HM Revenue and Customs (HMRC) have been unsuccessful in their appeal against a decision that a...
In a recent intellectual property case with wider implications in terms of directors' liability, the Supreme Court ruled that two directors of a wholesaler of clothing, footwear and headgear that infringed another clothing business's trade marks were not liable to account for profits on the infringing sales.
The clothing business brought proceedings against the wholesaler and its directors, amongst others, alleging trade mark infringement and passing off. The claims against the wholesaler succeeded before the High Court, which also found the directors jointly and severally liable for acts of infringement. In reaching this conclusion, the Court considered it irrelevant whether the directors knew or ought to have known that there was a likelihood of infringement.
The clothing business had elected to claim an account of profits against the directors, rather than damages. The Court held that the directors were only liable to account for profits they had personally made from the infringing sales, which it calculated at 10 per cent of their salaries over the relevant period, totalling just over £201,000. The Court also found that a loan of about £636,000 the wholesaler had made to one of the directors was a profit derived from infringement and he was therefore liable to account for it.
The clothing business appealed the decision that the directors were not liable to account for the wholesaler's profits, and the directors cross-appealed against the findings of joint and several liability and liability to account for profits. The Court of Appeal overturned the finding in relation to the loan, and also decided that Income Tax should be deducted from the amounts payable from salaries. The appeals were otherwise dismissed. Both the clothing business and the directors made further appeals to the Supreme Court.
The Court examined a wealth of case law before concluding that where an offence, such as trade mark infringement, is one of strict liability, it did not follow that an accessory was necessarily jointly liable. In this case, the directors had not personally infringed the trade marks and had not been found to have the knowledge required to render them jointly liable for the wholesaler's infringements.
The Court went on to conclude that there were additional reasons why orders for an account of profits should not have been made. While agreeing that a person should only be ordered to account for profits they themselves have made, the Court disagreed that part of the directors' salaries could be treated as profits, there being no evidence that their salaries were anything other than remuneration for their services. Accordingly, the directors' appeals were upheld and the clothing business's appeal dismissed.
