Supreme Court Overturns Nearly $43 Million Trademark Infringement Award Based on Section 35 of the Lanham Act

The U.S. Supreme Court’s opinion in the Dewberry Group, Inc. v. Dewberry Engineers Inc. case was released today. In a unanimous opinion, the Court found that Section 35 of the Lanham Act, which provides that a plaintiff can recover a “defendant’s profits,” only applies to profits of the defendant itself, not its unrelated corporate affiliates. As part of this ruling, the lower court’s nearly $43 million award from defendant Dewberry Group to plaintiff Dewberry Engineers was vacated, and the case was remanded for further proceedings.

In this case, a district court awarded Dewberry Engineers the profits of a non-defendant entity that shares a common owner with the defendant, but was not itself named as a defendant. The earlier courts seemed to justify reaching over to the profit-making entity of the company to disgorge its profits for public policy reasons, but as Justice Kagan observed on behalf of the majority, “the ‘defendant’s profits’ are the defendant’s profits, not its plus its affiliates’.” That said, both Justice Kagan’s majority opinion and Justice Sotomayor’s concurring opinion provided a bit of a road map for the plaintiff to move forward on remand, including by offering additional evidence to justify either (1) disgorging the profits of a non-named entity under Section 35, or (2) piercing the corporate veil to determine if a different profit figure better reflects the defendant’s financial position.

This outcome of this case was not surprising, but does continue to underscore a plain-text interpretation of the Lanham Act. Before bringing an action against an infringer under the Lanham Act, trademark owners should take care to understand the ways in which a non-affiliated entity’s profits still may come into play with proper evidentiary support, either under the “just-sum” provision in Section 35, or by piercing the corporate veil. We will be closely watching the outcome of this case on remand, to see how a lower court handles either of these justifications.