Supreme Court rules company directors may not be liable as accessories to trade mark infringement

In May, the Supreme Court handed down its judgment in Lifestyle Equities v Ahmed where it held that the directors of Hornby Street Ltd, siblings Kashif and Bushra Ahmed, were not personally liable as accessories with their company for the the infringement of the claimant’s Beverly Hills Polo Club trade marks. 

The decision is of particular significance as it introduces a knowledge requirement into the test for accessory liability. 

Background

In 2017, Hornby Street (along with numerous other parties) was found liable for the infringement of Lifestyle Equities’ Beverly Hills Polo Club trade marks through sales of its Santa Monica Polo Club clothing range. At trial, the Ahmeds were found jointly and severally liable with their company and were ordered to account for the profits they had personally made as a result of the infringements (but not the profits made by their company). The finding that the Ahmeds were jointly liable with their company was upheld by the Court of Appeal. In addition, a loan made from the company to Mr Ahmed was held by the trial judge to constitute part of the profit he had made, although that decision was overturned by the Court of Appeal. 

Lifestyle appealed against the decision that the Ahmeds were not liable to account for the profits made by their company from the infringements. The Ahmeds cross-appealed against the decision that they were jointly and severally liable and had made profits from those infringements. The Court of Appeal dismissed the appeals and both parties subsequently appealed to the Supreme Court. 

Supreme Court

Accessory liability

The Supreme Court found that the directors were not liable as accessories to the company’s infringement of Lifestyle’s trade marks. Contrary to what was understood prior to this ruling, the Court stated that simply because liability for trade mark infringement is strict, it did not necessarily follow that strict liability should be imposed on those alleged to have been accessories to the infringement, such as the directors. 

Instead, the Court held that to find a person is liable as an accessory, it will be necessary to show: 

1. they had procured the company to infringe or been joined in common design with the company, and 
2. they had “knowledge of the essential facts which make the act done wrongful.” 

The Court’s reasoning was that it would be unjust to find a director personally liable for acts done in the normal course of their employment which cause the company to commit a tort, if the director has not acted knowingly.   

In the context of trade mark infringement, the Court stated under section 10(2) TMA, the knowledge which will be required for the second limb of that test is of the existence of the trade mark and a likelihood of confusion. Infringement under section 10(3) TMA will require knowledge that the claimant’s trade mark has a reputation in the UK, that the use of the sign complained of gives rise to a link and that such use results in unfair advantage or detriment without due cause.  

The Ahmeds were not proven to have the requisite knowledge as to the infringement or a likelihood of confusion. There was no evidence to show the Ahmeds were even aware of Lifestyle Equities’ trade marks before March 2014, when they were sent a letter of complaint. Even then, however, the Court said that this was not a “simple case where... a company offers for sale counterfeit goods” where it may be obvious that the goods were infringing. This was instead a case where the there were differences between the signs used by the parties, and “room for argument and honest difference of opinion about the extent of the similarity and whether it gave rise to a likelihood of confusion or otherwise resulted in infringement”. This distinction helps to illustrate the types of cases where a court might be more inclined to find directors liable as accessories.   

Account of Profits

The Supreme Court confirmed the findings of the courts below that, even if a person is liable as an accessory to an infringement, the only profits which that can be required to pay over to the trade mark owner are those profits which they have made and not profits someone else (e.g. their company) has made. Such an order would amount to a penalty or fine which is not the purpose of the remedy. The position is different for damages where it is equitable to allow a claimant to recover compensation from any defendant where there are multiple defendants who have caused the loss.

In addition, the Supreme Court held that:

• A loan from a company to a director should not be considered as profit and should not be included as such in any account of profits.
• Ordinary remuneration for work (i.e. a salary) is not considered profit.
• Where a trader sells infringing goods, they are not necessarily liable for the profit made from selling the article itself but instead the profit made from selling it under the trade mark.

Key takeaways:

1. The decision applies to all torts and all persons who are potentially liable as accessories. However, it will have a particularly significant impact in the case of directors where their companies commit a wrong as it may be easier for them to avoid personal liability.
2. Where the remedy pursued is an account of profits, an infringer (whether primarily or jointly liable) can only be required to pay over any profits which they have made from the infringement and not the profit made by others. What constitutes profit is construed narrowly.
3. A person is only "primarily" liable for trade mark infringement if they "use the sign in the course of trade" and the "trade" in question is carried on by the person who uses the sign. This means that employees and directors who display and sell infringing items for their employer are not themselves liable as primary infringers (obiter).
4. Putting potential infringers on notice of any rights is important. However, directors will in many cases be able to avoid personal liability if the infringement allegations being made are not clear cut and there remains room for argument that the use is not infringing.