COMMERCIAL DISPUTE RESOLUTION AND LITIGATION

Directors’ liability in intellectual property disputes

Directors of companies can be held personally liable for the infringing activities of the companies they operate. However, the recent Judgment of the UK Supreme Court in Lifestyle Equities CV v Ahmed [2024] UKSC 17 reviewed the position and provided new tests for director liability in intellectual property infringement cases. The Supreme Court looked at how a director’s liability should be assessed, and whether an account of profits could be ordered against the director personally.

Director’s liability

The Supreme Court reversed the High Court’s ruling (upheld by the Court of Appeal) that a company director was jointly and severally liable for the company’s trade mark infringement. Just because a director is the controlling mind of a company does not make them automatically liable for the wrongs of the company and key distinctions need to be drawn in how to assess primary and secondary infringement. Where the director does not personally infringe but only procures or authorises the infringement or induces the company to infringe, they are not liable for primary infringement, but they can be liable as an accessory. Further, the elements of what needs to be proven to establish primary or secondary infringement are not the same.

In this novel approach, the Supreme Court ruled that the mental element required for liability as an accessory does not mirror that required for primary liability. Whilst knowledge is not relevant for establishing infringement by the company, liability being “strict”, knowledge is required for a director to be considered liable as an accessory to the infringement.

That means if a director does not themselves directly commit the infringement but they assist and authorise it, it needs to be proven that they have knowledge of the infringement and are not an innocent party. Knowledge in this respect does not mean knowledge of the law (ignorance of the law is not an excuse), but knowledge of the essential facts which make the act unlawful.

In Lifestyle Equities, the Claimant had not advanced a case of accessory liability and, accordingly, it was not possible for the court to rule on this point. As a result, the Supreme Court reversed the decision of the lower courts.

Account of Profits from Company Director

The Supreme Court also reversed the earlier decisions, that an account of profits made by the infringing company could be recovered from the director personally. This was based on the court’s findings that the director was an innocent accessory and that it was not possible to order an account of profits from an innocent party. The Judgment also looked at the rationale and justification of ordering an account of profits from company directors. It was held that profits made by a company from infringing activities, cannot be recovered from its director. Even if a director is personally liable for infringement, they can only be liable to account for the profits which they personally made from the infringements. The Supreme Court reversed the decision that the director’s salaries can be regarded as part of the company profit pool.

Conclusion

The Lifestyle Equities case shows that claims advanced against companies for intellectual property infringement may be different from the arguments that need to be advanced against their directors, where they act as accessories, even where they are the controlling minds behind the companies. Further, directors cannot be ordered to account for the profits made by their companies, and parties are better off seeking alternative remedies against directors.

For more information on intellectual property infringements or if you have any questions on issues covered in this update, please contact Associate, Beatrice Bass.

About the authors


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Beatrice Bass

Associate

Advises on all aspects of commercial dispute resolution, intellectual property and technology related disputes.

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