Dewberry Group, Inc. v. Dewberry Engineers Inc.

CORP. v. DEWBERRY ENGINEERS INC.

certiorari to the united states court of appeals for

the fourth circuit No. 23–900. Argued December 11, 2024—Decided February 26, 2025 The federal Lanham Act provides for a prevailing plaintiff to recover the “defendant's profits” deriving from improper use of a mark. 15 U. S. C. § 1117(a). Dewberry Engineers successfully sued Dewberry Group—a competitor real-estate development company—for trademark infringement under the Lanham Act. Dewberry Group provides services needed to generate rental income from properties owned by separately incorporated affiliates. That income goes on the affiliates' books; Dewberry Group receives only agreed-upon fees. And those fees are apparently set at less than market rates—the Group has operated at a loss for decades, surviving only through cash infusions by John Dewberry, who owns both the Group and the affiliates. To refect that “economic reality,” the District Court treated Dewberry Group and its affiliates “as a single corporate entity” for purposes of calculating a profits award. The District Court thus totaled the affiliates' real-estate profits from the years Dewberry Group infringed, producing an award of nearly $43 million. A divided Court of Appeals panel affirmed that award. Held: In awarding the “defendant's profits” to the prevailing plaintiff in a trademark infringement suit under the Lanham Act, § 1117(a), a court can award only profits ascribable to the “defendant” itself. And the term “defendant” bears its usual legal meaning: the party against whom relief or recovery is sought—here, Dewberry Group. The Engineers chose not to add the Group's affiliates as defendants. Accordingly, the affiliates' profits are not the (statutorily disgorgable) “defendant's profits” as ordinarily understood. Nor do background principles of corporate law convert the one into the other. This Court has often read federal statutes to incorporate such principles. So if corporate law treated all affiliated companies as “a single corporate entity,” there could be reason to construe the term “defendant” in the same vein. See United States v. Bestfoods, 524 U. S. 51, 62. But the usual rule is the opposite. “[I]t is long settled as a matter of American corporate law that separately incorporated organizations are separate legal units with distinct legal rights and obligations.” Agency for Int'l Development v. Alliance for Open Society Int'l Inc., 591 U. S. 430, 435. And that is so even if the entities are

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affiliated—as they are here by virtue of having a common owner. While a court may in select circumstances “pierc[e] the corporate veil,” especially to prevent corporate formalities from shielding fraudulent conduct, Bestfoods, 524 U. S., at 62, Dewberry Engineers admits that it never tried to make the showing needed for veil-piercing. So the demand to respect corporate formalities remains. And that demand accords with the Lanham Act's text: The “defendant's profits” are the defendant's profits, not its plus its affiliates'.

Dewberry Engineers does not contest these points; it instead argues that a court may take account of an affiliate's profits under a later sentence in the Lanham Act's remedies section: “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). In the Engineers' view, this 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.” Brief for Respondent 24. And at that “second step” of the process, the court can consider “as relevant evidence” the profits of related entities. But the District Court did not rely on the just-sum provision. It simply treated Dewberry Group and its affiliates as a single corporate entity in calculating the “defendant's profits.” And the Fourth Circuit approved that approach, thinking it justifiable in the circumstances to ignore the corporate separateness of the affiliated companies. The just-sum provision did not come into the analysis and therefore does not support the $43 million award given. In remanding this case for a new award proceeding, the Court leaves a number of questions unaddressed. The Court expresses no view on whether or how the courts could have used the just-sum provision to support a profits award; whether or how courts can look behind a defendant's tax or accounting records to consider a defendant's true fnan-cial gain even without relying on the just-sum provision; and whether veil-piercing remains an available option. Pp. 326–330. 77 F. 4th 265, vacated and remanded. Kagan, J., delivered the opinion for a unanimous Court. Sotomayor , J., filed a concurring opinion, post, p. 330.

Thomas G. Hungar argued the cause for petitioner. With him on the briefs were Helgi C. Walker, Jonathan C. Bond, Patrick J. Fluster, and Matt Aidan Getz.

Nicholas S. Crown argued the cause for the United States as amicus curiae in support of neither party. With him on Page Proof Pending Publication

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Elbert Lin argued the cause for respondent. With him on the brief were Stephen P . Demm, David M. Parker, David N. Goldman, and Arthur E. Schmalz.*

Justice Kagan delivered the opinion of the Court.

A prevailing plaintiff in a trademark infringement suit is often entitled to an award of the “defendant's profits.” 15 U. S. C. § 1117(a). In making such an award, the District Court in this case totaled the profits of the named corporate defendant with those of separately incorporated affiliates not parties to the suit. We hold today that the court erred in doing so. Under the pertinent statutory provision, the court could award only profits properly ascribable to the defendant itself.

The trademark dispute here is between two unrelated real-estate companies with the word “Dewberry” in their names.

Dewberry Engineers provides real-estate development services for commercial entities across the country, and particularly in several southeastern States. It owns a registered trademark in the word “Dewberry.” That mark gives Dewberry Engineers certain exclusive rights to use the “Dewberry” name in offering real-estate services.

The success of John Dewberry's overall business comes in part from trademark infringement—specifically, from Dewberry Group's violation of Dewberry Engineers' trademark rights in the “Dewberry” name. (If that sentence is confusing—too darn many Dewberrys—it is also a good illustration of why trademarks exist: to prevent consumers from being confused about which company is providing a product or service.) Dewberry Engineers has sought to defend its trademark rights against Dewberry Group for nearly two decades. In 2007, an infringement suit the Engineers brought against the Group led to a settlement limiting the latter's use of the word “Dewberry.” But a decade or so later, Dewberry Group reneged on the deal. As part of a rebranding effort, the Group resumed its use of the “Dewberry” name in the marketing and other materials it used to lease its affiliates' properties.

So Dewberry Engineers sued Dewberry Group again, and won decisively. The action—brought against Dewberry Group alone—alleged trademark infringement and unfair Page Proof Pending Publication

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What remains in dispute is the District Court's award of profits to remedy the infringement. The Lanham Act provides for a prevailing plaintiff like Dewberry Engineers to recover the “defendant's profits” deriving from a trademark violation. § 1117(a). The sole named defendant here is Dewberry Group. But Dewberry Group, as noted above, reports no profits. See supra, at 324. Rather, the District Court found, the profits from the Group's illicit conduct (as from all its services) “show up exclusively on the [property-owning affiliates'] books.” 2022 WL 1439826, *9. To refect that “economic reality,” the court decided to treat Dewberry Group and its affiliates “as a single corporate entity” for purposes of calculating a profits award. Id., at *10. If those companies were viewed separately, the court reasoned, the “entire Dewberry Group enterprise” would “evade the f-nancial consequences of its willful, bad faith infringement.” Ibid. By contrast, considering the companies together would prevent the “unjust enrichment” that the Act was meant to target. Ibid. The court thus totaled the affli-ates' real-estate profits from the years Dewberry Group infringed, producing an award of nearly $43 million. See id., at *14.

A divided Court of Appeals panel affirmed that award. Reiterating the “ `economic reality' of Dewberry Group's re-Page Proof Pending Publication

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We granted certiorari, 602 U. S. 1038 (2024), and we now vacate the decision below.

The statutory text authorizing a profits award for trademark infringement offers no support for the approach the courts below took. Again, the section of the Lanham Act addressing remedial issues provides that a plaintiff like Dewberry Engineers is “entitled” to “recover [the] defendant's profits.” § 1117(a); see supra, at 325. The term “defendant” is not specially defined, and thus bears its usual legal meaning. A “defendant” is “the party against whom relief or recovery is sought in an action or suit.” Black's Law Dictionary 541 (3d ed. 1933). So here the defendant is the entity named in Dewberry Engineers' complaint as liable for infringing the “Dewberry” trademark. And that entity is Dewberry Group alone. See App. 1 (“The Plaintiff, Dewberry Engineers . . . files this Complaint against the Defendant, Dewberry Group”). The Engineers chose not to add the Group's property-owning affiliates as defendants. Accordingly, the affiliates' profits are not the (statutorily disgorg-able) “defendant's profits” as ordinarily understood. Page Proof Pending Publication

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Dewberry Engineers cannot, and so does not, contest those points; to defend the decisions below, it must set off on a different path, involving different statutory language. True enough, concede the Engineers, that a court has no authority to “disregard corporate separateness” and order disgorgement of an affiliate's profits as the “defendant's” own. Id., at 2. But a court, the company says, may take account of an affiliate's profits in another way. Dewberry Engineers Page Proof Pending Publication

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But that is not a tenable take on why Dewberry Engineers got a $43 million award. 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 refect the company's true gain. There was no two-step process for decid-ing on the award, but only a single step: the calculation of the “defendant's profits.” 2022 WL 1439826, *14; see id., at *9–*10. And in making that assessment, the District Court designated whose profits should count: both Dewberry Group's and its affiliates', because all those companies should be “treated as a single corporate entity.” Ibid. That treatment, by its terms, disregards “corporate formalities”—and likewise the “principle[ ] of corporate separateness.” Dole Food, 538 U. S., at 476; Bestfoods, 524 U. S., at 62. The proof, if any more were needed, is in the number the court arrived at. It was simply the sum of all the Dewberry entities' real-estate profits for the relevant years. That amount accords with the idea that Dewberry Group and its affiliates Page Proof Pending Publication

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So too, the Court of Appeals' decision bears no resemblance to Dewberry Engineers' description. No more than the District Court did the Fourth Circuit rely on the just-sum provision, or on any “second-step” analysis that it enables. The Court of Appeals related, in straightforward manner, the basis of the District Court's decision: The lower court, to determine profits, “treated Dewberry Group and its affiliates as a single corporate entity.” 77 F. 4th, at 290. And the appellate court approved that treatment for much the same reasons the District Court gave—because of the “economic reality” of how the Dewberry companies operated and the fear that “corporate formalities” would otherwise insulate infringing conduct from any penalty. See ibid.; id., at 293; supra, at 325–326. The concern in such circumstances is not amiss. But as even the Engineers agree, it cannot justify ignoring the distinction between a corporate defendant (i. e., Dewberry Group) and its separately incorporated affiliates. By treating those entities as one and the same, the courts below approved an award including nondefendants' profits—and thus went further than the Lanham Act permits.

In remanding this case for a new award proceeding, we leave a number of questions unaddressed. First, we express no view on Dewberry Engineers' understanding of the just- Page Proof Pending Publication

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All we hold today is that the courts below were wrong to treat Dewberry Group and its affiliates as a single entity in calculating the “defendant's profits.” Dewberry Group is the sole defendant here, and under that language only its own profits are recoverable.

We therefore vacate the judgment of the Court of Appeals and remand the case for further proceedings consistent with this opinion.

It is so ordered.

Justice Sotomayor , concurring.

I join in full the Court's opinion, which holds that courts must respect principles of corporate separateness in calculating a “defendant's profits” for purposes of the Lanham Act. See ante, at 327 and this page. Those principles and the Lan-ham Act's plain text prohibited the lower courts from attribut-ing to Dewberry Group all the profits of its affiliates, absent veil piercing. See ante, at 326–327. Dewberry Group itself, however, reports no profits on its tax returns. It has oper- Page Proof Pending Publication

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I write separately to underscore that principles of corporate separateness do not blind courts to economic realities. Nor do they force courts to accept clever accounting, includ-ing efforts to obscure a defendant's true financial gain through arrangements with affiliates. To the contrary, there are myriad ways in which courts might consider accounting arrangements between a defendant and its affiliates in calculating a “defendant's profits.” Two examples illustrate the point.

First, consider a company that establishes a non -arm's-length relationship with an affiliate that effectively assigns some portion of its revenues to the latter. For instance, if the company charges below-market rates to its affiliate for infringing services, that arrangement might be seen as essentially assigning a share of the company's earnings to its affiliate in advance. The affiliate's profits in that scenario might bear on what the company itself would have earned in an arm's-length relationship. Taking account of such evidence in calculating the company's profits would likely not transgress corporate formalities or the Lanham Act's text, so long as the court's focus remained on calculating “profits properly ascribable to the defendant itself.” Ante , at 323.

This Court, moreover, has long recognized in the tax context that it is possible to account for anticipatory assignment schemes without contravening principles of corporate sepa-

Second, courts calculating disgorgement awards might consider evidence that a company indirectly received compensation for infringing services through related corporate entities. For instance, where there is evidence that a company charged below-market rates for infringing services to affiliates, but a common owner made up the difference via cash infusions to the company, that evidence may bear on the company's profits under the Lanham Act. Indeed, such cash infusions may refect some portion of the profits that the company would have earned from its infringing services in an arm's-length relationship. See Brief for United States as Amicus Curiae 18–19. Again, drawing on such evidence in calculating a Lanham Act disgorgement award need not im-permissibly attribute an affiliate's profits to the defendant.

This is all to say that principles of corporate separateness do not force courts to close their eyes to practical realities in calculating a “defendant's profits.” After all, the Lanham Act itself directs courts to calculate such profits “subject to the principles of equity.” 15 U. S. C. § 1117(a). Those principles, unsurprisingly, support the view that companies cannot evade accountability for wrongdoing through creative accounting. Equity “regards substance rather than form.” 2 S. Simons, Pomeroy's Equity Jurisprudence § 378, p. 40 (5th ed. 1941) (internal quotation marks omitted). And equity demands Page Proof Pending Publication

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Because this issue was not considered below within the right framework, the Court today rightly declines to decide exactly when and how courts may look beyond a defendant's books in calculating Lanham Act disgorgement awards. See ante, at 330. In new award proceedings on remand, however, the lower courts may explore that important issue and consider reopening the record if appropriate. See Zenith Radio Corp. v. Hazeltine Research, Inc., 401 U. S. 321, 331 (1971) (“[A] motion to reopen to submit additional proof is addressed to [the trial court's] sound discretion”). Courts must be attentive to practical business realities for our Nation's trademark laws to function, and the Lanham Act gives courts the power and the duty to do so. Page Proof Pending Publication

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The attached opinion has been revised to refect the usual publication and citation style of the United States Reports. The revised pagination makes available the official United States Reports citation in advance of publication. The syllabus has been prepared by the Reporter of Decisions for the convenience of the reader and constitutes no part of the opinion of the Court. A list of counsel who argued or filed briefs in this case, and who were members of the bar of this Court at the time this case was argued, has been inserted following the syllabus. Other revisions may include adjustments to formatting, captions, citation form, and any errant punctuation. The following additional edits were made: p. 330, line 4 from bottom: “forbade” is changed to “prohibited”

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