IP Infringement – What Is The Liability Of A Company's Directors To Pay The Profits Made By The Company From The Infringement?

To what extent can the directors of a company, which has been held liable for infringement of an IP right, be personally liable to pay to the IP right owner the profits wrongfully made by the company as a result of its infringing acts? That was the issue before the court in the latest hearing in the long-running case of Lifestyle Equities v Santa Monica Polo Club & others. The dispute relates to the Defendant company's sales of garments bearing the sign SANTA MONICA POLO CLUB, which were alleged to infringe the claimant's registered trade marks and to constitute passing off. In 2017, the Defendant company was held to have infringed the marks and to be liable for passing off. In a second trial held in February 2020, the court was required to determine whether i) the directors, who had been included as defendants, were jointly and severally liable for the company's acts of infringement, and ii) if so, what financial remedy should be ordered against the directors personally.

By way of legal background:

Whereas a company has a separate legal personality from its directors, a director can be held jointly liable for the company's acts of infringement if i) he/she authorised or procured the company's acts of infringement, or ii) he/she acted pursuant to and in furtherance of a common design to secure that the infringing acts took place; Defendants who are held jointly liable for infringing acts are jointly and severally liable for the damage thereby caused. That mean that, for example, if two defendants jointly cause £100,000 worth of damage, the claimant can recover the full amount from either of them; Following a finding of infringement, a rights owner can choose either damages (i.e. to reflect its own losses caused by the infringing acts), or an account of profits (i.e. to reflect the profits wrongfully made by the defendant by its infringing acts). In practice, to establish joint liability by individuals operating a company, it is necessary to be able to point to one or more specific individuals who authorised the acts or engaged in a common design with the company. For that reason, it is usually only feasible with smaller defendant companies, as decisions in larger companies are more typically made by a committee or board.

Adding directors as personal defendants prevents them from avoiding liability simply by winding up the company. If a director takes such a step, and the company has insufficient assets on winding up to pay the damages, the...