On February 26, 2025, the U.S. Supreme Court unanimously vacated a nearly $43 million award in a trademark dispute that raised the question of whether a defendant’s affiliates could be held liable for payment of a disgorged profits award even if they were not named as defendants in the case. In a decision authored by Justice Elena Kagan, the Supreme Court remanded the case holding that federal trademark law did not authorize the lower courts to disgorge profits from affiliates of the sole named defendant in the case—Dewberry Group Inc.

This case involves two real estate development businesses. The first, Dewberry Engineers, began operating in the 1950s. It later expanded its operations to include real estate development in the Southeastern United States. Dewberry Engineers owns an incontestable registered trademark in the word DEWBERRY for use with various real estate services.

In 1989, the Atlanta-based Dewberry Group—then known as Dewberry Capital—began providing real estate services like those of Dewberry Engineers through several affiliates.

In 2006, Dewberry Engineers sued Dewberry Capital, for trademark infringement. However, the companies settled their dispute in 2007, with the settlement limiting Dewberry Capital’s use of the word “Dewberry.”

Roughly 10 years later, Dewberry Capital “reneged on the deal,” changing its name to Dewberry Group and resuming its use of the “Dewberry” name in the marketing and advertising materials it used to lease its affiliates’ properties. As a result, Dewberry Engineers again sued Dewberry Group, this time scoring a decisive win that found Dewberry Group liable on all counts—including trademark infringement, federal unfair competition, and breach of contract. The district court found Dewberry Group’s trademark infringements to be “intentional, willful, and in bad faith”—findings the Fourth Circuit affirmed on appeal.

The Lanham Act permits a successful trademark plaintiff to disgorge the “defendant’s profits” that were derived from the infringement. However, Dewberry Group reported no profits. Instead, the district court recognized that the profits derived from Dewberry Group’s infringement “show up exclusively on the [property-owning affiliates’] books.” The district court decided to treat the Dewberry Group and its affiliates “as a single corporate entity” for purposes of calculating a profits award, reasoning that to do otherwise would permit the “entire Dewberry Group enterprise” to “evade the financial consequences of its willful, bad faith infringement.” A divided panel of the Fourth Circuit affirmed the nearly $43 million damages award.

In reversing the lower courts and remanding the case for a new award proceeding, the Supreme Court began its analysis by noting that the statutory text authorizing a profits award for trademark infringement offers no support for the approach taken by the lower courts; it only entitles a plaintiff to “recover [the] defendant’s profits.” However, Justice Kagan underscored the fact that Dewberry Engineering chose not to add Dewberry Group’s affiliates as defendants and, thus, the affiliates’ profits “are not the (statutorily disgorgable) ‘defendant’s profits’ as ordinarily understood.”

The Supreme Court further rejected the lower courts’ treatment of Dewberry Group and its affiliates “as a single corporate entity,” noting that such treatment conflicted with the well-settled corporate principle that separately incorporated organizations are generally treated as separate legal entities with distinct legal rights and obligations. The Court explained that the “demand to respect corporate formalities remains. And that demand fits hand-in-glove with the Lanham Act’s text: Again, the ‘defendant’s profits’ are  the defendant’s profits, not its plus its affiliates.’” (emphasis in original).

In an effort to maintain the award, Dewberry Engineers argued in the alternative that a court could take account of an affiliate’s profits in another way, citing a sentence in the Lanham Act’s remedies section stating: “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.” (quoting 15 U.S.C. § 1117(a)). Dewberry Engineers reasoned that the “so-called just-sum provision” enables a court, after first assessing the “defendant’s profits,” to determine that a different figure better reflects the “defendant’s true financial gain.” The Supreme Court rejected this argument determining that the district court did not rely on the “just-sum provision” or suggest that it “was departing up from Dewberry Group’s reported profits to reflect the company’s true gain.”

In sum, the Supreme Court ruled that, by treating Dewberry Group and its separately incorporated affiliates as one entity, “the courts below approved an award including non-defendants’ profits—and thus went further than the Lanham Act permits.” (emphasis in original).

To be sure, the Court’s decision adopts a narrow view of how an accounting of profits should be applied to related corporate entities. However, it leaves open the question of the applicability of the “just-sum provision” in the context of disgorged profits awards. Further, the practical result of the decision is likely to be an increase in the practice of trademark plaintiffs including corporate affiliates as named defendants in future trademark infringement cases.

The case is Dewberry Group Inc. v. Dewberry Engineers Inc., Case No. 23-900 (U.S. Feb. 26, 2025).