by Dennis Crouch
The Supreme Court is set to hear arguments in Dewberry Group v. Dewberry Engineers (No. 23-900) in December 2024, addressing the trademark-specific question of whether courts can disgorge profits earned not by the defendant itself, but also by legally separate non-party corporate affiliates. In many ways, I see this case largely as a corporate “structure of the firm” case. Does trademark law permit business owners to formally structure their set of closely related businesses to avoid spillover liability? Most notably, corporate attorneys are regularly looking at ways to divide companies to limit spillover liability. The golden target is to create low-profit (or non-profit) entities that hold all the potential liability; and then shift profits to other corporate affiliates that do not have any liability. In the trademark sense, you may have a media holding company that does all the infringing advertising; and then a set of franchisees that don’t do any advertising themselves, but do reap the profits.
Background: The Dewberry dispute involves two real estate-related companies: Dewberry Group (defendant/petitioner) and Dewberry Engineers (mark-holder/respondent). After finding that Dewberry Group had infringed Dewberry Engineers’ trademarks, the district court ordered Dewberry Group to disgorge nearly $43 million in profits. But here’s the twist – those profits were earned not by Dewberry Group itself (which actually showed losses), but by its affiliated companies that were never parties to the litigation.
The Fourth Circuit affirmed this award, treating Dewberry Group and its non-party affiliates as a single corporate entity for the purpose of calculating revenues. The court relied on language in the Lanham Act making monetary relief “subject to the principles of equity,” 15 U.S.C. § 1117(a), to justify disregarding corporate separateness. Unlike the Patent Act, the Lanham Act authorizes recovery of the “defendant’s profits.” 15 U.S.C. § 1117(a). The statute creates a burden-shifting framework: the plaintiff must prove the defendant’s sales, while the defendant must prove any costs or deductions. If the court finds the resulting profits award “inadequate or excessive,” it may award a “just” sum instead. The entire monetary award must “constitute compensation and not a penalty.”
Petitioner’s Arguments: The adjudged infringer Dewberry Group argues that the Fourth Circuit’s approach violates both the Lanham Act’s plain text and foundational principles of corporate law. The key arguments:
- Statutory Text: The Act permits recovery only of “defendant’s profits.” That means profits of the actual named defendant found liable, not profits of non-party affiliates.
- Corporate Separateness: Under cases such as United States v. Bestfoods, 524 U.S. 51 (1998), federal statutes are presumed to respect corporate separateness unless Congress “speak[s] directly” to displace that principle. Nothing in the Lanham Act does so.
- Traditional Equity: The “principles of equity” referenced in § 1117(a) actually prohibit this kind of award. Equity historically: limited disgorgement to profits “actually received by the defendant” (Coupe v. Royer, 155 U.S. 565 (1895)); required individualized calculation of each defendant’s net profits (Liu v. SEC, 591 U.S. 71 (2020)); and did not allow penalties disguised as equitable relief
The U.S. Government’s Position: The Solicitor General filed an amicus brief supporting neither party, proposing a more nuanced approach. The government agrees that courts can’t simply disregard the corporate separateness principle, but argues that in some cases a defendant’s “true financial gain” from infringement may be reflected in money that flowed to affiliates.
The USG identifies two scenarios where courts might properly consider affiliate profits:
- Indirect Payments: When an infringer provides services at below-market rates but receives additional compensation through separate transactions with affiliates.
- Anticipatory Assignment: When the infringer generates income but directs or agrees in advance that the funds will go to affiliates instead.
The government suggests remand is appropriate here because the lower courts didn’t properly analyze whether either scenario applies.
I would suggest here that there should be pass-through liability as well when it is apparent that the owner of affiliated companies designed the structure so that the entity with potential liability would be under-funded and likely have a net loss, while allowing the affiliated entities to profit greatly without taking on the potential for liability.
I’ll help rewrite the Respondent’s Defense section to more accurately reflect their arguments from the brief.
Respondent’s Defense: Dewberry Engineers (respondent) presents a nuanced statutory interpretation argument centered on § 1117(a)’s two-step framework for profits-based awards. Rather than relying on broad equitable principles, respondent emphasizes that the statute explicitly provides for: (1) an initial “assessment” of “defendant’s profits,” and then (2) if that amount is found “inadequate,” courts have “discretion” to award a “just” sum based on the circumstances.
Respondent argues this case is fundamentally about statutory interpretation, not corporate separateness. They contend courts can consider evidence beyond an infringer’s financial records when those records don’t reflect the true extent of infringement-related economic gain. The critical legal question is whether courts may consider revenues and profits of the infringer’s affiliates when that evidence helps ascertain the infringer’s true gain.
This different framing is reflected in the difference between competing questions presented, with the petitioner focusing on corporate structure and the respondent focusing on the requirement of adequate remedy:
Petitioner: Whether an award of the “defendant’s profits” under the Lanham Act, 15 U.S.C. § 1117(a), can include an order for the defendant to disgorge the distinct profits of legally separate non-party corporate affiliates.
Respondent: Whether a district court may find a profits award “inadequate” because the award does not reflect the infringer’s true financial gain from the infringement and, if so, whether the Lanham Act’s grant of “discretion” permits the district court to consider affiliates’ financial records when relevant to ascertaining that true gain.
The key argument here then is simply that, when assessing true gains, courts may consider all competent and relevant evidence, including affiliate finances where appropriate. Nothing in the Lanham Act creates special evidentiary restrictions for affiliate financial data. The argument also focuses on how the complicated affiliate structure should be seen as akin to comingling assets — a situation that typically shifts the burden on the adjudged infringer to separate the infringing from non-infringing profits. See Sheldon v. Metro-Goldwyn (discussed below). As part of this, respondent also analogizes to tax law’s “anticipatory assignment” doctrine, which is often used when dealing with closely related entities who can easily shift value between themselves through non-arms-length transactions.
Several Amicus briefs have also been filed:
- An IP Scholars’ amicus brief (Profs. Suneal Bedi, Mike Schuster, and Jake Linford) provides context about how trademark value naturally flows between affiliated companies through common “brand architecture strategies.” Companies routinely leverage their brands across corporate families through “branded house” approaches (like Crest using its mark for toothpaste, mouthwash and white strips across affiliates) or “house of brands” strategies. The scholars argue this reality of how trademark value inherently spills over to affiliates supports allowing courts to consider affiliate profits when calculating disgorgement awards, as those profits often reflect the true value captured from infringement.
- AIPLA’s brief emphasizes that while courts shouldn’t ignore corporate separateness, there are several established alternatives for reaching affiliate profits without doing so — primarily by joining those affiliates as defendants in the case, or pursuing veil piercing claims.
- INTA’s brief focuses on the practical implications, warning that allowing courts to reach affiliate profits without proper veil piercing or joinder would create significant uncertainty for businesses and could lead to the dreaded “discovery fishing expeditions.” INTA emphasizes that corporate separateness is “deeply ingrained in our economic and legal systems” and argues that departing from it here would destabilize “business planning.”
- Finally, the Washington Legal Foundation’s brief makes a strong textualist argument based on the Court’s treatment of statutory references to “equity” in other contexts. Citing cases like Mertens v. Hewitt Associates, 508 U.S. 248 (1993) and Great-West Life & Annuity Ins. v. Knudson, 534 U.S. 204 (2002), WLF contends that when Congress invokes “principles of equity,” it limits available remedies to those traditionally available in equity courts. WLF argues that historically, equity courts could not award disgorgement of non-party profits.
For patent attorneys, one interesting case on point is City of Elizabeth v. Am. Nicholson Pavement Co., 97 U.S. 126 (1877). If you recall, Samuel Nicholson had patented a new method for constructing wooden block pavements that included a foundation to exclude moisture and parallel-sided blocks with strips between them to create spaces filled with gravel and tar. The City of Elizabeth contracted with companies to install pavement that allegedly infringed Nicholson’s patent. At the time, patent laws still permitted profit disgorgement, and Nicholson sought that remedy from both the city and the contractors. But, the evidence showed that the city paid the same amount it would have paid for authorized Nicholson pavement, meaning it realized no profits from the infringement. The contractors, however, did earn profits from installing the infringing pavement.
The Supreme Court held that while the city could be enjoined from future infringement and might be liable for legal damages, it could not be ordered to disgorge profits it never earned. The Court emphasized that “if an infringer of a patent has realized no profit from the use of the invention, he cannot be called upon to respond for profits.” Only the contractors who actually earned profits could be required to disgorge them. The Court explained that this result flowed naturally from the equitable nature of profit disgorgement – equity courts could order defendants to hand over ill-gotten gains they received, but could not force one party to pay profits earned by another. This established an important limitation on profits-based remedies that continues to influence interpretation of federal statutes authorizing disgorgement, including the Lanham Act provision at issue in Dewberry. Another famous patent case, Tilghman v. Proctor, 125 U.S. 136 (1888) also established foundational principles, holding that “the profits allowed in equity for the injury that a patentee has sustained” must be based on “actual, not possible, gains” and must reflect profits “actually received by the defendant.” These two older cases support petitioner’s position because it shows that historically, courts required profits to be traced to specific defendants and could not simply be attributed based on profits earned by others.
= = =
My favorite case repeatedly cited by respondent is Sheldon v. Metro-Goldwyn Pictures Corporation, 106 F.2d 45 (2d Cir. 1939), involved MGM’s movie “Letty Lynton” which allegedly infringed Edward Sheldon’s copyrighted play “Dishonored Lady” with the plot: “wanton girl kills her lover to free herself for a better match; she is brought to trial for the murder and escapes.” The court noted that MGM had “deliberately lifted the play” and engaged in “step by step ‘tracking'” of the play’s plot, despite their denials.
A key issue was whether the movie studio had to disgorge all profits from the movie or only the portion attributable to the copyrighted elements. The Second Circuit, in an opinion by Judge Learned Hand, held that while apportionment of profits was theoretically possible, the burden fell heavily on the infringer to prove what portion of profits came from non-infringing elements.
The court explained that when an infringer commingles infringing and non-infringing elements, they become “like any other constructive trustee and must resolve any doubts arising from his wrong.” While the court ultimately allowed some apportionment based on expert testimony about the relative value of different elements (like the stars versus the underlying story), it emphasized that any uncertainty must be resolved against the infringer who created the problem by combining the elements. The court noted that while it would be “unjust” to give the copyright holder everything when the infringer clearly contributed some value, the infringer must bear the burden of proving separation with clear evidence.
Respondent Dewberry Engineers argues that Sheldon should be extended here to apply when an infringer intermingles profits between different corporate entities — arguing that intermingling creates a heavy burden of proving what profits belong where. Just as Metro-Goldwyn had to prove what portion of profits came from non-infringing elements, Dewberry Group would need to prove what profits legitimately belonged to its affiliates versus being redirected there to avoid liability. And, the case suggests that courts should resolve uncertainties against infringers who create complicated corporate structures that make tracing profits difficult. When an infringer “deliberately lifted” protected material (as both courts found Dewberry Group did), they cannot benefit from confusion they created about where the resulting profits ended up.
Petitioner still needs to file its reply brief. We’ll follow up with this case as we get into December.
= = =
Helgi Walker of Gibson, Dunn & Crutcher LLP serves as counsel of record for petitioner Dewberry Group. Elbert Lin of Hunton Andrews Kurth LLP represents respondent Dewberry Engineers Inc. Solicitor General Elizabeth B. Prelogar represents the United States as amicus curiae. Megan Bannigan of Debevoise & Plimpton LLP represents amicus curiae INTA. Lauren Katzenellenbogen of Knobbe, Martens, Olson & Bear, LLP represents amicus curiae AIPLA. John Masslon and Cory Andrews represent WLF. Noel Francisco, David Phillips, and Jennifer Swize of Jones Day represents amici curiae Intellectual Property Scholars Suneal Bedi, Mike Schuster, and Jake Linford.