Case Analysis: Tangle v One For Fun

• Jurisdiction: European Union
• Law Firm: Dehns
• Subject Matter: Corporate/Commercial Law, Intellectual Property, Corporate and Company Law, Directors and Officers, Copyright
• Author: Lauren Palmer
• Published date: 02 March 2023

Intellectual Property infringement and director's liability

Summary

A well-recognised benefit of establishing a limited liability company is that it offers a degree of protection from third party claims to directors (and shareholders) with responsibility for running the company. However, in IP infringement actions, a tactic frequently deployed is to make directors co-defendants on the basis of a joint tortfeasorship claim. Naturally, this begs the question: how much protection does a company structure really offer?

There is a fine balance to be struck between, on the one hand, ensuring that a company's separate legal identity is properly recognised and, on the other, precluding directors from committing tortious acts and avoiding liability by hiding behind the so-called 'corporate veil'.

This decision considers directors' liability in the context of a copyright infringement claim, and provides an indication as to what might be regarded as sufficient to 'lift' or 'pierce' the corporate veil in these circumstances, and what likely will not.

Written by Lauren Palmer, Legal Assistant at Dehns.

Tangle Inc v One for Fun Ltd & Ors [2023] EWHC 217 (Ch)

Case background

The Claimant ('Tangle') owns intellectual property rights in its toy, the Tangle (which is a 'fidget' toy), the design of which is based on a wooden sculpture created by Richard Zawitz in or around 1975, which in turn was based on his earlier drawings. The Defendant company ('OFF') is a well-established Scottish toy wholesaler and retailer.

Tangle brought an action alleging that a toy OFF planned to market - the Jumbly - infringed their copyright in the Tangle. It was contended by Tangle that OFF had previously been involved in selling the Tangle, a product well-known in the marketplace, and on the basis that the Jumbly bears such a strong resemblance to the Tangle, it must be a copy.

A joint tortfeasorship claim was also brought against OFF's three directors. The claim against the first director (who was the Second Defendant) was because he was also the principal shareholder. Tangle alleged that if unrestrained, the directors would engage in 'phoenixing' i.e. they would set up another company behaving in the same way. The evidence of the Second Defendant's personal involvement was based on an email he sent in pre-action correspondence, in which he used 'we' in the context of a decision to make the Jumbly and upon what that toy was based on. Nothing was specifically relied on to support the claim...