Alastair Shaw, a lawyer at Hogan Lovells, wrote that the Supreme Court has rewritten the litigation process in a way that provides relief to the directors and employees of infringing companies.
The Supreme Court's decision is Lifestyle Equity v Ahmed amends principles established by lower courts and will have an impact not only on intellectual property infringement cases, but also on other tort cases.
The court held that a person who causes another person to commit a tort is only jointly and severally liable for the tort only if he or she knows the material facts that make the act illegal.
Lord Leggatt explained the court's judgment as follows:All considerations regarding principles, powers, and analogies with the doctrine of collateral liability in other areas of private law suggest that the essential nature of the tort is necessary to justify imposing joint and several liability on persons who have not actually committed the tort. This supports the conclusion that knowledge of specific characteristics is required.”
He further stated that the same is true in cases where the tort itself does not require such knowledge, as in the case of infringement of intellectual property rights.
New IP Litigation Handbook
In this case, the Court of Appeal and the High Court held that two directors of the infringing company (Ahmed Ltd) were jointly and severally liable with the company (Hornby Street).
By overturning these decisions, the Supreme Court effectively rewrote the strategy by which intellectual property owners bring lawsuits against corporations and the individuals who “control” them.
Although this is not an uncommon strategy and it seems unlikely that the infringing company will provide adequate financial compensation to the intellectual property owner, the individuals involved may have skimmed the ill-gotten profits for themselves. there is. Alternatively, there may be concerns that individuals will simply fold up their companies and set up shop under the guise of a new legal entity.
Previously, plaintiffs had only to prove, as a causal link, that an individual defendant's conduct caused the defendant company's infringement.in lifestyle v ahmed The act was to provide instructions for manufacturing, stocking, and selling products that showed signs of violation.
Judges and the Court of Appeal have held that for strict liability torts, such as trademark infringement, incidental liability is based on the fact that the act of the principal actor (in this case the company) was or could be an infringement. I took the view that it does not depend on perception. Rather, they considered it sufficient that the defendant intended the principal actor to do what was considered an infringement.
Applying its findings regarding the law of incidental liability, the Supreme Court held that the justices failed to recognize that there was a potential for confusion between the “Santa Monica Polo Club” sign used by the Ahmeds. , or pointed out that they should have been aware of that possibility. The company and Lifestyle's “Beverly Hills His Polo Club” mark (or perhaps they knew of its existence even before they started using it, about six years later).
Further, it is not found that the Ahmeds did not know (or should have known) that the use of the “Santa Monica Polo Club” sign would adversely affect the reputation of Lifestyle's marks.
Both Mr and Mrs Ahmed were held jointly and severally liable for the company's infringement as these were “essential features” of a statutory tort under section 10(2) and 10(3) of the Trade Marks Act 1994. I didn't have the knowledge necessary to do so. Based on the principle of incidental liability of “procuring infringement” or “participation in a common design”.
No more exceptions for directors of MCA Records
The Supreme Court struck down the court's narrow exception to liability for corporate directors who merely exercise their directorial functions through the company's constitutional structure in enacting the law on collateral liability for non-strict liability torts. I made it. his famous MCA Records case appeal in 2001;
This exception was rejected by the court. The reason is that it is a general principle that individuals are liable for their tortious acts, and the liability of those who seek to argue that directors should be exempted from this general rule is limited by any such exception. This is because it is the responsibility of identifying the fundamental basis. Lord Leggatt insisted that no such thing existed.
“Use in the course of trade”: Supreme Court opinion
In analyzing the issues before the appellate court, the Supreme Court first considered whether the Ahmeds themselves were (directly) responsible for the infringement, and that they were the only ones using the infringing signs in the course of their transactions. Therefore, it was concluded that there was no liability.
The court noted repeated clarifications by the court. Court of Justice of the European Union (CJEU) stated in its decision that “use in the course of trade” means “in the context of commercial activities aimed at economic gain and not as a private matter”.
The Supreme Court commented on this in its judgment, noting that it does not simply refer to a person performing a function that involves acting on behalf of an employer, but also to a person who is trading for his or her own economic benefit. He explained that pointing to something makes it more natural for people to understand. Purchasing, selling, and providing sales.
Can an employee violate the law?
The court found that the Ahmeds themselves did not infringe, rejecting in its entirety Lifestyle's argument that its employees could personally infringe the trademark through their professional conduct.
The court held that it would be unreasonable to impose personal liability on such individuals (e.g., a store employee who displays merchandise marked with a violation mark while on duty or who has finished selling such merchandise to a customer). He said there is. counter).
This will expand it.A network that imposes stricter liability than is necessary or reasonable to protect the rights of the trademark owner.”.
Section 10 of the Trademarks Act did not have sufficiently clear language to this effect, but a more natural and reasonable interpretation is that Section 10 does not apply to individuals as employees or agents of someone. It refers to actions that are taken at one's own risk. other than that.
Impact on other IP litigation
In counterfeiting and some copyright cases, it may be relatively easy to establish the necessary knowledge.
For example, in situations where an individual defendant knows (or is blind to) that the company does not own the copyright or has not obtained a license from the owner, Accessory liability may be clearer when communicating to the public.
On the other hand, in trade secret cases, lifestyle v ahmed This demonstrates that in trademark litigation, it can be difficult to establish an individual's knowledge of the necessary facts prior to the commencement of litigation, which in some cases may take all the way to trial.
For example, in trade secret litigation, in order to indemnify an individual who has incidental liability based on a common design with another person, the claimant must have knowledge of the claimant's misappropriation of the trade secret. You need to prove that you did. given project.
In either case, comprehensive demand letters, which aim to establish the necessary knowledge in the minds of those involved before the start of legal proceedings, are likely to receive even more attention in the future. This is for practical liability reasons, in addition to the pre-litigation conduct obligations required by the Civil Procedure Rules.
Reach through to salary?
The Supreme Court ruled that the Ahmeds were not jointly and severally liable, but if they were, Lifestyle would have to pay a portion of their salaries as part of the profits they earned from Lifestyle. We continued to consider whether there was a need to pay. infringement.
The High Court and the Court of Appeal held that 10% of salaries should be treated as such, but the Supreme Court disagreed.
While payments ostensibly made as remuneration may in some cases be a means of extracting profits from a company, in this case there are allegations and evidence that the salaries paid to Mr. and Mrs. Ahmed were nothing more than regular remuneration. The court found that there was no finding. for their service.
Therefore, they should not have been treated as profits arising from the company's infringement.
IP external impact
A detailed review of previous authorities and the reasons that led to this decision is beyond the scope of this commentary, but will be covered in a future report.
Suffice it to say here that the Court's comprehensive judgment is of great importance and influence across a number of causes of action, and of particular interest to directors, employers, employees and their advisors.
alastair shaw I am an intellectual property attorney at Hogan Lovells.