Infringing intellectual property rights

The corporate veil will not always protect a director from liability

The recent decision in Lifestyle Equities v Ahmed is a useful reminder that IP infringement is a “strict liability tort” where a company director can also be personally liable for the infringing actions of his/her company – in particular, a director may be liable for an account of profits and it will be no defence to show that he/she had no improper motive or was unaware that the relevant acts amounted to IP infringement. 

In most cases, breaches committed by a corporate entity will only result in liability for that entity and any directors, employees and shareholders will be protected from legal liability due to the operation of the corporate veil.  This is not the position in IP infringement cases where it can be showed that individual director either contributed to or procured the infringing acts. Moreover, the recent Court of Appeal comments show that the bar is set at a low level in relation to what directors must do to be personally liable for IP infringements committed by their company.  

Here, Lifestyle Equities started legal proceedings against a number of defendants in relation to trade mark infringement.  The defendant company was held liable but soon after judgement went into administration and had no assets to meet the damages awarded.  This prompted a secondary action by the claimant against two directors of the defendant company on the basis that the directors had been part of a “common design” and so should also be held liable.  The Court agreed on the facts and confirmed that the lack of improper motive or knowledge of infringement were no defences.  A director will be seen as an accessory to the company’s IP infringement and so liable unless he/she is only carrying out the constitutional duties of a director, such as attending/voting at board meetings and exercising powers delegated by the company.  Any activity going beyond this and contributing to the IP infringement is likely to lead to personal liability.  

What the court decided

The Court held that the directors were liable for damages and had to account for the profits they had made personally – in this particular case, the Court felt that the facts showed that 10% of their salaries could be attributed to the IP infringements and so Lifestyle Equities was entitled to this sum from each director.  The amount that the court will award by way of an account of profits will ultimately be a factual question, decided on the evidence available at the trial so in suitable cases this percentage could be higher..  

The moral of this decision is that directors at a company should take care in order to assess whether any acts they take may lead to IP infringement: any acts they carry out which are not purely “constitutional” and contribute to the infringement could lead to their personal liability and an account of profits against them personally.  Directors beware as it is not only their company that is in the firing line!