U.S. Supreme Court Overturns $43 Million Award Ruling That Successful Plaintiff Cannot Collect From An Affiliate Unless They Are Named in the Action

On February 26th, in a unanimous opinion authored by Justice Kagan, the U.S. Supreme Court overturned the District Court’s $43 million profit disgorgement award following a bench trial on the issue of damages.

In 2006, Dewberry Engineers, a company providing real estate development services, sued Dewberry Group, a different company providing similar real estate services, for trademark infringement. The parties to that suit eventually reached a settlement agreement. In 2017, Dewberry Group changed its name and started offering services under separately incorporated affiliates, including, Dewberry Living, Dewberry Office, and Studio Dewberry. In 2020, Dewberry Engineers sued Dewberry Group again for trademark infringement over the use of the “Dewberry” trademark, and the U.S. District Court for the Eastern District of Virginia ruled in favor of Dewberry Engineers, awarding it both Dewberry Group’s profits and the profits from all of its affiliates using the “Dewberry” trademark. Dewberry Group appealed, arguing that the District Court abused its discretion by including the profits earned by the separately incorporated affiliates that were not listed as defendants in the lawsuit.

The Supreme Court unanimously agreed, holding that under the damages section of the Lanham Act, “a prevailing plaintiff in a trademark infringement suit is often entitled to an award of the defendant’s profits.” The Court emphasized that the term “defendant” only refers to the party against whom relief is sought, and because Dewberry Engineers only named Dewberry Group as the defendant, relief could only be sought from Dewberry Group.

This decision affirmed fundamental corporate law principles that as a general rule, separately incorporated entities are viewed as distinct legal persons in court, and their profits cannot be attributed to another company. The damages section of the Lanham Act is no exception to this established principle. When initiating a trademark infringement lawsuit, it is important to list or join as defendants, all affiliated parties that are engaged in the infringing activity. 

The Supreme Court vacated the award and remanded the case to the District Court for “a new award proceeding,” leaving open important questions on how trial courts may justify Lanham Act-based profit awards.  

Takeaways

Properly identifying those parties engaged in infringing activity is paramount when commencing an action for infringement.  Further, to the extent additional infringers are identified during the course of discovery, they should be added to the action at the appropriate time.  Please contact a member of our Intellectual Property Group to assist in the investigation of infringing activity and to commence an action to protect your intellectual property rights.

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