Updates on Trademark Infringement Damages

By Wei Wei Jeang

In Dewberry Group, Inc. v. Dewberry Engineers Inc., the U.S. Supreme Court recently addressed an important question under the Lanham Act:

When a trademark owner prevails in proving trademark infringement, whose profits may be recovered as damages?

The Court ruled that profit recovery under the Lanham Act (15 U.S.C. § 1117(a)) is limited to the profits of the defendant that actually engaged in the infringing conduct. Courts may not automatically award profits earned by affiliated, parent, or downstream entities unless those entities themselves are legally responsible for the infringement. Unfortunately for the trademark owner, this decision vacated a $43 million profit disgorgement award.

Dewberry Group, the sole defendant sued by the trademark owner reported no revenue. All profits were generated by real estate holdings of companies affiliated with the defendant. The district court attempted to work around this by treating the defendant and its affiliates as a single corporate entity and aggregated their profits. A divided U.S. Court of Appeals for the Fourth Circuit panel affirmed, citing the “economic reality” of the defendant’s operations as justification for treating the defendant and its non-party affiliates as a single corporate entity for purposes of calculating damages. However, the Court said no by a unanimous holding.

For trademark owners, the lesson of the Dewberry case is to be sure to name all the affiliated companies in the corporate family that are suspected of trademark infringement. This may mean more extensive due diligence about the infringer's corporate structure and forensic analysis of how revenue is generated by the companies. In other words, trademark owner's counsel must follow the money trail to ensure the lawsuit names all of the defendants involved in generating revenue from infringement activities.