An Explosive Judgment for Directors and Shareholders!

The Intellectual Property Enterprise Court, the Court that specialises in IP matters in England and Wales, has recently found that a sole director and shareholder can be personally liable for the infringement committed by his company.

Background

The claimant owned European trade marks for the word GRENADE and an associated logo in relation to energy drinks. It issued a Court claim against a company which was also supplying energy drinks under the name GRENADE. In this claim it accused the company of both trade mark infringement (using an identical mark in relation to identical goods) and passing off (damaging the claimant’s goodwill by causing confusion). Instead of simply making this claim against the defendant company i.e. the legal entity which was committing the unlawful acts, the claimant also named an individual as a defendant. The individual in question happened to be both the sole shareholder and the sole director of the defendant company.

The defendant company admitted that it had infringed the GRENADE trade marks but, in relation to passing off, denied that the confusion caused the claimant damage (damage is one of the 3 elements required to succeed on a passing off claim). The defendants also argued that the individual defendant should not be held personally liable for the acts of the company.

Judgment

The Court acknowledged the evidence of actual confusion adduced by the claimant and found that there would inevitably be damage to the claimant’s goodwill. This damage would either be in the form of loss of sales or loss of control (which was also found to be damaging). On that basis, the passing off claim succeeded.

With regards to the liability of the individual, the Court found that the defendant had “not identified anybody else who was, on his account, responsible for the acts complained of”. As a result the Court found that he was the sole instigator and controller of the infringing acts and “cooperated with his company to bring about the infringements of community trademarks and passing off”.

Briffa Comment

This judgment is significant because it blows away the common misconceptions that directors are not liable for the acts of a company and/or shareholders are safe behind a corporate veil. In light of this any sole directors and shareholders out there should undertake an IP audit to check what sort of brands/signs they are using and whether the proper clearance searches have been carried out. With regards to parties making a claim, it’s always worth checking who’s being the infringing company and, if they’re acting on their own, naming that “controlling mind” as a defendant.

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