Re: Computing damages under the Lanham Act
This case addresses an important controversy regarding how damages should be calculated under the Lanham Act, particularly when the liable party reports no positive income. The following Supreme Court’s opinion tackles the question: How should damages be calculated, specifically, when the defendant has no profits?
The plaintiff, Dewberry Engineers Inc. (“Engineers”), is a corporation dedicated to real-estate development services for commercial entities across the United States, particularly in the southeast region. The defendant, Dewberry Group, Inc. (“Group”) also operates in the commercial real-estate sector in the southeast. However, Group’s income primarily comes from fees charged to its affiliates for financial, legal, operational and marketing services. Profits derived from leasing commercial properties appear on the affiliates’ books—not Group’s.
The dispute arises from two trademark infringement cases. First, in 2007, Engineers sued Group for trademark infringement, which lead to a settlement restricting Group’s use of the word “Dewberry”. About a decade later, Group violated the settlement by rebranding and prominently using “Dewberry” again in its marketing. For this reason, Engineers successfully sued Group again, alleging trademark infringement and unfair competition under the Lanham Act, and breach of contract.
The District Court found Group liable on all claims. Since, as stated above, Group itself reported no profits, the District Court treated Group and its affiliates as a single corporate entity. The reason behind the decision was that the affiliates received the actual income from the leasing of the commercial property and, thus, reflected the income generated from Group’s infringing acts. To prevent unjust enrichment and the liable party from evading the financing consequences of its infringing acts, the District Court awarded Engineer almost $43 million based on the affiliates’ profits. The Court of Appeals for the Fourth Circuit affirmed.
The Supreme Court of the United States (“SCOTUS”) granted certiorari and reversed. Writing for the majority, Justice Kagan emphasized that under American corporate law, separate incorporated organizations maintain distinct legal identities. Thus, merging Group and affiliates’ profits violated this principle. SCOTUS explained that Engineers could have sued the affiliates directly or argued to pierce Group’s corporate veil but chose not to do so. For this reason, the only possible alternative was to calculate the awards according to Group’s—the only defendant—profits.
Engineers pointed to Section 1117(a) of the Lanham Act, which states: “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.” 15 U.S.C. § 1117(a). Engineers argued that under this provision, the Court can first analyze the defendant’s profits and, if inadequate, can subsequently use the affiliates’ profits as evidence. However, instead of going through this “two-step process,” the district court added Group’s and the affiliates’ profits together.
SCOTUS concluded that the District Court and the Court of Appeal’s decision violated corporate formalities, holding that only Group’s profits could form the basis for a damages award.
In a concurring opinion, Justice Sotomayor agreed with the result but emphasized that the courts must remain alert to economic realities and attempts to disguise a defendant’s true profits. For this reason, Justice Sotomayor outlined two ways courts might still account for affiliates’ profits without violating corporate separateness but still staying true to the Lanham Act’s “principles of equity”:
First, if a company undercharges an affiliate for infringing services, this can be treated as an anticipatory assignment of income, with the affiliate’s profits reflecting what the defendant would have earned. This complies with tax law that has long recognized that one may consider anticipatory assignment schemes while respecting entity separateness.
Second, if a company indirectly recoups profits from its affiliates, those cash transfers may also reflect the company’s profits from the infringing activities. This, Justice Sotomayor affirms, aligns with the Lanham Act’s purpose of ensuring national trademark protection.
In sum, while SCOTUS reinforced the principles of corporate separateness, Justice Sotomayor highlighted ways courts can still ensure that defendants are not unjustly enriched at the expense of trademark owners, safeguarding the Lanham Act’s principle of equity and national trademark protection.
Author: Stella M. González-Pérez, Esq.
This article was originally published in From the Bar, Summer 2025, Issue No. 67 — a publication of the Federal Bar Association, Hon. Raymond L. Acosta Puerto Rico Chapter. Reproduced with attribution for informational purposes.
