Limits on director liability for trade mark infringement confirmed in the UK

The UK Supreme Court clarified the point in a ruling issued on Wednesday morning in which it accepted an appeal raised by two company directors, Kashif Ahmed and his sister Bushra Ahmed, against earlier rulings by the Court of Appeal and High Court in England and Wales. The lower courts had held the Ahmeds were jointly liable for trade mark infringement that two family-owned companies they were respectively directors of had committed.

Lifestyle Equities, which owns and licences rights to UK and EU trade marks for clothing brands, had sued the Ahmeds, alleging that, in their director roles, they had authorised or procured the companies to perform the infringements or had engaged in a common design with each other or the companies to cause them to infringe.

Both the High Court and Court of Appeal had considered that the Ahmeds’ close involvement in the infringing activities of the company was sufficient to make them liable for trade mark infringement of their companies. Those courts considered that the Ahmeds’ state of mind was irrelevant to the question of liability.

However, the Supreme Court unanimously upheld the Ahmeds’ appeal. It confirmed that the concept of accessory liability does not operate on a strict liability basis – even if the underlying wrong complained of does operate with strict liability, as it does in the case of trade mark infringement. The Supreme Court considered that the alternative position would cast the net “far too wide” and make “sales assistants and the like” liable by default for such infringement. It said the principle of accessory liability does not necessarily mirror the knowledge, or lack of it, required for the underlying wrong.  

In a ruling that has broader implications for company directors than just in respect of their potential liability for intellectual property (IP) infringement, the Supreme Court held that an accessory will only be liable if they have “knowledge of the essential facts that make the act wrongful”. It confirmed that this applies whether the case is put on the basis that the accessory “procured” the acts of infringement or acted together with the company “in furtherance of a common design”.

The Supreme Court said that, on the facts of this case, because the Ahmeds had no knowledge that what they were doing was trade mark infringement, they were not liable as accessories.

The court also confirmed that, in cases where a director does have the requisite knowledge to make them jointly liable, they are only liable to account for the profits they themselves have made from the IP infringement, not for the profits made by the company. It further clarified that salaries paid to directors, or loans made to them by the company, are not “profits” and so do need not to be accounted for in a calculation of profits in cases where a director is jointly liable. 

Gill Dennis, a brand protection expert at Pinsent Masons, said: “Directors will welcome this decision – it may even come as a relief. We can expect many future disputes before the courts to revolve around what knowledge must look like for liability to be incurred.”

“Brand owners are likely to be disappointed by the decision. It limits their ability to go after a director for infringement of their IP, and where, as in this case, the company committing the infringing acts becomes insolvent, it may effectively leave them without a remedy at all,” she said.

Lifestyle Equities was successful in separate litigation involving online marketplace Amazon before the UK Supreme Court earlier this year. In that ruling, the court confirmed that online marketplaces can be held liable for infringing UK trade mark rights pertaining to their listing of products on foreign websites.