Supreme Court considers the scope of directors’ liability for trade mark infringement

The Supreme Court has considered the scope of directors’ liability as an “accessory” for causing a company to commit a strict liability tort (in this case, trade mark infringement) in its recent decision of Lifestyle Equities v Ahmed.

Background

The claimants, “Lifestyle”, had brought various trade mark infringement proceedings in respect of their “Beverly Hills Polo Club” mark. This included against two family-owned companies – Continental Shelf 128 Ltd and Hornby Street Ltd. Siblings Kashif Ahmed and Bushra Ahmed were both directors of Hornby Street.

In early proceedings, Hornby Street was found liable for trade mark infringement and passing off.

In a second proceeding, the Ahmed’s, together as directors of Hornby Street, were found jointly and severally liable for the infringing acts of Hornby Street as accessories on the basis that they had authorised or procured the infringement by the company and participated in a common design with each other or the companies to commit infringement. This was the case even though the Ahmed’s maintained they had no improper motive or intention to infringe Lifestyle’s marks.

The Ahmed’s were also ordered to account for profits which they had personally made from the infringements – being 10% of the Ahmed’s’ respective salaries relating to the relevant infringing period. 

The Court of Appeal dismissed the Ahmed’s appeal, along with various other points raised by Lifestyle, and the parties subsequently appealed to the Supreme Court.

Decision

The key question the Supreme Court needed to address was whether it was correct that where the underlying liability is strict (i.e., in the case of trade mark infringement, there is no need to prove knowledge or fault), was accessory liability also strict? Or, does a rightsholder need to prove some kind of knowledge or other mental state to make an accessory liable?

Further, if the Ahmed’s were jointly liable as accessories to the infringement, what was the appropriate award to Lifestyle? 

In its 60-page judgment (which analysed the law on accessory liability across various jurisdictions in great detail), the Supreme Court concluded the following:   

• when a wrong is of strict liability, it does not follow that liability as an accessory must also be strict, so that no proof of knowledge or mental element is required;
  
  
• rather, knowledge of the “essential facts” of the wrong is necessary to justify imposing liability on someone who has not actually committed the tort;
  
  
• so, in this case, whilst Hornby Street was found primarily liable for trade mark infringement, the Ahmed’s, as directors, did not have the requisite knowledge to be found liable for accessory liability; for example, they did not know or appreciate there was a likelihood of confusion or that they were taking unfair advantage of Lifestyle’s marks, and causing detriment to their distinctive character. The Courts below were, therefore, incorrect in finding the Ahmed’s jointly and severally liable with Hornby Street for the infringement;
  
  
• as for the account of profits, the Ahmed’s were not liable to account for profits, given the finding that they were not personally liable. However, in any event, the Supreme Court noted that it was incorrect of the Courts below to conclude that the Ahmed’s salaries were considered “profits”. There was no evidence that their salaries were anything other than normal remuneration for their services at a fair market value.

Comment

This judgment has been described by some as surprising and will arguably make it harder for rightsholders to prove that a company’s directors are personally liable for a company’s infringement.

Ultimately, rightsholders will need to demonstrate that a director had sufficient knowledge of the essential facts of a company’s wrong – and what “knowledge” is required remains unclear - particularly when differences of opinion/circumstances are likely to exist in relation to each infringement.

However, the Court was equally clear that directors are not immune from legal liability simply because the company is regarded as a separate legal person. Therefore, directors should remember that they cannot rely on (or abuse) the corporate veil and should be mindful of how their actions (or indeed lack of action when having “knowledge” of a potential infringement) could impact their personal liability.  

If you need to speak to our Trade Mark team, please contact us at mail@stratagemipm.co.uk.