Dewberry Group, Inc. v. Dewberry Engineers, Inc.—Constraints Using Disgorgement

In 1946, the United States Congress enacted the Lanham Act to create a registry and provide protections for certain forms of intellectual property and protect consumers from unfair competition. Damages arising from Lanham Act claims can be severe. In Dewberry Group, Inc. v. Dewberry Engineers Inc., an unusually unified Supreme Court addressed how disgorgement can be constrained.

In 1946, the United States Congress enacted the Lanham Act (15 U.S.C. §§1051 et seq.) (the “Act”) to create a registry and provide protections for certain forms of intellectual property and protect consumers from unfair competition. While typically limited to disgorgement of the defendant’s profits from the improper use of a trade or service mark, damages arising from Act claims can be severe, including treble damages (thrice the actual damages) in certain circumstances. In Dewberry Group, Inc. v. Dewberry Engineers Inc., 604 U.S. 321, 145 S. Ct. 681, 221 L. Ed. 2d 156, 2025 U.S. LEXIS 867 (February 26, 2025), an unusually unified Supreme Court addressed how disgorgement can be constrained.

Background

Dewberry Engineers Inc. (“Engineers”) is a design and build commercial construction company headquartered in Virginia. While it provides services to real estate development customers nationally, its primary market is in the southeastern United States. Engineers holds a registered trademark to use the “Dewberry” name in real estate services.

Dewberry Group, Inc. (“Group”) is also a real estate services businesses, but it provides those services solely to a group of approximately 30 affiliated entities. Those affiliates own commercial real estate for rent to third parties. None of the affiliates has any employees, and all of their operations, including marketing, accounting, legal and operations, are provided by Group. Group provides these services to its affiliates at below market rates resulting in Group operating at a loss for decades. Group survives through occasional cash infusions from John Dewberry, the company’s founder and owner of the affiliated entities. John Dewberry’s wealth, and the source of his cash advances to Group, comes from the tens of millions of dollars in profits that the affiliated entities generate.

“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.)”[1] Seeking redress for that infringement, Engineers initially sued Group in 2007, which resulted in a settlement limiting Group’s use of the name “Dewberry.” In the 20-teens, John Dewberry elected to rebrand his business and, reneging on the settlement with Engineers, resumed using the “Dewberry” name.

Engineers again sued Group for trademark infringement, unfair competition under the Act, and breach of the settlement agreement. The district court found for Engineers, finding that Group’s violations were “intentional, willful, and in bad faith.” The Act permits a prevailing plaintiff to recover the “defendant’s profits” from the trademark violation.[2] Since it charged its affiliates below market rates for the services provided, Group realized no profits on its business operations. To calculate Engineers’ damages, the district court elected to recognize the “economic reality” of Group’s operations and treated Group and its affiliates as a single entity for purposed of determining the recovery of profits from Group’s wrongdoing. The district court awarded approximately $43 million in damages.

A divided appeals court affirmed the district court’s analysis recognizing the economic reality of Group’s operations and concluding that to “hold otherwise, the majority thought, would give businesses a ‘blueprint for using corporate formalities to insulate their infringement from financial consequences.’”[3]

Court Findings

The Court found that the language of the Act is clear, a plaintiff, like Engineers, is entitled to “recover [the] defendant’s profits.” Absent a designated definition, for which the Act provides none, the term “defendant” has its usual legal meaning, “’the party against whom relief or recovery is sought in an action or suit.’”[4]

Engineers elected to sue only Group and not any of its property-owning affiliates. Therefor the affiliated entities were not defendants in the case, and their profits were not disgorgable under the statute.

The Court further considered the equitable issues and a more general view of corporate law. While courts have, from time to time, read statutes to include an entity and its affiliates on the presumption that “Congress would not have wanted to displace ‘bedrock’ features of the common law,”[5] “‘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.’”[6] Certainly courts will, under certain circumstances, pierce the corporate veil that establishes the entity as an entity separate from its investors and affiliates, Engineer did not make the showing needed for piercing.

The Court also dismissed Engineers’ alternative justification for the damages award which relied on a catch all provision of the statute that says, “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 of the case.”[7] Both the trial Court and the Eleventh Circuit clearly stated that they defined “defendant” to include not just the named defendant, but also its affiliates without regard to the statutory language or corporate law.

The Supreme Court vacated the judgment and remanded the case for further consideration of the defendant’s profits, but, alas, provided no guidance on how such a calculation should be performed considering Group’s practice of charging its “customers” below market rates for its service and consistently operating at a loss.

Conclusion

The Act provides for a holder of a trade or service mark (and certain other intellectual property) to pursue a claim for damages for another’s misuse of that intellectual property. Damages under the Act, while not limited to the defendant’s profits, require a specific finding that supports the claim against the defendant, and only the defendant.

[1] 604 U.S. 321 at 324.

[2] 15 U.S.C. §1117(a).

[3] 604 U.S. 321 at 326, quoting 77 F. 4th 265, 293.

[4] Ibid., quoting Black’s Law Dictionary 541 (3d ed. 1933).

[5] Ibid., at 327.

[6] Ibid., quoting Agency for Int’l Development v. Alliance for Open Society Int’l Inc., 591 U. S. 430, 435, 140 S. Ct. 2082, 207 L. Ed. 2d 654 (2020).

[7] 15 USC §1117(a).

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Michael J. Molder, JD, CPA, CFE, CVA, MAFF, applies 30 years of experience as a Certified Public Accountant and litigator to help investigate and analyze cases with complex financial and economic implications. He has acted as both counsel and accounting expert in pending and threatened litigation as well as participating in internal investigations of financial misconduct. As a litigator, Mr. Molder helped co-counsel understand complex financial and accounting issues in dozens of cases. In 2006, Mr. Molder returned to public accounting applying his unique skills to forensic engagements. He has also performed valuations of business interests in a wide variety of industries.

Mr. Molder has served as a valuation expert for both plaintiffs and defendants in commercial litigation matters and owner and non-owner spouses in matrimonial dissolutions. He has participated in the valuations of businesses in a wide variety of industries, including: food service, wholesale and retail distribution, literary development and production, healthcare, manufacturing, and real estate development.

Mr. Molder has also investigated and valued damages in a wide variety of litigation contexts ranging from breach of contract claims to personal injury cases, and from employment disputes to civil fraud. He has consulted on many matters which have not involved the issuance of a report for litigation or resulted in deposition or trial testimony. Accordingly, the identity of these matters is protected by attorney client privilege.

Mr. Molder has also lectured widely on a variety of accounting and litigation related topics including business valuation, financial investigations in divorce proceedings, accountant ethics, financial statement manipulation and “earnings management.”

Mr. Molder can be contacted at (610) 208-3169 or by e-mail to Molder@lawandaccounting.com.