Are directors personally liable for copyright infringement?
Are directors personally liable for copyright infringement?
The author is a UK qualified and fully licensed current practicing solicitor specialising in intellectual property cases and digital technology. He is currently a Judicial Work Shadow Candidate for the Intellectual Property Tribunal
What is corporate veil?
The general legal rule for copyright infringement liability is that a company is a separate legal person from its directors. Generally, an act of the company is not necessarily an act of its directors personally. This is the case no matter how small the company is or how much the directors micro-manage the affairs of the company. As a separate legal entity, the private limited liability company is solely responsible for its liabilities and debts – the so called “corporate veil principle”.
For example, the board of Company X, with several directors, resolves to change all their existing ecommerce platforms to an Omnichannel Retail Strategy. The marketing director, delegates the design and development of the new Omnichannel Retail Strategy to a team. Company Y, a competitor of X finds out whilst checking up on the competition online that X has copied the design and some of the features of Y’s social media app and online store. In this scenario it might be difficult to argue that the marketing director should be held personally accountable as joint tortfeasor for copyright infringement. The corporate veil may shield the directors of the corporation from personal liability. It makes pragmatic sense that the corporate veil principle should protect directors of corporations from copyright infringement. Directors of corporations often let their employees carry out their tasks with limited supervision and may not have authorised what their employees are doing.
However, in the case of a company with a sole director or possibly more directors, it is pragmatic that the corporate veil becomes less likely to shield the directors. Where there are only one or s few directors of a company, the directors are usually more involved with the day-to-day running of the business. Their personal conduct in relation to the copyright infringement may be sufficiently closely proximate to the unlawful act to find a common design and procurement.
Grenade (UK) Ltd v Grenade Energy Ltd and another [2016]
The recent case of Grenade (UK) Ltd v Grenade Energy Ltd and another [2016] EWHC 877 (IPEC) (4 March 2016) considers the interesting and important point of joint tortfeasors liability. The claimants in the case Grenade (UK) Ltd (“Grenade”) are a sports energy food and drinks manufacturer and supplier selling their goods under 2 CMT trademarks – the text mark GRENADE and the logo mark which includes the image of a grenade within the word Grenade. Grenade brought a claim for trademark infringement and a parallel passing off against Grenade Energy Ltd (“GE”). GE does the same thing as Grenade, that is sell energy sports food and drink. GE had a website at grenadeenergy.com. GE along with its sole director and shareholder were sued by Grenade as joint tortfeasor. The sole director was added on the basis that the acts complained of were authorised by him or made as part of a common design between him and the GE.
Suing a company and its directors personally does increase the chances of enforcement to recover the judgement debt and costs. However, if you are just suing the company or unsuccessfully argue joint liability and the defendant goes into liquidation you might end up with a pyrrhic victory.
The defendants conceded the issue of trade mark infringement. Goodwill and misrepresentation necessary to establish passing off was also conceded. However, it was not admitted that the claimants had suffered damage or that the second defendant of GE – the sole director – was jointly liable.
Grenade applied for summary judgment. The application was dealt with by HH RJD Hacon in his usual efficient manner.
Whilst accepting counsel for GE’s arguments that a director of a company is not automatically liable for the acts of the company and that there had to be “knowing, willing or a wilful quality” in the conduct of the director to be joint tortfeasor, HH J Hacon gave summary judgement to Grenade. The Judge referred to Sea Shepherd UK v Fish & Fish Ltd [2015] UKSC 10; [2015] AC 1229 as setting out the most up to date summary of the law in relation to joint tortfeasance. He also referred to his own summary of the key criteria for joint tortfeasance identified by Lord Sumption in Sea Shepherd in Vertical Leisure Ltd v Poleplus Ltd [2015] EWHC 842 (IPEC) in which he fixes the criteria for joint tortfeasor as active co-operation and intention to help bring about the infringement. HH Hacon goes on to say that there is an evidential presumption in a one-man company that the actions of the company were done at the instigation of the sole director alone. It is for the sole director to satisfy the court that the acts complained of were not initiated and controlled by him.
The other cases mentioned of interest in the judgement were MCA Records Inc v Charly Records [2001] EWCA Civ 141; [2002] FSR 26; Evans Spritebrand [1985] 1 WLR 317 and PLG Research Ltd v Ardon International Ltd [1993] FSR 197.
Related cases
Finally the cases of
Unilever Plc v. Gillette (UK) Limited [1989]
and
CBS Songs v. Amstrad Consumer Electronics Plc [1988]
are also helpful.
In Unilever Plc Lord Justice Mustill stated: that joint tortfeasors need only act in concert with one another pursuant to a common design or ‘
concerted action
’ or ‘
agreed on common action
’ in the infringement. There is no need for an explicit design by the joint tortfeasors only that they combine to secure the doing of acts which in the event prove to be infringements. In the CBS Songs case it was stated that joint tortfeasors act in concert further to a common design in the infringement. Lord Templeman states that joint defendants for copyright infringement that procure and share a common design for copyright infringement are jointly liable. Procuring infringement can be done by
inducement
,
incitement
or
persuasion
.
If you intend to issue a claim against a company for copyright infringement you should consider whether proceedings should be brought against the company alone. Suing a company and its directors personally does increase the chances of enforcement to recover the judgement debt and costs. However, if you are just suing the company or unsuccessfully argue joint liability and the defendant goes into liquidation you might end up with a pyrrhic victory.
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