On February 26, 2025, the United States Supreme Court unanimously held that a prevailing plaintiff in a trademark infringement case may recover profits only from the defendant named as a party to the proceeding, and may not also recover profits from the defendant’s affiliates who are not parties to the proceeding. Dewberry Group, Inc., fka Dewberry Capital Corp. v. Dewberry Engineers Inc., No. 23-900, _____ U.S. ____ (Feb. 26, 2025). The Court’s decision reinforced the principle of corporate separateness, but also left open the possibility that the federal trademark statute (the “Lanham Act”) might allow trial courts to consider evidence related to a defendant’s affiliates when exercising the discretion to adjust a profits award upwards or downwards for the sake of fairness.

John Dewberry owns Dewberry Group, Inc. (“DGI”), a commercial real estate company that provides operational, financial, marketing, and other services to approximately 30 affiliates, each of which owns a single piece of real estate, but none of which has any employees of its own. Rental income generated by each affiliate’s property is booked by the DGI affiliate that owns the property and such affiliate pays fees to DGI for services rendered. Such fees are below market and DGI has operated at a loss for decades, surviving only because Mr. Dewberry infuses DGI with cash from time to time. DGI’s affiliates, however, are profitable.

Dewberry Engineers, Inc. (“DEI”) owns federal trademark registrations for the marks DEWBERRY and DEWBERRY (stylized) for use in connection with a number of services, including real estate development services.

DEI and DGI have a history of trademark disputes. In 2007, the parties settled the first dispute with an agreement that restricted DGI’s ability to use the word “Dewberry.” Years later, DGI violated the agreement by resuming use of DEWBERRY in promotional materials and materials used to lease its affiliates’ properties. DEI sued DGI for trademark infringement and unfair competition as well as breach of the settlement agreement. DEI prevailed at the district court, which found DGI’s infringement to be willful and in bad faith and awarded DEI DGI’s profits. However, DGI had no profits; only its affiliates reported profits. In an effort to prevent unjust enrichment, the district court expressly treated DGI and its affiliates as a single corporate entity to calculate the award of profits. The district court awarded DEI $43 million. The United States Court of Appeals for the Fourth Circuit affirmed the award. The Supreme Court granted certiorari and then unanimously vacated the decision of the Court of Appeals and remanded the case for further proceedings.

The Lanham Act authorizes courts to award to a prevailing plaintiff in a trademark infringement case the defendant’s profits resulting from infringement. It also allows courts to exercise discretion to adjust the amount of profits awarded upwards or downwards to ensure the amount awarded is fair.

DEI named only DGI as a defendant in DEI’s complaint. Thus, the Supreme Court held that only DGI’s profits (and not those of its affiliates) could be awarded to DEI. The Supreme Court found the district court’s treatment of DGI and its affiliates as a single corporate entity violated the principle of corporate separateness. Treating DGI as distinct from its affiliates (as opposed to treating it and its affiliates as a single corporate entity) is consistent with corporate law, which treats even affiliates as separate entities unless special circumstances justify piercing the corporate veil to prevent corporate formalities from protecting fraudulent conduct. DEI never argued to pierce the corporate veil in this case.

DEI argued that the district court properly exercised the discretion permitted by the Lanham Act to increase the award of profits to assess DGI’s true financial gain from infringement. DEI defended the district court’s approach by arguing that the Lanham Act permits a court to assess a defendant’s profits, determine whether a different amount would more accurately reflect the defendant’s profits, and then consider relevant evidence (including the profits of affiliates) to determine whether the defendant diverted earnings to affiliates. DEI asserted that considering DGI’s affiliates’ profits as evidence of DGI’s actual gain is a fair exercise of the discretion afforded courts under the Lanham Act.

The Supreme Court rejected this argument because the district court never indicated it was exercising its discretion under the Lanham Act or that it was making an adjustment to DGI’s profits to reach the amount awarded. Instead, the district court clearly stated that it was treating DGI and its affiliates as a single corporate entity. Thus, it was expressly ignoring the fact that these affiliates were separate entities that were not named defendants in the lawsuit. Moreover, the district court clearly spelled out its calculation of the award of profits, which was the sum of the profits of DGI and its affiliates. By including the profits attributable to entities that were not defendants to the case, the district court exceeded its authority under the Lanham Act.

In remanding the case, the Supreme Court expressly left unaddressed whether a court could exercise discretion afforded it under the Lanham Act in the manner described by DEI or whether DEI could pursue that approach on remand. Similarly, it left unaddressed the question of whether, on remand, DEI could pursue an argument that it would be appropriate to pierce the corporate veil.

Plaintiffs should take care to name all affiliates engaged in the infringing activity in a complaint to ensure that such plaintiffs can obtain a full recovery if they prevail. Infringers, however, should not take too much comfort from this decision. While courts will respect corporate separateness, this case leaves open the possibility that evidence about affiliates’ profits and the relationships between a defendant and its affiliates could be relevant to calculating an award of profits to a prevailing plaintiff. Although the Supreme Court did not approve the district court’s approach in calculating profits, it remains to be seen whether information about a defendant’s affiliate’s profits or other information about the relationships between a defendant and its affiliates could be used to adjust the calculation of profits awarded to a prevailing plaintiff.