Fourth Circuit affirms that disgorgement of profits is an appropriate remedy for breach of contract

In Dewberry Engineers v Dewberry Group, a trademark infringement and breach-of-contract case involving real estate companies with a shared name, the US Court of Appeals for the Fourth Circuit affirmed summary judgment in favour of the trademark owner, including almost $43 million in profit disgorgement (22-1622; -1845 (Fourth Circuit, 9 August 2023).

Dewberry Engineers and Dewberry Group (formerly Dewberry Capital) operate in the same states and both provide commercial real estate services. Dewberry Engineers started in the mid-1950s as a civil engineering and surveying firm in northern Virginia. Over time, its business expanded to include real estate development services, such as architecture and site development. Dewberry Group provides similar services through its affiliates, including the Dewberry Hotel in Charleston, South Carolina.

Background to the dispute

In 2006, Dewberry Group sent Dewberry Engineers a cease-and-desist letter, asserting that Dewberry Group had “senior common law rights” to use the word ‘Dewberry’ in real estate. In response, Dewberry Engineers sued Dewberry Group for infringing its federally registered DEWBERRY mark. That litigation ended in 2007 when the parties entered a confidential settlement agreement. Among other things, the agreement stated that Dewberry Group:

• would not challenge Dewberry Engineers’ trademark registrations;
• could use ‘Dewberry Capital’ except in enumerated geographical areas where it instead must use ‘DCC’; and
• would use no logo other than its column logo.

In 2017 Dewberry Group rebranded and attempted to register DEWBERRY GROUP and other marks, which the USPTO repeatedly rejected.

The case

In 2020 Dewberry Engineers filed suit claiming breach of contract and trademark infringement under the Lanham Act and Virginia common law. The district court granted summary judgment to Dewberry Engineers on the contract claim, finding that Dewberry Group had violated the confidential settlement agreement by changing its logo. The court also granted summary judgment to Dewberry Engineers on its trademark infringement claim, finding that Dewberry Engineers’ mark was not only valid but incontestable as it had been in continuous use for more than five years. The court also found that the likelihood-of-confusion factors favoured infringement.

The district court issued a permanent injunction against Dewberry Group’s use of ‘Dewberry’ and granted Dewberry Engineers its attorneys’ fees and profit disgorgement. Because the court believed that the tax information Dewberry Group provided failed to show the true “economic reality” of the close relationship between it and its affiliates, the disgorgement calculation also included some of the affiliated companies’ profits. Dewberry Group appealed, challenging the summary judgment grant, the permanent injunction and the monetary awards.

The Fourth Circuit began by noting that there was “uncontroverted evidence” that Dewberry Group used the DEWBERRY trademark, used a logo other than its column logo and failed to use ‘DCC’ in restricted areas, all of which breached the undisputedly valid agreement.

It next addressed the trademark infringement claim. The court rejected Dewberry Group’s argument that it had priority for the DEWBERRY mark, explaining that while incontestable marks may be challenged by prior use, the agreement explicitly foreclosed any validity challenge. Turning to the six likelihood-of-confusion factors that the district court found evidenced infringement, the Fourth Circuit agreed on each:

• mark distinctiveness – the DEWBERRY mark was not descriptive, despite being a surname, based on the USPTO’s rejections and because dewberry is a fruit;
• mark similarity – the marks were very similar because they shared the “dominant and distinctive term ‘Dewberry’”;
• service similarity – the services that the parties offered were – at a minimum – related and complementary;
• advertising similarity – the geographical reach and content of ads were similar;
• intent – the defendant had knowledge of the plaintiff’s marks via letters and the confidential settlement agreement; and
• confusion – the plaintiff’s survey data was strong evidence of actual confusion.

Thus, the court affirmed both grants of summary judgment.

Turning to remedies, the Fourth Circuit also upheld the permanent injunction because it “merely enjoins Dewberry Group from violating the terms of the CSA”. The court also found that most disgorgement-of-profit factors weighed in favour of the award. Most notably, Dewberry Group pursued rebranding despite many red flags signalling infringement, and its dubious reputation was harming Dewberry Engineers. Further, while the permanent injunction would address future harms, profit disgorgement was required to “make Dewberry Engineers whole for the damage already done”. The court explained that it was in the public’s interest to make “[Dewberry Group’s] misconduct unprofitable”.

The court also affirmed the decision to reach Dewberry Group’s affiliates’ profits, finding no abuse of discretion and noting that Dewberry Group failed to “carry its burden” to show that affiliate companies’ profits were not attributable to the infringement. Finally, the court found sufficient evidence that Dewberry Group’s bad faith supported an award of attorneys’ fees.

Judge Quattlebaum dissented on two grounds. He first argued that trademark infringement is “inherently fact-based” and therefore should have gone to a jury. Second, he argued that the district court’s disgorgement-of-profits analysis was inappropriate for reaching the affiliated companies. He explained that if the affiliated companies participated in the infringement, they would be subject to the Lanham Act and Dewberry Engineers should sue them. Since the affiliated companies were separate corporate entities, he believed the district court’s consideration of revenue from those non-parties was incorrect as a matter of law.