Background
The claimants, Lifestyle Equities (“Lifestyle”), owned various trade marks, including a logo comprising a polo player on a horse and the words BEVERLY HILLS POLO CLUB. Hornby Street Ltd (“Hornby”) sold items bearing logos comprising polo players on horses and the words SANTA MONICA POLO CLUB.
Lifestyle sued Hornby and its directors for trade mark infringement, claiming that the directors were jointly liable for the infringement on the grounds that they had procured Hornby’s infringements and / or that the infringements were committed pursuant to a common design.
At first instance, the High Court found that Hornby’s SANTA MONICA POLO CLUB logo infringed Lifestyle’s trade marks and that its directors were jointly liable. Rather than claiming damages, Lifestyle elected for an account of the profits made by Hornby and its directors from their infringement.
The Court found that the directors did not have to account for the profits made by Hornby (which had been dissolved) but did find that 10% of their own salaries represented profits made from the infringement (reflecting that c.10% of Hornby’s revenue had come from infringing sales), as did a loan made by Hornby to one of the directors.
The Court of Appeal heard the appeal and upheld all the findings except that the loan was profit. Both parties appealed to the Supreme Court.
The Supreme Court Judgment
The Supreme Court addressed 2 main issues:
- Whether the directors were jointly liable for Hornby’s trade mark infringement; and
- If so, what ‘profits’ the directors would have to account to Lifestyle.
Accessory liability
The Supreme Court’s judgment clarifies that directors, agents, and employees are not exempt from the ordinary principles of tortious liability under English law. These principles apply to them whether they act as primary wrongdoers or accessories. In other words, their liability is governed by the same rules as for any other individual.
This is important as the Court stressed that had the directors themselves infringed Lifestyle’s trade marks, the fact that they did so as directors of Hornby would not have been a defence.
As the directors were not the primary wrongdoers, the Court considered whether they were jointly liable as accessories of Hornby (which the High Court and Court of Appeal had found they were). In particular, the Court addressed whether it was necessary for the directors to possess the ‘required knowledge of the essential facts that made the act wrongful’, even where primary liability didn’t depend on knowledge (as is the case in trade mark infringement cases).
The Supreme Court held that for there to be accessory liability it is necessary for the person who causes another to commit a tortious act (such as infringing an IP right) to have that knowledge:
“It is unjust to hold an individual whose act causes another to commit a wrong jointly liable for the wrong as an accessory if the individual was acting in good faith and without knowledge of facts which made the act of the other person wrongful.”
Crucially for the directors, the High Court had not made a finding on whether they knew or ought to have known that there was a likelihood of confusion / infringement: the judge did not consider that question relevant to whether they were liable. Consequently, the Supreme Court allowed the directors’ appeal and held that they were not liable as accessories. The conclusion may have been different if the High Court judgment had addressed the question of knowledge.
Account of Profits
With the directors not being found liable, the issue of an account of profits fell away. However, the Supreme Court confirmed that if the directors had been liable as accessories of Hornby they would not have been required to account for Hornby’s profits, only their own.
The Court also held that no element of the directors’ salaries would have been treated as profit, as there had been “no allegation, evidence or finding that [they] were anything but ordinary remuneration for [the directors’] services.”
Commentary
The judgment is likely to be relied on by directors trying to avoid being found jointly liable for IP infringement – or other torts – committed by their companies. For a director performing their duties in good faith to be jointly liable for IP infringement as an accessory to a company, the claimant must show that the director had the required knowledge of the essential facts that made the company’s acts wrongful.
In simple trade mark infringement claims involving counterfeit goods this should be relatively straightforward for claimants but it may pose a challenge in less clear-cut cases. For example, in claims involving similar signs rather than identical signs directors may claim they genuinely believed the company’s actions were not likely to cause confusion with, or otherwise infringe, the claimant’s trade mark.
The judgment may also discourage trade mark claimants who succeed in suing company directors from electing to receive the equitable remedy of an account of profits rather than claiming damages. If Lifestyle had elected to receive damages rather than an account of profits (and had the directors been found jointly and severally liable with Hornby) it may have had a better prospect of obtaining monies from the directors. That said, the decision whether to elect for damages or an account or profits is complex and may turn on a number of factors, including the IP right involved. Claimants should consider the decision early in litigation and take appropriate advice.
Case: Lifestyle Equities C.V. and another (Respondents) v Ahmed and another (Appellants) [2024] UKSC 17
For more information or if you have any questions, please contact Emily Roberts or another member of the IP team.
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