Supreme Court Curtails Disgorgement in Trademark Infringement Case

On February 26, 2025, the US Supreme Court issued a unanimous decision limiting the scope of an award of the “defendant’s profits” in trademark infringement suits under the Lanham Act, 15 U.S.C. §1117(a), to only those profits ascribable to the “defendant” itself.¹ The Court vacated the opinion of the Fourth Circuit Court of Appeals, which had upheld a $43 million award. The award was based on disgorging profits obtained by the named corporate defendant as well as profits obtained by entities affiliated with the defendant, which were separately incorporated affiliates and not parties to the suit. The Court held that profits obtained by these distinct nonparty entities are not recoverable, limiting a plaintiff’s ability to recover ill-gotten profits. The case increases the onus on a plaintiff to identify, sue, and pursue damages from all entities that may have obtained profits improperly.

District Court Litigation and Award

Dewberry Engineers, a real estate development company, sued Dewberry Group, a commercial real estate company, alleging trademark infringement and unfair competition. The US District Court for the Eastern District of Virginia found Dewberry Group liable for infringement and awarded Dewberry Engineers $43 million in damages under §1117(a) of the Lanham Act, which provides that a plaintiff can recover a “defendant’s profits” derived from a violation of the Lanham Act.

Dewberry Group provides services solely to other separately incorporated companies. Each of those affiliates owns a piece of commercial property for lease, but none of the affiliates has employees to carry out any business functions. Meanwhile, the income generated by Dewberry Group goes on the affiliates’ books, not its own. Dewberry Group receives only agreed-upon fees, which are less than market rates. Thus, Dewberry Group has been operating at a loss for decades while the affiliates have racked up tens of millions in profit. As a result, to reflect the “economic reality” that Dewberry Group’s profits show up exclusively on the property-owning affiliates’ books, the District Court decided to treat Dewberry Group and its affiliates as “a single corporate entity” for purposes of calculating a profits award. The District Court therefore totaled the affiliates’ real estate profits from the years Dewberry Group infringed, resulting in an award of almost $43 million.

The Fourth Circuit Affirms

A divided Court of Appeals for the Fourth Circuit affirmed that award by approving the District Court’s treatment of all companies as “a single corporate entity.” Although Dewberry Group argued that the District Court had “failed to appreciate the corporate distinction between Dewberry Group and its affiliates by piercing their corporate veils,” the Fourth Circuit reasoned that the District had not pierced the corporate veil but rather “considered the revenues of entities under common ownership with Dewberry Group in calculating Dewberry Group’s true financial gain from infringing activities that necessarily involved those affiliates.” The Fourth Circuit reasoned that to hold otherwise would give businesses a “blueprint for using corporate formalities to insulate their infringement from financial consequences.”

The Supreme Court’s Opinion

The Supreme Court vacated the decision, finding that nothing in the Lanham Act supported disgorging a nonparty’s profits. The Court explained that because §1117(a) does not define the term “defendant,” the usual legal meaning of the term governs—in other words, the named defendant itself. Because Dewberry Engineers chose not to add Dewberry Group’s property-owning affiliates as defendants, those affiliates’ profits are not “defendant’s profits” that are subject to disgorgement.

The Court emphasized that corporate formalities must be respected unless the plaintiff makes the showing needed to pierce the corporate veil, reiterating that “it is long settled as a matter of American corporate law that separately incorporated organizations are separate legal units with distinct legal rights and obligations.” This remains true even if the entities are affiliated or have a common owner. And while it is possible to pierce the corporate veil in some instances, the Supreme Court explained that in this instance, the plaintiff admitted it “never tried to make the showing needed for veil-piercing.”

The Supreme Court also rejected the plaintiff’s attempts to justify the District Court and Fourth Circuit opinions on a new ground. Before the Supreme Court, the plaintiff argued that the $43 million award was justified under §1117(a) of the Lanham Act that provides that “[i]f the court [] find[s] 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.” The plaintiff argued that this “just-sum provision” enables courts to consider the profits of related entities to adjust the amount of recovery to exceed the sum of the defendant’s profits if, for example, the defendant diverted some of its earnings to an affiliate’s books. The Supreme Court recognized, however, that the District Court did not follow that approach but rather calculated the “defendant’s profits” by lumping together Dewberry Group and its affiliates as a single entity. And the District Court did not identify which of the affiliates’ profits were properly attributable to the Dewberry Group, as would be required under the plaintiffs’ understanding of the “just-sum provision.” Because the courts below had not applied the “just-sum provision” at all, the Supreme Court declined to reach the issue.

Unaddressed Questions

The Supreme Court remanded the case for a new award proceeding but left some questions unaddressed.

First, the Supreme Court did not address whether the plaintiff’s argument that the just-sum provision enables courts to reach the profits of related entities is valid and whether the provision could be applied in this case is on remand.

Second, the Supreme Court stated no view on the question of whether courts can look behind a defendant’s tax or accounting records to consider the “economic realities of a transaction” and identify the defendant’s “true” financial gain.

Third and last, the Supreme Court offered no opinion on whether corporate veil-piercing is an option on remand.

Justice Sotomayor’s Concurring Opinion

Justice Sotomayor wrote a concurring opinion to highlight that principles of corporate separateness “do not blind courts to economic realities.” She said there are various ways courts can consider accounting arrangements between a defendant and its affiliates in calculating a “defendant’s profits.”

First, she considered a company that establishes a non-arm’s-length relationship with an affiliate that ultimately assigns some portion of its revenues to the latter and wrote that taking account of such a relationship in calculating the company’s profits would not transgress corporate formalities or the Lanham Act’s text. Second, Justice Sotomayor recognized that courts calculating disgorgement awards can consider evidence that a company indirectly received compensation for infringing services through related corporate entities. For example, a company can charge below-market rates for infringing services to affiliates and a common owner can make up the difference via cash to the company. In her view, such evidence can bear on the company’s profits under the Lanham Act.

Takeaways

The Supreme Court’s decision has important implications for how courts may authorize disgorgement for trademark infringement.

• The decision raises questions about how parties may raise just-sum theories in the future to argue for awards that exceed the scope of the defendant’s profits. 
• The Supreme Court’s decision sets the expectation that plaintiffs and courts must do the difficult and painstaking work of justifying disgorgement, especially when attempting to look beyond a named defendant’s corporate books.

Calculating an award of profits to remedy a trademark infringement is a fact-driven inquiry; each case must be considered on its unique record. The Supreme Court’s decision highlights that courts must respect corporate formalities or they will exceed the Lanham Act’s authorization of trademark infringement profit awards.

^[1] Dewberry Group, Inc., FKA Dewberry Capital corporation, Petitioner v. Dewberry Engineers, Inc., 604 U.S. ____ (2025).

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