The Supreme Court this week heard arguments over a lower court’s ruling that a corporation’s affiliates should be held financially liable in a long-running trademark infringement dispute.
The oral hearing in Dewberry Group Inc. v. Dewberry Engineers Inc. took place on Dec. 11.
The case concerns disgorgement, which forces a party to surrender profits acquired by unlawful or wrongful acts, in a trademark dispute between the two companies that both call themselves “Dewberry.”
The Lanham Act, a federal statute, regulates trademarks and unfair competition.
The petitioner, Dewberry Group Inc., is based in Georgia; the respondent, Dewberry Engineers Inc., is based in Virginia.
Dewberry Engineers offers engineering and architectural services and develops real estate in Virginia, Georgia, South Carolina, and Florida.
Dewberry Group and its affiliated companies are also involved in developing real estate. The trial court determined that the affiliates did not have employees and shared Dewberry Group’s address.
Dewberry Engineers currently owns the federal trademark rights to the word. At the same time, Dewberry Group claims it has a right under the common law to use “Dewberry” in its real estate development business.
Common law refers to the body of law developed over centuries by court rulings, as opposed to statutes passed by legislatures.
In 2006, Dewberry Engineers filed suit against Dewberry Group, known at the time as Dewberry Capital, for infringing its “Dewberry” trademark. The case was settled in 2007.
In 2017, Dewberry Capital became Dewberry Group and created the spinoff brands Studio Dewberry, Dewberry Office, and Dewberry Living. This prompted Dewberry Engineers to demand that Dewberry Group stop using its trademark.
In 2020, Dewberry Engineers again sued Dewberry Group, but not its corporate affiliates. Dewberry Engineers claimed the other company violated the terms of the 2007 settlement, the petition said.
In 2021, U.S. District Judge Liam O’Grady in Virginia found that Dewberry Group violated the settlement, but would not pierce the company’s so-called corporate veil.
In business law, a corporation enjoys limited liability and is treated as a separate person that can own property and incur debts.
Piercing or lifting the corporate veil means ignoring the corporation’s status as a person and allowing a creditor to access the assets of the corporation’s owners to satisfy a debt.
Instead, Judge O’Grady directed Dewberry Group’s affiliates to hand over $43 million of their profits to Dewberry Engineers, even though they were not part of the lawsuit.
The judge ruled this was permissible because Dewberry Group and its affiliates collectively functioned as a “single corporate entity.”
The disgorgement order covering the affiliates was appropriate because “all revenues generated through Dewberry Group Inc.’s services show up exclusively on the [affiliates’] books,” O’Grady wrote.
The U.S. Court of Appeals for the Fourth Circuit affirmed in 2023. Dewberry Group asked the Supreme Court to review the ruling, and on June 24, it agreed to do so.
In the petition, Dewberry Group said the district court was wrong to hold its affiliates liable.
“Allowing plaintiffs to bulldoze corporate distinctions in this manner threatens broad, harmful consequences,” the company said.
During the oral argument on Dec. 11, Dewberry Group’s attorney, Thomas Hungar, said the lower courts erred.
Dewberry Group “had no profits to disgorge, so the courts below ordered petitioner to disgorge the profits of its legally distinct affiliates to the tune of $43 million,” the lawyer said.
“Nothing in the Lanham Act authorizes that blatant disregard of corporate separateness.”
Hungar said the statute does not consider a defendant’s profits to encompass the profits of separate corporate entities yet the respondent argued there was a “collective economic enterprise” and convinced the courts “to treat petitioner and its affiliates as a single corporate entity so as to attribute the affiliates’ profits to petitioner.”
Hungar said the district court’s ruling “contradicts the equitable principles that disgorgement is limited to the defendant’s profits, not those of affiliates, and does not allow penalties like the award here.”
Justice Samuel Alito told U.S. Department of Justice attorney Nicholas Crown that if the district court’s judgment “cannot be sustained on the ground that was adopted by the court of appeals, why would we go further” and articulate a theory for lower courts to look at upon reconsideration.
Justice Amy Coney Barrett asked Crown why the government wouldn’t accept the Supreme Court “just answering” the question posed by the case and “just leaving it to the lower court.”
It could lead to a “pretty short opinion,” Barrett added.
The attorney for Dewberry Engineers, Elbert Lin, said the district court did the right thing when it factored in the affiliates’ profits to figure out how much Dewberry Group benefited from the infringement.
Courts are allowed to look at the finances of corporate affiliates, he said.
Justice Clarence Thomas asked Lin why his client didn’t sue “all of the entities.”
Lin said his client wasn’t aware of the “other ownership entities” so it decided to sue who they “thought was the defendant.”
Justice Neil Gorsuch told Lin, “Maybe the best thing … is for us … to vacate and remand, [and] allow you to try again.”
The Supreme Court is expected to rule on the case by June 2025.
