Trademark Infringement Receives Supreme Court Attention in Unanimous Ruling Regarding Damages
In what the People’s Court would likely call the case of the too many Dewberrys, Dewberry Engineers, a provider of real-estate development services, sued Dewberry Group, a commercial real-estate company, over the latter’s use of the former’s registered trademark “Dewberry.” (That’s “too darn many Dewberrys,” as Justice Kagan writes in her opinion.)
Dewberry Engineers won their suit and sought disgorgement of profits as a remedy. The problem with that is that Dewberry Group operates at a loss, due to the way it works in conjunction with a group of co-owned separately-incorporated affiliated companies. The affiliated companies each own a commercial property, and Dewberry Group provides (in exchange for a fee) services (financial, legal operational, and marketing) to generate rental income for the commercial properties. Dewberry Group is owned by John Dewberry, and he has at least partial ownership in the affiliated companies. The fees paid by the affiliated companies are set at a below-market rate such that Dewberry Group operates at a loss, propped up by cash infusions by John Dewberry, while the affiliated companies rack up large profits.
So when it comes to the Dewberry Group, there were little or no profits to be disgorged, as provided for in trademark law. 15 USC 1127(a) (“the plaintiff shall be entitled … to recover (1) defendant’s profits, (2) any damages sustained by the plaintiff, and (3) the costs of the action”). The District Court nonetheless found that the profits from the trademark infringement showed up on the books of the affiliated companies, and decided to treat the Dewberry Group and the affiliated companies as a single corporate entity for the purpose of disgorgement of profits. The result was an award of $43 million dollars, which was affirmed by the Fourth Circuit.
A unanimous Supreme Court vacated the award and sent the case back to the District Court. The statute refers to profits of “the defendant,” and here Dewberry Group was the only defendant – the affiliated companies were not parties to the suit. The separateness of corporations, even affiliated ones, is generally respected. While it is possible in some circumstances (particularly involving fraud) to “pierce the corporate veil,” finding liability of one corporation to fall upon related companies and/or their owners, Dewberry Engineers never attempted to make a showing to justify such piercing of the corporate veil.
Dewberry Engineers also tried to preserve the award by pointing to the “just-sum provision” in 15 USC 1117(a), which states that if “the court shall find that the amount of the recovery based on profits is either inadequate … the court may in its discretion enter judgment for such sum as the court shall find to be just.” But the Supreme Court turned away this defense for the award on the basis that the just-sum provision had not been cited by the lower courts as justification for the award.
The case was sent back to the District Court for a new Award of Damages. In doing so the Supreme Court admitted that they “leave a number of questions unaddressed.” Among these is whether Dewberry Engineers would succeed if they seek damages based on the just-sum provision. Also, the Court took no view on the proposal by the U.S. government (in an amicus brief) that a plaintiff in a trademark infringement case involving affiliated companies should be able to seek recovery of the “true financial gain” of the infringer, based on the economic realities of the transactions between related companies.