Despite being told I have “horse girl energy” (still unclear as to whether that was an insult), I know next to nothing about polo. However, I am fairly sure a match shouldn’t last approximately 8 years, which is how long this dispute has been running for. The judgment itself certainly isn’t a nimble racehorse, but it is thorough and carries the bulky analysis of directors’ liability, joint tortfeasorship, accessory liability and common design with the determination of a particularly robust carthorse. With a far-reaching analysis of contract and tort law, the unanimous Supreme Court judgment of Lord Leggatt does, eventually, trot towards the strict liability of trade mark infringement.  To get particularly niche with my polo metaphors, Lord Leggatt gallops into the final chukka (an interval of play) by concluding that a director must have knowledge of the facts that would result in a company’s acts being infringing, even if the tort itself is strict liability. There’s also the added parting whack of the appropriateness of an account of profits. 

Background

To give some context to the horse metaphors for those who haven’t been following the case since 2016, this was a trade mark dispute regarding the use of signs depicting polo players. On the left is the UK trade mark owned by the claimant, Lifestyle Equities (the “Claimant’s Mark”), and on the right, illustrative examples of the signs used by two family-owned companies which both traded under the name "Juice Corporation" (the “Defendants’ Signs”).

The Supreme Court judgment centred on the personal liability of the Ahmeds, Mr Kashif Ahmed and Ms Bushra Ahmed, who were directors of two of the corporate defendants. Importantly, there was no finding that the Ahmeds knew or ought to have known that their companies’ use of the Defendants’ Signs infringed the Claimant’s Mark. 

The first instance judgments of Mr Recorder Douglas Campbell QC on December 2017 and March 2020 held that the use by Juice Corporation of the  Defendants’ Signs on clothing sold in the UK was an infringement of the Claimant’s mark on the grounds of 10(2) and 10(3) of the Trade Marks Act. The Claimant sought an ‘account of profits’  as a remedy. At first instance the High Court held the Ahmeds were not liable to account for profits made by the companies through sales of products containing the Defendants’ Signs, but were liable to account for personal profits which they had themselves made from the infringements. As a result the Ahmeds were liable to account for 10% of their salaries from the companies, as well as Mr  Ahmed being liable for a loan he had received from one of the companies. At the Court of Appeal in the judgement of Lord Justice Birss of May 2021, the loan was not considered a profit. The Claimant appealed the Court of Appeal decision arguing that the Ahmeds should be liable for the profits of the companies attributable to the infringement, rather than their personal profits. The Ahmeds cross-appealed that they were not jointly and severally liable and liable to pay an account of profits at all. 

The directors’ infringement

The Supreme Court judgment begins with an analysis of whether the Ahmeds had themselves infringed the trade mark directly through their acts. Whilst the Claimant’s had not argued this point expressly, it sets the tone for the judgment as a whole, i.e. what had the Ahmeds actually done or known whilst dealing with products bearing the Defendants’ Signs as directors. Lord Leggatt found that, given the strict liability of trade mark infringement (i.e. no knowledge element is required), it would be a ‘strong thing’ to impose liability on, for instance, a shopkeeper for selling and displaying goods that end up being infringing. Likewise, “use in the course of trade” required for trade mark infringement should be understood as ‘referring to persons who are trading on their own account and for their own economic advantage’. Therefore, the fact that Ms Ahmed put goods in showrooms on occasion did not mean she was personally infringing the trade marks, even though she was also a director. 

Joint tortfeasorship

Turning then to the liability of directors as joint tortfeasors. It is well-known that it takes a fair amount to pierce the corporate veil to make a director personally liable for acts properly attributable to a company. This judgment tackles the argument somewhat in reverse. Instead, Lord Leggatt takes the point that a director does not obtain any special protection for infringing acts they carry out, procure, or knowingly assist simply because they are a director purportedly acting in the best interests of the business. 

Lord Leggatt broke joint tortfeasorship into two tracks: procuring infringement as accessory liability and acting in common design with the infringer. (Very) long story short, for both routes to joint liability, a director would have to be aware of (or have turned a blind eye to) the facts that led to the trade mark infringement (or other tort), even if that tort is strict liability. 

At paragraph 85 Lord Leggatt sets out a passage that will be of reassurance to many a director “It seems unjust that anyone whose act causes another person to commit a tort should be held jointly liable for the tort as an accessory if the individual was acting in good faith and without knowledge of facts which made the act of the other person tortious.” The person in this case being the corporate body for whom they are a director. The position taken is that, even though a tort may itself be strict liability (i.e. trade mark infringement), accessory liability should not be strict and the purported accessory should know facts that would make the action unlawful. Likewise, acting in common design cannot require a lower standard of knowledge, such that a person acting towards a common goal, but without the requisite knowledge to know the outcome of the goal is tortious, is held liable. The judgment made clear that an understanding of the law itself was not part of the knowledge requirement. 

Applying this principle to the facts, the judge found that it was not a clear-cut situation for the Ahmeds, they weren’t running a counterfeiting businesses where it may be obvious that a director who arranged for the manufacture and sale of counterfeit goods must have known the facts which made the company's acts infringing. Here the Defendants’ Signs and Claimant’s marks were different in various ways and there was 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. Further, at first instance neither of the Ahmeds were cross examined on whether they were deliberately intending to take advantage of the Claimant’s Mark although it was agreed that they were aware of the Claimant’s Mark from receipt of the letter of complaint in 2014. Also, whilst it was found that the use of a sign infringing the Claimant’s Mark was without due cause, the judge made no finding on whether the Ahmeds realised this, or should have realised this. Therefore, there was no support that the Ahmeds had reached the knowledge threshold for joint tortfeasorship. As a consequence, the Supreme Court permitted the defendants’ appeal and set aside the orders made against them for an account of profits.

One point to note is that after the first trial, Lifestyle tried to amend their case to allege that the Ahmeds knew, or had reasonable grounds to know, that the corporate entities were engaged in infringing activity. This application was refused. It is clear from the judgment that if director’s liability as a joint tortfeasor is being alleged, the director’s knowledge will need to be expressly pleaded. 

Account of profits

An account of profits is a well-established equitable remedy for intellectual property infringement, and it is standard practice to allow a successful claimant to elect between an account of profit or the remedy of damages. As an equitable remedy, a Court does have a discretion whether to grant it, and the Supreme Court’s analysis considers the principles on whether the Court should grant an account of profits for intellectual property law infringements. Previous arguments have set out that an account of profits is a deterrent, i.e. a opportunistic person (corporate or individual) should not be able to retain the profits flowing from their decision to infringe another’s rights. Whilst this view has support in previous case law, it begs the question of why an account of profits is not a remedy available for other unlawful activity, such as breach of contract. Lord Leggatt considered that an account of profits in the context of intellectual property goes towards the purpose of intellectual property protection itself, i.e. that a creator/owner should be able to benefit from the exploitation of their work. Where their work has been exploited by another, those profits are properly attributable to the IP owner and for trade mark infringement, that is irrespective of whether the person knew they were infringing.  Therefore, account of profits works as restitution shoring up the IP system, rather than deterrent. 

Given his decision regarding the Ahmeds’ liability, Lord Leggatt considered the hypothetical situation in which they were liable and found that a person should not be accountable for profits they did not themselves make. To make the Ahmeds liable for the profits of the respective businesses would be to put them, as defendants, in a demonstrably worse position than if the tort had not been committed, making the remedy incorrectly punitive in nature. Lord Leggatt also agreed with the Court of Appeal that a loan (rather than, for example, a mislabelled dividend) was not a profit. Likewise, an ordinary salary for services could not be considered a profit and shouldn’t have been likened to a sole trader selling goods. Finally, the judge reiterated the principle that an account of profits is not all of the profits attributable to the sale of goods bearing the infringing sign, but only the profits that result from the use of that sign and it is unlikely that the presence of a sign on clothing will be the only reason a consumer would purchase the goods. 

Conclusion

In IP infringement proceedings, directors are often added as joint tortfeasors as a punchy move, particularly where a business has only a few directors. Some commentators have argued this judgment will reduce brand owners’ enforcement and recovery options because the burden will shift to a claimant to demonstrate the knowledge of a director at the point of infringement. However, the judgement makes it quite clear the context will be a relevant factor: Lord Leggatt distinguished between a legitimate trade mark dispute between competitors and (for example) a counterfeit business, where it may be more obvious that a director who arranged for the manufacture and sale of the goods must have known of the facts which made their company’s acts infringing. This decision firms up the corporate veil and asks practitioners to calm your horses before throwing a director onto the field.