Supreme Court Overrules Fourth Circuit on Lanham Act Profit Disgorgement in Dewberry Group, Inc. v. Dewberry Engineers Inc.
On February 26, 2025, the United States Supreme Court issued a landmark decision in Dewberry Group, Inc. v. Dewberry Engineers Inc., No. 23-900, reversing the Fourth Circuit’s ruling on the calculation of “defendant’s profits” under the Lanham Act (15 U.S.C. §1117(a)). The ruling limits the recovery of profits in trademark infringement cases and reinforces corporate separateness. This case highlights the importance of including every proper party in your trademark lawsuit.
Fourth Circuit Decision: Broad Interpretation of Profit Disgorgement
The Fourth Circuit had previously upheld the District Court’s decision to award nearly $43 million in disgorged profits against Dewberry Group, despite the fact that most of these profits were earned by affiliated companies that were not named as defendants in the case.
The Fourth Circuit justified this approach by reasoning that:
- 1
“Economic Reality” Justified Treating the Entities as One – The court found that Dewberry Group and its affiliates functioned as a single economic unit, making it fair to consider all affiliated profits in the disgorgement award.
- 2
Corporate Formalities Should Not Shield Wrongdoing – The court warned against allowing businesses to use corporate structures to avoid financial liability for trademark infringement.
- 3
Disgorgement Was Equitable – Applying Fourth Circuit precedent in Synergistic International, LLC v. Korman, 470 F.3d 162 (4th Cir. 2006), the court held that disgorgement was necessary to prevent unjust enrichment.
- 4
No Need for Veil Piercing – The majority held that courts did not have to pierce the corporate veil to consider the profits of affiliated companies.
However, Judge Quattlebaum dissented, arguing that the Lanham Act’s clear language only allows for the disgorgement of the named defendant’s profits and not those of separate corporate entities. It turns out that Judge Quattlebaum’s dissent would be the foreshadowing of the Supreme Court’s unanimous decision.
Supreme Court’s Reversal: Strict Interpretation of the Lanham Act
The U.S. Supreme Court unanimously overruled the Fourth Circuit in Dewberry Group, Inc. v. Dewberry Engineers, Inc., No. 23-900 (2025). Writing for the Court, Justice Kagan held that:
- 1
Only the Named Defendant’s Profits Are Recoverable – The Court emphasized that the Lanham Act limits disgorgement to the “defendant’s profits”, and the term “defendant” refers only to entities actually named in the lawsuit.
- 2
Corporate Affiliates’ Profits Cannot Be Included – Because Dewberry Engineers did not sue the affiliates, their profits could not be included in the damages calculation.
- 3
Corporate Separateness Must Be Respected – Citing United States v. Bestfoods, 524 U.S. 51 (1998), and Dole Food Co. v. Patrickson, 538 U.S. 468 (2003), the Court reaffirmed that corporate law treats separately incorporated entities as distinct unless veil-piercing is proven.
- 4
Lower Courts Misapplied the Just-Sum Provision – While the Lanham Act allows courts to adjust disgorgement awards, the District Court did not use this provision correctly and instead aggregated multiple entities’ profits without legal basis.
- 5
Potential for Future Scrutiny of Profit Diversion – The Court left open the question of whether courts may examine accounting tactics to determine a defendant’s true financial gain. Justice Sotomayor’s concurrence suggested that sophisticated corporate structures might still be scrutinized for profit diversion.
Legal Implications of the Ruling
The Supreme Court’s ruling in Dewberry Group, Inc. v. Dewberry Engineers, Inc. significantly impacts how profit disgorgement is applied in trademark infringement cases. By strictly interpreting the Lanham Act’s language, the Court reinforced the principle that only the named defendant’s profits may be subject to disgorgement unless veil-piercing is justified. This decision imposes new challenges for plaintiffs seeking financial remedies and strengthens the legal protection afforded to businesses that maintain corporate separateness. The following points outline the key legal implications stemming from this ruling.
- 1
Stricter Limits on Profit Disgorgement in Trademark Cases – The Supreme Court’s decision clarifies that only the defendant’s own profits can be recovered under the Lanham Act unless veil piercing is justified. This ruling sets a high bar for plaintiffs seeking broad disgorgement.
- 2
Corporate Structuring Now Provides Stronger Protection – Businesses with separate legal entities can now better shield profits from trademark-related liability. Plaintiffs must sue the correct entities at the outset or prove that corporate formalities were abused.
- 3Corporate Structuring Now Provides Stronger Protection – Businesses with separate legal entities can now better shield profits from trademark-related liability. Plaintiffs must sue the correct entities at the outset or prove that corporate formalities were abused.
- 4
Challenges for Future Trademark Plaintiffs – Moving forward, plaintiffs will face new challenges in recovering broad disgorgement awards. They must:
a. Ensure they sue all relevant entities from the beginning.
b. Present clear evidence for veil-piercing if they want to include affiliated profits.
c. Demonstrate profit diversion if they believe the defendant artificially shifted earnings to affiliates.
- 5Future Cases May Explore “True Financial Gain” – While rejecting the Fourth Circuit’s expansive approach, the Supreme Court left room for future litigation on whether courts can look beyond tax records to uncover a defendant’s real profits. Justice Sotomayor’s concurrence suggested that accounting tactics may still be investigated.
The Supreme Court’s decision reaffirms the importance of corporate separateness in trademark litigation, limiting profit disgorgement to only the named defendant’s earnings. This ruling shifts the landscape for plaintiffs, requiring them to sue all relevant entities upfront or provide strong evidence for veil-piercing. Moving forward, businesses should be mindful of maintaining clear financial separations to mitigate potential liability in trademark disputes.
Conclusion
The Fourth Circuit sought to expand profit disgorgement under the Lanham Act, arguing that affiliates’ profits should be included when corporate formalities are used to shield wrongdoing. However, the Supreme Court firmly rejected this argument, holding that only the named defendant’s profits may be recovered unless veil-piercing is justified.
This decision has major implications for trademark litigation, reinforcing corporate separateness and making it harder for plaintiffs to claim broad financial remedies. Businesses facing trademark disputes should now carefully structure corporate entities and maintain clear financial separations to minimize legal risks.
If your company is navigating a trademark dispute or intellectual property litigation, Twisdale Law, PC provides strategic legal guidance to protect your interests and ensure compliance with evolving corporate and trademark laws.
For more information on intellectual property law, contact Twisdale Law, PC today.
