Only named defendants’ profits can be awarded in trademark suit, justices rule

OPINION ANALYSIS

The court’s decision in Dewberry was one of two opinions released on Wednesday. (Katie Barlow)

The issue in Dewberry Group v. Dewberry Engineers is whether a federal court calculating the defendant’s profits in a trademark infringement lawsuit can include all the profits of related entities in the same corporate group. Justice Elena Kagan’s succinct opinion for a unanimous court squarely rejected the lower court’s approach, ruling that profits only of the named defendant can be awarded.

Kagan noted that the statute on which the lower courts relied points to the “defendant’s profits,” and that in common parlance “defendant” refers to “the party against whom relief … is sought in an action.” Because Dewberry Engineers, which brought the suit, “chose not to add the affiliates” – which turned a profit –  as defendants in its lawsuit, she reasoned, their “profits are not the (statutorily disgorgable) ‘defendant’s profits.’” She emphasized that the justices “have often read federal statutes to incorporate” state-law principles that respect corporate identity, and that under those rules “[i]t is long settled … that separately incorporated organizations are separate legal units with distinct legal rights and responsibilities.”

Indeed, Kagan noted, the plaintiff “cannot, and so does not, contest those points.” Rather, Dewberry Engineers  presents a variety of other new arguments for why it might have been able to obtain a larger damages award. For example, “if the defendant diverted some of its earnings to an affiliate’s books,” a court might conclude that an award limited to the defendant’s profits is, in the words of the statute, “inadequate,” and thus “enter judgment for such sum as the court shall find to be just.” The problem, though, Kagan explained, is that this “is not a tenable take on” the decisions below, which never considered that portion of the statute.

For the same reason, though the United States suggests that courts in a case like this one might “pierce” the corporate veil to collapse all the entities into one, Kagan had no interest in pursuing that approach, which also was not presented to the courts below. Kagan emphasized repeatedly that the court’s holding was narrow, as the justices left it “up to the lower courts to decide” whether the plaintiff and the government could argue these new theories when the case returns to the lower court. “All we hold today,” Kagan stressed, “is that the courts below were wrong to treat Dewberry Group and its affiliates as a single entity in calculating the ‘defendant’s profits.” Dewberry Group is the sole defendant here, and under that language only its own profits are recoverable.”

This opinion is far more likely to find a place as a brief excerpt in casebooks on corporations than in materials on trademark law, as the narrow path needed for reversal of the lower court’s decision here says little or nothing the least bit novel or interesting about trademark law itself.