Directors’ Liability for Trade Mark Infringement

Hornby Street Ltd (Hornby Street) is a manufacturer of clothing, footwear and headgear. They sold various items bearing logos with the words ‘SANTA MONICA POLO CLUB’ and pictures of polo players on horses. Lifestyle Equities CV and Another[1] (Lifestyle) own trade marks featuring a polo player on a horse and the words ‘BEVERLY HILLS POLO CLUB’. Lifestyle sued Hornby Street alleging that the use of the ‘SANTA MONICA POLO CLUB’ signs infringed Lifestyle’s trade marks. Lifestyle also sued two directors of the company personally, claiming that they were jointly liable with Hornby Street for the infringements.

High Court and Court of Appeal decisions

The High Court trial judge found that the use of the ‘SANTA MONICA POLO CLUB’ signs by Hornby Street infringed Lifestyle’s trade marks. The judge determined this infringement occurred because the signs were sufficiently similar to Lifestyle’s ‘BEVERLY HILLS POLO CLUB’ signs, giving rise to a likelihood of confusion on the part of the public. Additionally, the judge found that such use took unfair advantage of, and was detrimental to, the distinctive character and reputation of Lifestyle’s trade marks. The judge also held that the directors were jointly liable with Hornby Street on the grounds that:

1. They had procured the infringements of Lifestyle’s trade marks, and
2. The infringements were committed as part of a common design.

Hornby Street had been dissolved since the infringements took place. Lifestyle claimed an account of profits from the directors personally. While the directors were not liable to account for the profits made by the company, the judge held they were liable to account for profits which they had themselves made from the infringement. The judge apportioned 10% of their salaries during the relevant period to such profits.

This decision was upheld on appeal. Both parties appealed the decision to the UK Supreme Court.

UK Supreme Court decision

The Supreme Court overturned the decision. It noted that the directors were not aware of the essential facts which made the use of the ‘SANTA MONICA POLO CLUB’ signs by Hornby Street wrongful. For example, they were unaware of the trade marks until notified by Lifestyle of their existence. In those circumstances, the court held that the directors could not be liable either for procuring the infringement of Lifestyle’s trade marks or by participation in a common design.”

Liability for infringing a trade mark is strict. This means that there is no need to prove knowledge or fault of the defendant. However, in this case, it was not the directors who had infringed Lifestyle’s trade marks. The sale of goods and other infringing acts were carried out by Hornby Street in the course of business. The claims against the directors were that they were liable as accessories, either because they procured Hornby Street to infringe the trade marks or they participated in common design with the company to do so.

The UK Supreme Court has now clarified that, when the offending act is one of strict liability, it does not necessarily follow that liability as an accessory is also strict. The court felt that it was unjust to hold an individual whose act causes another person to commit a wrong jointly liable as an accessory if the individual was acting in good faith and without knowledge of facts which made the act wrongful. The finding relates to any person and not specifically company directors.

Account of profits

The court also clarified that, even in the event the directors could be found liable, the directors could not properly be ordered to account for the profit made by Hornby Street from the infringement. A wrongdoer cannot be required to pay over profits which somebody else has made. It was found that such an order would amount to a penalty or fine which is not the purpose of the remedy. Instead, an order for an account of profits is intended to be compensatory in nature. The court also found that the trial judge had been wrong to treat any part of the directors’ salaries as profits particularly as there was no evidence that their salaries were anything other than ordinary remuneration for their services.

Position in Ireland

Comparisons can be drawn between this case and the Irish case of Tommy Hilfiger v McGarry[2]. In that case, the relevant companies had ceased trading with substantial debts. Mr McGarry had since formed another company. In contrast to the current case, Mr McGarry was considered to have knowledge of the relevant facts as he was found to have procured, directed and carried out the wrongful acts. As such, the question of strict liability did not arise. Mr Justice Carroll of the High Court had no hesitation in making an order personally against Mr McGarry in those circumstances. The Court relied on the UK decision of MCA Records Inc. & Ors. v. Charly Records Limited[3]. In that decision, the court found that there is no reason why a person who happens to be a director or controlling shareholder of a company should not be liable with the company as a co-defendant if his/her participation or involvement goes beyond the exercise of constitutional control.

The MCA Records case was discussed in detail by the UK Supreme Court. The Supreme Court agreed with the finding that a director may be liable with the company as a co-defendant as a result of acts which go beyond the exercise of constitutional control, as happened in McGarry. However, they went a step further and added that there is equally no reason why the individual should escape liability if he does procure those same acts through the exercise of constitutional control. As a result, the UK Supreme Court decision remains consistent with the position in Irish case law that it is unjust to hold a director personally liable for acts done in the ordinary course of performing the director’s role which cause the company to commit a tort, if the director has not acted wilfully or knowingly. However, in the context of a willful and knowing director, the UK Supreme Court has made comments which arguably expand the scope of liability. It will be interesting to see how case law further develops in this area should those facts arise.

Conclusion

This decision will come as a disappointment for brand owners in the UK. They will be restricted in their ability to seek remedies from directors for the infringement of their IP. This is especially true in cases where the company has since dissolved. Without an avenue for liability against the directors in these instances, the brand owners may be left with no remedy for the infringement of their IP.

It remains to be seen whether the Irish courts will follow all of the findings in this case. UK case law is not binding before the Irish courts but can be relied upon as persuasive authority.

For more information and expert advice, contact a member of our Intellectual Property team.

The content of this article is provided for information purposes only and does not constitute legal or other advice.

[1] Lifestyle Equities CV and another v Ahmed and another [2024] UKSC 17 on appeal from [2021] EWCA Civ 675

[2] [2005] IEHC 66

[3] [2003] 2 BCLC 93