Take Heed of Corporate Realities Because They May Save Your Business

Many fashion designers start out in the business by creating and selling goods under their personal names. They want to establish themselves in the industry and often believe the best way to do so is to release fashions bearing their legal names in the hopes that the public will learn to associate their moniker with quality garments and accessories. In doing so, these upstarts use their names as a trademark (i.e., using a name, phrase, symbol, or combination of the preceding to denote the source for particular goods). However, new and established designers should be careful not to conflate their trademark with the name of the legal entity that may own and produce the products identified by the trademark. Trademarks and legal entities are critical to growing and protecting a business, but they serve different purposes and afford distinct protections. As the case of Dewberry Group, Inc. v. Dewberry Engineers Inc., 2025 WL 608108 (U.S., Feb. 26, 2025) illustrates, adhering to corporate formalities may shield a business from liability it would otherwise have to pay.

Corporations and limited liability companies (LLCs) are legal entities or corporate fictions. They aren’t tangible or living beings, so they don’t actually exist. However, they can legally do some things people can do via the persons who control and own them, such as entering into contracts and possessing property. In most cases, legal entities also shield their owners from personal liability. For instance, an LLC that defaults on its commercial lease can be sued by its landlord for damages. However, unless some of the LLC’s members personally guarantee payment of the lease, only the LLC will be responsible for paying. Similarly, a corporation’s shareholders will generally not be personally liable for any court judgments issued against it.

A person or a group of people form a corporation or LLC in accordance with the laws of the state in which the entity is domiciled. Upon formation, the general rule nationwide is that the entity’s owners will not be personally liable for its debts, nor will its affiliates incur liability. But there are exceptions to the rule.

A legal theory called piercing the corporate veil allows a court to look past the legal fiction and hold the entity’s individual owners personally liable for the injury it causes. Courts look for the presence of several factors in order for the corporate veil to be pierced, such as a company’s failure to adhere to corporate formalities like having regular meetings, maintaining current and complete governing documents, and segregating personal and company funds. Certain violations may also enable a court to hold individual owners of a legal entity personally liable if permitted by statute, such as the entity’s failure to pay employees a minimum wage. Other theories exist in different jurisdictions, such as single economic entity and alter ego theory, that allow courts to hold corporate affiliates or subsidiaries liable for the parent company’s actions.

A trademark and legal entity may share the same name, but infringing one is not the same as infringing the other. A registered trademark grants its owner the exclusive national right to exclude all others from using a similar mark for related goods and services, and the owner is entitled to relief if a third party infringes that right. The existence of a legal entity generally bars a third party’s ability to recover damages from the legal entity’s individual owners or affiliated entities for harms caused by the entity.

In Dewberry, Dewberry Engineers Inc. sued Dewberry Group, Inc. for breaching the parties’ settlement agreement, which restricted the latter’s use of the former’s DEWBERRY trademark. The lower courts found in favor of Dewberry Engineers Inc. When it was time to calculate damages, the trial court learned that Dewberry Group was essentially penniless as its tax returns showed that it had been operating at a loss for decades. Dewberry Group was owned by John Dewberry, who also owned approximately thirty related corporate affiliates. John Dewberry kept Dewberry Group afloat through infusions of cash as needed. But where Dewberry Group had no money and was judgment-proof, the affiliates earned tens of millions through services that infringed Dewberry Engineers Inc.’s mark.

Dewberry Engineers sued only Dewberry Group and not any of Dewberry Group’s affiliates. So, the lower courts were faced with a dilemma: How to fashion a remedy for a plaintiff for trademark infringement violations characterized by the courts as “intentional, willful, and in bad faith” where the defendant has been clever enough to deposit all monies earned from the infringement into the accounts of affiliates owned by the defendant?

The courts found that it would be inequitable and unjust to allow Dewberry Group to escape having to pay damages to Dewberry Engineers because it was destitute when the “economic realities” showed that one man controlled Dewberry Group and its affiliates, and it was he who was responsible for and profited from the trademark infringement. Accordingly, the district court grouped all profits earned by the defendant and its entities engaging in the infringement and awarded Dewberry Engineers nearly $43 million, and the circuit court affirmed. Dewberry appealed to the Supreme Court, which issued its decision in February of this year.

The Supreme Court, although sympathetic to Dewberry’s position and understanding of the lower courts’ dilemma, vacated the judgment. Construing the statute’s plain meaning in question, the Court found that the statute allowed the lower courts to confiscate the profits of only the “defendant.” The lone defendant in the case was Dewberry Group, not Dewberry Group and its affiliates. Although the relationship between John Dewberry, the Dewberry Group, and the Dewberry affiliates was not arms-length, and they all appeared to be engaged in a common enterprise, the Court ruled that they were each discrete entities not responsible for the debts of the other under the statute or traditional corporate law principles. Consequently, neither John Dewberry nor the affiliates had to pay the judgment. He and his wholly-owned affiliates profited from rampant trademark infringement because he understood the importance of maintaining separate corporate identities. Inexplicably, the plaintiff never argued any of the exceptions above to pierce the corporate veil to prevent corporate formalities from shielding fraudulent conduct.

The takeaway from the case for fashion designers is to understand the difference between trademarks and legal entities and adhere to corporate formalities in order to receive the protection provided by such entities. Cover your bases if you’re a plaintiff suing a defendant for trademark infringement. In addition to naming the company that owns the trademark those conflicts with yours, it may be a good idea to name any individuals and related entities that facilitated, induced, or benefitted from the infringement. As a potential defendant, you want to avoid personal liability. Hence, you may want to use your personal name as a trademark but not necessarily as the owner of your brand. Instead, your brand could be owned by a corporation or LLC, and you could use your name as a DBA. So, the public would associate your wares with you individually. And suppose a company were to sue you for trademark infringement. In that case, they might only go after the company that owned the mark according to the Trademark Office’s database, potentially leaving your personal finances and those of any corporate entities affiliated with the trademark’s legal owner unscathed.