UK Supreme Court Judgment Finds Directors may not be Liable for IP Infringement Without Knowledge of Essential Facts

Earlier this month in Lifestyle Equities CV and another v Ahmed and another the Supreme Court of the United Kingdom held that the company directors of Hornby Street Limited, siblings Kashif and Bushra Ahmed, were not jointly liable with their company for trade mark infringement.

The Decision

Lifestyle Equities is the owner in the United Kingdom and European Union of the Beverly Hills Polo Club brand and trade marks and the Ahmeds were the directors of two companies that had been found to be infringing the Beverly Hills Polo Club trade marks through sales of their Santa Monica Polo Club clothing range.

Prior to this ruling, it had generally been understood to be the case that where a tort is a strict liability, such as trade mark infringement, liability as an accessory (for example, as the director of a company) was also strict. Therefore, directors could previously be held liable for infringements committed by their company, even when there was no evidence that they knew the trade mark infringement was occurring and had otherwise fulfilled all of their duties as a director in good faith. The Supreme Court instead held that it would be “unjust” for an individual director to be held liable, so long as that director was acting without “knowledge of the essential facts which make the act done wrongful“.

In the unanimous conclusion of the Supreme Court dismissing Lifestyle Equities’ appeal, Lord Leggatt stated “To justify the conclusion the Ahmeds were jointly liable with Hornby Street… it would have been necessary to show that the Ahmeds had knowledge of (or turned a blind eye to) the facts which made the use of the “Santa Monica Polo Club” signs by Hornby Street infringements of Lifestyle’s trademarks. But no such case was advanced and the judge made no such finding.”

In yet another blow to brand owners, even if the Ahmeds had been found to be jointly liable, it was held that they would only have been liable to pay to Lifestyle Equities the profits which they had personally made from the conduct, rather than the profits of any jointly liable party (in this case their dissolved company). Any other finding would be deemed to amount to a penalty.

Takeaways

Whilst the decision may come as a relief to company directors, those involved in brand enforcement and protection will need to consider the impact of the decision on how they strategically approach their matters.

Although this decision applies to the liability of directors generally and not just in cases of Intellectual Property infringement, brand owners will need to be aware of the risk that this decision could make it difficult to establish liability of directors of infringing companies, particularly when that company is small or has a sole director. When corresponding with infringers, brand owners should make sure that they make efforts to communicate with key directors early in the process, ensuring they are informed of and understand what infringement is, and the consequences of infringing. This is particularly important when the infringer is a small company due to the increased risk of the company being dissolved to avoid liability.

By Simon Casinader and Millie Pierce