Justices’ Look at ‘Dewberry’ Award to Reach Beyond Trademark Law

The US Supreme Court’s recent decision to review a $43 million trademark infringement award—and the Fourth Circuit’s interpretation of “principles of equity"—carries implications far beyond intellectual property law.

Dewberry Group Inc., owned by Atlanta real estate developer John Dewberry, convinced the justices earlier this week to review the award. Tying the amount to the profits of Dewberry Group affiliates violates the “bedrock principle” of treating different corporations as separate entities, the company’s petition said.

The lower courts held the Lanham Act language allowing for disgorgement of profits “subject to the principles of equity” justified the award to Dewberry Engineers Inc. for trademark infringement.

Dewberry Engineers called the case “almost tailor-made for the Lanham Act’s unique discretionary language.”

But IP law isn’t the only area of law where principles of equity are invoked, said professor Samuel L. Bray of the University of Notre Dame Law School. Similar provisions guide remedies under statutes covering employment, securities, and various other areas of the law, he said.

While “equity” is synonymous with “fair,” a distinct body of law limits the breadth of judicial discretion in questions of equity, said Bray, who co-wrote an amicus brief urging the justices to take the case. The US Court of Appeals for the Fourth Circuit failed to properly analyze the case under that long-established equity doctrine, and letting its decision stand could undermine legal precedent, he said.

“The Supreme Court has taken a consistent line that references to ‘equity’ in a statute do not just mean free-wheeling, ‘what feels good in the case,’” Bray said. “What the Fourth Circuit did in this case was the free-wheeling, ‘what seems right,’ untethered analysis.”

The limit on the principle of equity in the Dewberry case is the fundamental idea of corporate separateness, that one corporate entity won’t be held liable for the actions of another. The Fourth Circuit didn’t analyze whether Dewberry Engineers “pierced the corporate veil,"—whether the firm established the distinction between entities should be ignored here—Bray said.

It’s not surprising the justices took the case, “given the potential implication” in other areas of the law, David Martinez, a commercial and IP attorney with Robins Kaplan LLP, said in an email.

“The petition gives the Supreme Court an opportunity to define the contours of the federal courts’ equitable powers under the Lanham Act and clarify whether Dewberry should apply in other contexts,” he said.

‘Red Flags’

The dispute began in 2006, when Dewberry Capital Corp. sent a cease-and-desist letter to Dewberry Engineers over use of the name. Dewberry Engineers sued, noting it had operated in the real estate sector under Dewberry trademarks since the1950s. The parties reached a 2007 settlement that restrained Dewberry Capital’s use.

When Dewberry Capital decided to rename itself Dewberry Group in 2017, it proceeded with the rebrand while ignoring several “red flags,” the Fourth Circuit said. Dewberry Engineers sued in the US District Court for the Eastern District of Virginia, won summary judgment on contract and infringement claims, and ultimately was awarded $43 million in damages after a bench trial.

A split Fourth Circuit panel said Dewberry Group admitted it provides accounting, human resources, and legal services for its affiliates—also owned by John Dewberry. Its employees have promoted, managed, and operated affiliates’ properties. The panel thus validated the lower court’s refusal to “ignore the economic reality” and let Dewberry Group evade consequences for its “willful, bad faith infringement.”

“A district court’s grant of profit disgorgement is ‘subject to the principles of equity,’ and is ultimately a matter of the court’s discretion,” the majority opinion said. “Admonishing courts for using their discretion in this fashion risks handing potential trademark infringers the blueprint for using corporate formalities to insulate their infringement from financial consequences.”

But dissenting Circuit Judge A. Marvin Quattlebaum Jr. said Dewberry Engineers could have sued the affiliates or otherwise established that the entities were in fact one. “I know of no law” that lets courts “disregard those options and simply add the revenues” of a nonparty to calculate a defendant’s profits for damages purposes, he wrote.

‘Pretty Serious Implications’

The case has “pretty serious implications for holding companies, where they have an entity that’s providing services to their sister entities,” IP attorney Evan Everist of Dorsey & Whitney LLP said.

If the high court upholds the idea of looking at “the whole package,” it would make it harder for corporations to “shelter assets and mitigate risk” by assigning that risk to different entities, he said.

The high court’s answer will primarily revolve around its statutory analysis of the Lanham Act, Everist said.

“Other laws about corporate veil-piercing—they may have an influence” on the justices’ ultimate decision, Everist said. But the justices “may be more focused on ‘what does the statute say,’ ‘did the court act within the bounds of the statute,’ and whether equitable relief was appropriate based on the facts.”

The Supreme Court tends to focus on the legal analysis of lower courts, but it could possibly find the underlying facts establish that the corporate veil was properly pierced—even if Dewberry Engineers’ argument and the courts’ analysis didn’t frame it that way, said business and IP attorney Katie Charleston of Katie Charleston Law PC. But excusing flawed legal analysis based on a factual analysis is not the likeliest outcome, she said.

“It could find the corporate veil was effectively pierced, even though the lower court didn’t spell it out,” Charleston said. “Whether this court will is another question. I think the interpretation of the lower courts will be analyzed to see if it’s correct.”

The Lanham Act, like other statutes with similar language, refers to the broader principles of equity and not open-ended discretion, Bray said. Provisions like it appear in employment statutes, laws authorizing the Securities and Exchange Commission and Consumer Financial Protection Bureau, the Patent Act, and the Copyright Act, among others.

Liu v. SEC—a 2020 securities opinion—and Starbucks Corp. v. McKinney—a labor law case decided two weeks ago—are recent examples of the Supreme Court reiterating that statutory references to “principles of equity” are bound by longstanding doctrine, Bray said.

“There’s a real risk of contagion if courts of appeal begin to interpret equitable relief as broad discretion rather than equitable principles,” he said.

The case is Dewberry Group Inc. v. Dewberry Engineers Inc., U.S., No. 23-900.