Supreme Court Clarifies Corporate Affiliate Liability Under the Lanham Act: Key Takeaways from Dewberry Group v. Dewberry Engineers
- Evan Howard
- Jun 23
- 8 min read
In February 2025, the United States Supreme Court issued a landmark ruling in Dewberry Group, Inc. v. Dewberry Engineers Inc., clarifying the boundaries of liability for corporate affiliates in trademark infringement cases under the Lanham Act. The decision, which reversed a $43 million disgorgement award against Dewberry Group that included the profits of its affiliated companies, has sent ripples through the corporate, intellectual property, and M&A legal communities. At its core, the ruling reaffirms the principle of corporate separateness, holding that only profits directly attributable to the named defendant in a trademark suit can be subject to disgorgement, not those of related but non-party affiliates. This article explores the background, legal reasoning, and far-reaching implications of the Supreme Court’s decision, providing context for practitioners and businesses navigating the complex intersection of corporate structure and trademark liability.
The Lanham Act: Foundation of Trademark Protection and Remedies
To understand the significance of the Dewberry decision, it’s essential to appreciate the Lanham Act’s role in U.S. trademark law. Enacted in 1946, the Lanham Act (15 U.S.C. §§ 1051 et seq.) is the primary federal statute governing trademarks, service marks, and unfair competition. It provides the legal framework for registering trademarks, protecting brand identity, and enforcing rights against infringement.
One of the Lanham Act’s most powerful remedies is found in Section 1117(a), which authorizes courts to award monetary relief to prevailing plaintiffs. This includes the defendant’s profits, any damages sustained by the plaintiff, and the costs of the action. The statute grants courts discretion to increase or decrease the award as justice requires, but it explicitly refers to “defendant’s profits.” This phrase would become the main point of the Supreme Court’s analysis in Dewberry.
The purpose of disgorgement under the Lanham Act is two-fold: (1) to compensate the trademark owner for losses and (2) to deter would-be infringers by depriving them of ill-gotten gains. However, the statute’s language raises a critical question - whose profits are subject to disgorgement when the infringing conduct benefits a web of related corporate entities?
The Facts Behind Dewberry Group v. Dewberry Engineers
The dispute in Dewberry Group v. Dewberry Engineers pitted two real estate businesses against each other, both operating in the Southeast and both using the “Dewberry” name in commerce. Dewberry Engineers, the plaintiff, owned federal trademark registrations for “Dewberry” in connection with its services. Dewberry Group, the defendant, was a Georgia based real estate development company owned by John Dewberry. Dewberry Group provided management and marketing services to a constellation of about 30 separately incorporated affiliates, each of which owned and operated commercial properties.
Dewberry Group itself consistently operated at a loss, charging below market fees to its affiliates and relying on cash infusions from its owner. The affiliates, in contrast, generated significant profits from leasing their properties. Dewberry Group’s use of the “Dewberry” mark in marketing these properties prompted Dewberry Engineers to sue for trademark infringement. However, Dewberry Engineers named only Dewberry Group as a defendant, not John Dewberry or the affiliate entities.
The Lower Courts’ Approach: Economic Reality vs. Corporate Form
At trial, Dewberry Engineers prevailed on its infringement claim. The district court, faced with Dewberry Group’s lack of profits, looked beyond the named defendant’s books. Reasoning that Dewberry Group’s affiliates had profited from the infringing use of the “Dewberry” mark, and that Dewberry Group’s losses were a function of its fee structure, the court aggregated the affiliates’ profits into the disgorgement award. This approach, the court explained, reflected the “economic reality” of the Dewberry enterprise.
The Fourth Circuit Court of Appeals affirmed, holding that the district court had not pierced the corporate veil but had instead properly considered the revenues of entities under common ownership with Dewberry Group to calculate the “true financial gain” from the infringement. The appellate court warned that a contrary rule would offer infringers a “blueprint” for evading liability by using corporate formalities to shield profits.
The Supreme Court’s Decision: Respecting Corporate Separateness
The Supreme Court, in a unanimous opinion authored by Justice Kagan, reversed the lower courts’ decisions. The Court held that the Lanham Act’s reference to “defendant’s profits” means exactly what it says: only the profits of the party named as a defendant in the lawsuit can be disgorged.
The Court’s analysis rested on several factors:
Statutory Text: The Lanham Act’s remedies provision, 15 U.S.C. § 1117(a), refers specifically to the “defendant’s profits.” The term “defendant,” the Court explained, unambiguously means the party against whom relief is sought in the action.
Corporate Separateness: U.S. law has long recognized that corporations are distinct legal entities, even when they share common ownership. This principle, sometimes called the “corporate veil,” can only be disregarded in exceptional circumstances, such as fraud or abuse. In the absence of veil-piercing, each corporation’s assets and liabilities are its own.
No Veil-Piercing Alleged: Dewberry Engineers did not argue that the affiliates were mere alter egos of Dewberry Group or that the corporate structure was used to perpetrate fraud. The lower courts did not find grounds to pierce the corporate veil, so the affiliates’ profits remained beyond the reach of the disgorgement remedy.
Policy Considerations: While the Court acknowledged concerns about defendants using corporate structures to shield profits, it emphasized that the solution lies in naming all relevant parties as defendants, not in judicially rewriting the statute or disregarding corporate formalities.
Justice Kagan wrote, “The Lanham Act’s text and the background principle of corporate separateness both point in the same direction: Only the profits of the named defendant are subject to disgorgement in a trademark infringement action”.
The Sotomayor Concurrence: Leaving the Door Open?
Justice Sotomayor, in a concurring opinion, highlighted that the Court’s decision does not foreclose all avenues for plaintiffs seeking to reach beyond the named defendant’s profits. She suggested that in cases where a defendant uses creative accounting or deliberately structures transactions to shield profits, courts may look to doctrines such as anticipatory assignment or veil-piercing if the facts and law support it. However, she agreed that such theories must be specifically pleaded and proven, not presumed based on “economic reality” alone.
This concurrence leaves open the possibility that, in future cases with more egregious facts, courts might reach affiliated profits through established equitable doctrines, but only with careful adherence to procedural and substantive requirements.
Implications for Corporate Law, M&A, and Trademark Litigation
The Supreme Court’s decision in Dewberry Group v. Dewberry Engineers has immediate and far-reaching consequences for businesses, litigators, and deal makers.
1. Reinforcing Corporate Formalities
The ruling sends a clear message: the corporate veil will not be pierced lightly. Affiliated companies, even those under common ownership and involved in related business activities, will not automatically be liable for each other’s infringement unless the plaintiff can meet the high bar for veil-piercing or other equitable doctrines. This reaffirms the value of careful corporate structuring and observance of formalities in limiting liability.
2. Litigation Strategy: Who to Sue
For plaintiffs, the decision is a cautionary tale. If a business suspects that profits from infringement are being funneled to affiliates, it must name those affiliates as defendants and be prepared to prove their involvement. Failing to do so will likely limit any monetary recovery to the named defendant’s profits, even if those profits are negligible.
3. M&A Due Diligence and Risk Allocation
The case underscores the importance of due diligence in M&A transactions. Buyers should scrutinize the corporate structure of targets, especially where intellectual property or contractual liabilities may be at issue. Sellers, meanwhile, should ensure that their corporate affiliates are properly maintained and that transactions are conducted at arm’s length to avoid later allegations of alter ego or sham arrangements.
4. Creative Accounting and Future Litigation
While the Supreme Court declined to address the full scope of the Lanham Act’s “just-sum” provision or the circumstances under which courts may look behind a defendant’s tax or accounting records, the door remains open for future cases. Plaintiffs who can show that a defendant used affiliates to deliberately evade liability may still have recourse under equitable doctrines, but they must build a robust factual and legal record.
5. Policy Debates: Balancing Fairness and Predictability
Some commentators have expressed concern that the decision could encourage defendants to use complex corporate structures to insulate profits from liability. The Supreme Court acknowledged this risk but concluded that the solution lies with Congress or careful pleading, not judicial expansion of statutory language. The ruling thus strikes a balance between protecting trademark owners and preserving the predictability of corporate law.
Practical Guidance for Businesses and Practitioners
In light of the Dewberry decision, businesses and their counsel should consider the following practical steps:
Maintain Corporate Formalities: Ensure that each affiliate observes corporate formalities, maintains separate books and records, and conducts transactions at arm’s length. This will help insulate affiliates from each other’s liabilities.
Assess Litigation Exposure: If your business operates through a network of affiliates, periodically review whether any could be exposed to liability for the acts of others, especially in the context of IP or contract disputes.
Strategic Pleading: Plaintiffs should carefully investigate the flow of profits and the structure of the defendant’s business. If affiliates are benefiting from alleged wrongdoing, consider naming them as defendants and pleading theories such as alter ego, veil-piercing, or unjust enrichment where supported by the facts.
Deal Structuring in M&A: Buyers and sellers should address potential IP and contract liabilities in transaction documents, including representations, warranties, and indemnities that account for the possibility of affiliate liability.
Monitor Legal Developments: The Supreme Court’s decision leaves some questions unanswered, particularly regarding the limits of the “just-sum” provision and the use of equitable doctrines to reach affiliate profits. Businesses should stay abreast of future litigation that may clarify these issues.
The Supreme Court’s unanimous decision in Dewberry Group, Inc. v. Dewberry Engineers Inc. marks a pivotal moment in trademark and corporate law. By holding that only the profits of the named defendant are subject to disgorgement under the Lanham Act, the Court has reinforced the sanctity of corporate separateness and provided much-needed clarity for businesses and litigators. At the same time, the decision leaves open the possibility that, in cases of fraud or abuse, courts may still reach behind the corporate veil to prevent injustice.
For practitioners, the message is clear: respect for corporate form is not just a technicality but a fundamental principle of American law. Plaintiffs must be diligent in identifying all parties who may be liable, and businesses must be vigilant in maintaining the independence of their affiliates. As trademark litigation and corporate structuring continue to evolve, the lessons of Dewberry will remain highly relevant for years to come.
This article is intended for informational purposes and does not constitute legal advice. For specific questions regarding corporate affiliate liability, trademark litigation, or M&A risk, consult a qualified attorney.
Howard Law is a business, regulatory and M&A law firm in the greater Charlotte, North Carolina area, with additional services in M&A advisory and business brokerage. Howard Law is a law firm based in the greater Charlotte, North Carolina area focused on business law, corporate law, regulatory law, mergers & acquisitions, M&A advisor and business brokerage. Handling all business matters from incorporation to acquisition as well as a comprehensive understanding in assisting through mergers and acquisition. The choice of a lawyer is an important decision and should not be based solely on advertisements. The information on this website is for general and informational purposes only and should not be interpreted to indicate a certain result will occur in your specific legal situation. Information on this website is not legal advice and does not create an attorney-client relationship. You should consult an attorney for advice regarding your individual situation. Contacting us does not create an attorney-client relationship. Please do not send any confidential information to us until such time as an attorney-client relationship has been established.
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