Can A Company Director Be Held Jointly Liable With His Company For Infringement Of IPR?

The High Court of Justice in MCA Records Inc. v. Charly Records [2002] FSR 401 has confirmed that

Director of a company can not escape his/her liability by hiding behind the corporate veil. The Court has explicitly laid down that a director or officer might be liable with the company as joint tortfeasor for acts committed by the company;

  • Whether a director or officer was so liable was determined not by the fact of his being a director or officer but by considering whether his acts would have rendered him so liable if he were not a director or officer.
  • For a director or officer of a company to be personally liable, as joint tortfeasor, for infringements of copyright by the company in circumstances in which he was not himself a person who had committed or participated directly in those acts, it was necessary and sufficient to find that;
  • that the director procured or induced the infringing acts to be done by the company; or
    •  that, in some other way, he and the company had joined together in a concerted action to secure that those acts were done.

The Court acknowledged that in determining whether a director should be held so liable, it was necessary to balance two competing principles:

  • first, the principle that an incorporated company is separate and distinct from its shareholders, directors and officers; and,
  • secondly, the principle that everyone should be answerable for his tortious acts.( the court referred to Mentmore Manufacturing Co Ltd v. National Merchandising Manufacturing Co Inc (1978) 89 D.L.R. (3d) 195 the Federal Court of Appeal of Canada)

The court upheld the Trial Judge’s finding that, ” a director or other officer of a company may in certain circumstances be personally liable for the company’s torts, although he will not be liable merely because he is an officer: he must be personally involved in the commission of the tort to an extent sufficient to render him liable. Whether he is sufficiently involved is a question of fact, requiring an examination of the particular role played by him in the commission of the tort.”

For e.g. in MCA, the defendant was not even the director but still held liable. The judge described Mr Young as “the person to whom everyone at CRL ultimately deferred”. He held that “the documents … show that Mr Young enjoyed the ultimate control of CRL and was regarded as its ultimate boss”. He said that Mr Young exercised the ultimate influence over it: “decisions as to strategy and policy–and the ultimate control of the company–were his and it was those decisions which ultimately carried the day … he was Holdings’ man in ultimate charge of CRL”.

The Court held that the question whether the individual is liable with the company as a joint tortfeasor–at least in the field of intellectual property–is to be determined under principles identified in CBS Songs Ltd v. Amstrad Consumer Electronics Plc [1988] A.C. 1013 and Unilever Plc v. Gillette (UK) Limited [1989] R.P.C. 583. In particular, liability as a joint tortfeasor may arise where, in the words of Lord Templeman in CBS Songs v. Amstrad , the individual “intends and procures and shares a common design that the infringement takes place”.

It is to be noted that there is no need for a common design to infringe. It is enough that the parties combine to secure the doing of acts which in the event prove to be infringements.” The idea does not call for any finding that the secondary party has explicitly mapped out a plan with the primary offender. Their tacit agreement will be sufficient.(Unilever Plc v Gillette (UK) Ltd (Joinder) [1989] R.P.C. 583)

MCA principle has been applied equally in patents and trademark infringement cases i.e .Koninkijke Philips Electronics NV v Princo Digital Disc GmbH [2003] EWHC 1598 (patents) and in recent WebSphere Trade Mark case [2004] F.S.R. 39 respectively.

IKoninkijke Philips Electronics NV (Philips) recently won its High Court patent infringement case against Princo Digital Disc GmbH (Princo) and others. The managing director was held liable for the estimated royalty payments which would have been received by Philips but for the infringement of its intellectual property rights.

The High Court reiterated the principles laid down in the MCA case in delivering its judgment. In summary, the court stated that:

  • Joint liability, especially in the intellectual property field, may arise where the individual specifically “intends and procures” that the intellectual property infringement takes place.
  • For a finding of joint liability to be made, it is “necessary and sufficient” that an individual “procures or induces” acts of infringement or that, in some other way, he “joins together in concerted action to secure that those acts are done”.

In WebSphere Trade Mark, Mr de Serville was the sole director of Web-Sphere. Mr Markson was not; he was, however, described as the “sales Manager” of Web-Sphere on the leaflets of the Company. The High Court of Justice applying MCA Records Inc. v. Charly Records held that there was no evidence of control of the company being exercised through its constitutional organs. In reality, Web-Sphere did whatever Mr de Serville and Mr Markson wanted it to do. Mr de Serville, Mr Markson and Web-Sphere were held to have a ‘common design’ and accordingly held jointly liable for the infringement.

Although the cases above lay down explicitly, the fact, that, where a company is controlled by a strong minded individual, he/she cannot escape its liability by hiding behind the veil of limited liability Company. Nevertheless the issue of determining the liability remains a tricky business and may involve problems in shaping important issues such as the following:

  • How is it possible to distinguish between behaviour that results in a director being personally liable and behaviour which does not?
  • To what extent must the director be personally involved in the infringing behaviour?
  • What is the difference between carrying out the duties of a director (which are almost always legitimate according to the Court of Appeal) and procuring or inducing an act of copyright infringement?

Answers to the above can be somewhat derived from the following ‘general guidelines’ issued by the Court of Appeal in MCA v Charly Rec. (Note that these guidelines are not to be regarded as “prescriptive” because the court must always be free to find the right balance between the principle of the corporate veil and principles of fairness), to determine when directors or controlling shareholders are personally liable for a company’s infringing acts:

  • The court will ask itself whether the individual has been “personally involved” in the infringement to an extent sufficient to render him jointly liable.
  • The extent of that personal involvement can be gauged by applying these principles:
  1. Where directors, officers or shareholders are doing no more than carrying out their constitutional role (i.e. voting at board or company meetings), they will rarely be personally liable.
  • A person may be personally liable if involved in the infringement in ways which go beyond the exercise of constitutional control, even if he or she could have procured the same acts through the exercise of constitutional control.

The following points may in some cases aide the defendant’s case i.e. –

  • Was the director aware of any dubious activities on the company’s part?
  • If so, did he attempt to end such activities or at least distance himself from them?

However, note below;

  • Knowledge on the part of the defendant is not always relevant— Where it is sought to make a director personally liable for the tortious acts of his company, where he has authorised, directed and procured the tortious act, he need not have known or have been reckless as to the fact that the act was tortious, unless knowledge was an essential ingredient of the tortious act concerned — C Evans & Son Ltd v Spritebrand Ltd
  • It is not such that every active director of a small private company is always involved, but it is that if there was personal involvement by the director in the actual ordering or physical doing of the precise act which was the tort, that isufficient to make him personally liable. —A. P. Besson Ltd. and Others v. Fulleon Ltd. and Amlani and Others

Nevertheless, a person with full knowledge of the nature of the infringing acts with which he or she is involved is more likely to be jointly liable than someone without such knowledge. The more an individual is personally involved in a company’s infringing acts, the greater the risk of being joined as co-defendant. If there has been no “perceptive, intentional, wilful quality” in his participation, the court may naturally be more reluctant to hold the director personally liable.

An individual’s liability therefore does not arise automatically by reason of his position as a director of a company; the deciding factor is the overall ultimate control of the company (common design) which can be aided by the knowledge and intention on the part of the director in procuring the infringing acts.

Michael Coyle

Michael.coyle@lawdit.co.uk

March 2022

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