuit allowed Dewberry Engineers to seek the profits of Dewberry Group’s affiliates, despite none of those affiliates having been named as parties to the litigation.  The rationale given was that Dewberry Group and its affiliates should be considered “a single corporate entity” for purposes of assessing profits, ultimately resulting in a $43 million infringement award for the plaintiff.

Supreme Court Reversal

In an opinion authored by Justice Kagan, the Supreme Court concluded that this rationale was legally erroneous and that the district court, under the statute, could award only those profits that were “properly ascribable to the defendant itself.”

According to the Court, § 1117(a)’s use of the term “defendant” had to bear its ordinary legal meaning – i.e., as the party against which relief or recovery is sought.  Since Dewberry Engineers had not included Dewberry Group’s affiliates as defendants in the action, the affiliates’ profits were not “statutorily disgorgable.”

In so ruling, the Court relied upon well-settled principles of corporate law establishing that separately incorporated entities are distinct legal units with distinct legal rights and obligations.  That holds true, the Court noted, even as to entities that are affiliates of one another.  There was thus no basis for treating the named defendant and its affiliated companies as “a single corporate entity,” or for interpreting the term “defendant’s profits” along those lines.

The Supreme Court vacated the decision below and remanded the matter for a new award proceeding.

Caveats and Unaddressed Questions

Although the Dewberry opinion evinces strong respect for principles of corporate separateness, the Supreme Court also made clear that it was not foreclosing as a matter of law other potential mechanisms for homing in on non-party affiliate profits.

First, the Court acknowledged that, in appropriate circumstances, the corporate veil can be pierced, particularly “to prevent corporate formalities from shielding fraudulent conduct.”  In the case before it, though, Dewberry Engineers had not attempted to make a veil-piercing showing.

In addition, the Court left open the possibility that a prevailing trademark plaintiff might be able to invoke the so-called “just sum” provision of the Lanham Act in order to indirectly reach affiliate profits.  That provision reads as follows:  “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).

Dewberry Engineers had argued that this provision permits courts, after assessing a “defendant’s profits,” to find that a different award amount would better reflect the defendant’s true financial gain, and that the profits of a related entity should be relevant evidence in that consideration.  The Court expressed no view as to the merits of that theory because the courts below had not relied upon the provision.

Finally, the Court did not expressly reject (or otherwise rule upon) the idea that courts may look behind a defendant’s tax or accounting records in order to analyze economic realities and determine true financial gain.  Moreover, in a concurring opinion, Justice Sotomayor emphasized that practical economic realities should not be ignored; that courts should keep in mind the statutory instruction that profit calculations are “subject to the principles of equity,” § 1117(a); and that evasive or “clever accounting” need not be accepted.  If, for example, a company charged below-market rates to its affiliate for infringing services, that could, according to Justice Sotomayor, be seen as an assignment of earnings to an affiliate in advance, and a court’s taking such evidence into account “would likely not transgress corporate formalities or the Lanham Act’s text.”  Similarly, according to Justice Sotomayor, courts might also be able to consider proof that a “company indirectly received compensation for infringing services through related corporate entities.”

Implications

The Dewberry decision only heightens the need for trademark plaintiffs to be especially careful in comprehensively naming all appropriate corporate entities as defendants, including through amendments to a complaint when case discovery reveals that a defendant corporation might be insulating infringement-derived profits through affiliate transactions or creative accounting.

Although the Dewberry opinion might superficially appear to espouse a rigid view of profit disgorgement in the corporate affiliate context, in reality it leaves open or at least unresolved a variety of potential alternative plaintiff strategies for indirectly targeting a non-party affiliate’s profits.  These include or could include, subject to future guidance from the courts, the following:  attempting to pierce the corporate veil; invoking the just-sum provision; attacking evasive accounting; and otherwise advancing equitable principles to try to persuade courts not to overlook economic realities in assessing true economic gains.

[1] 604 U.S. __, 145 S. Ct. 681 (U.S. 2025).