Supreme Court clarifies ‘knowledge’ requisite to establish accessory liability

Claire Lehr and Kenny Cheung recently contributed an article to the World Trademark Review (WTR), analysing the Supreme Court’s judgment in Lifestyle Equities CV v Ahmed which addresses the question of whether an individual can be held jointly liable with an infringing company, if that person did not know that the company had infringed on a trademark.

• This appeal and cross-appeal considered, among others, the issues of accessory liability and account of profits
• For accessory liability to arise, the accessory must have known all the essential facts of the act carried out by the primary infringer which made the act tortious and infringing
• A person is liable only to account for profits made personally, but not for profits made by someone else

In the much-anticipated judgment in Lifestyle Equities CV v Ahmed ([2024] UKSC 17), the Supreme Court has made it clear that a person, including a company director or employee, is not jointly liable with the primary infringing company or entity if that person did not know that the act of the primary infringer amounted to trademark infringement.

Background

Two companies, which offered for sale clothing items with logos depicting the name ‘Santa Monica Polo Club’ and pictures of polo players on horses, were found to have infringed Lifestyle Equities CV’s registered trademarks, which consisted of the words ‘Beverly Hills Polo Club’ and the figure of a polo player on a horse. The infringing companies’ directors (namely, the Ahmed siblings) were held by the lower court, as well as the Court of Appeal, to be jointly and severally liable with the companies as accessories to the infringement on the grounds that they had procured the commission of the infringement and joined in a common design to infringe.

As the infringing companies had become insolvent, Lifestyle elected to claim against the Ahmed siblings an account of the whole profits made by the companies. The lower courts awarded the remedy, but the profits were assessed at only 10% of their salaries less the payable income tax (and excluding the loan one of them received from the companies) – being the profits they made personally that could be apportioned to the infringing acts. Both parties cross-appealed to the Supreme Court on, among others, the issues of accessory liability and account of profits.

Decision 

Before the Supreme Court decision, it was generally accepted (including by the lower court and the Court of Appeal) that, where the primary wrong is a strict liability tort, such as trademark infringement, the accessory liability is also strict in nature and does not require proof of the accessory’s knowledge that the acts done by the primary infringer were infringing or likely infringing.

However, in giving the lead and unanimous judgment and following a comprehensive review of common law cases on accessory liability, Lord Leggatt rejected this approach and clarified that, for accessory liability to arise, the accessory (eg, a company director) must have known (or turned a blind eye to) all the essential facts and features of the act done by the primary infringer (eg, a company) which make the act tortious and infringing; otherwise, it would be unjust to hold that accessory personally liable for acts done in the ordinary course of business and in good faith without knowledge of infringement.

In allowing the Ahmed siblings’ appeal on accessory liability, the Supreme Court held that the trial judge’s findings were insufficient to satisfy the aforementioned ‘knowledge’ requirement, given that the trial judge had raised only questions about, but made no findings to the effect that the Ahmed siblings knew or ought to have known that specific elements of the trademark infringement claims were present (eg, that there was a likelihood of confusion, and that the use of the infringing signs would adversely affect the reputation of Lifestyle’s trademarks and was without due cause). Of particular note is Lord Leggatt’s comment at Paragraph 138 that “there was room for argument and honest difference of opinion about the similarity and whether it gave rise to a likelihood of confusion or otherwise resulted in infringement”, such that it may not be obvious to conclude that the directors must have known the facts which made the acts infringing, as contrasted to a simple case which involved counterfeits.

The Supreme Court, on the other hand, dismissed Lifestyle’s appeal on account of profits and clarified the applicable principles in awarding this equitable remedy typically sought by claimants in IP infringement cases. In particular, it was restated that a person is liable only to account for profits made personally, but not for profits made by someone else, as such would be penal in nature. Further, the profits for which an infringer is liable to account are limited to those attributable to the use of the infringing sign and caused by the confusion, and are not necessarily the whole of the profits to the infringement. It is therefore essential to consider what proportion, if any, of the sales would have been made by the infringer if the infringing signs had not been used.

Comment

In theory, this decision makes it easier for directors to escape personal liability from trademark infringement committed through companies by arguing a lack of knowledge, especially in cases which are not clear-cut, where there are plausible arguments on both sides of issues such as similarities of marks and likelihood of confusion. This may leave trademark owners with no real financial recourse where the infringing vehicle has become insolvent.

It remains to be seen whether, and in what circumstances, such knowledge can be implied, and accessory liability can be attached. As the burden now clearly rests on trademark owners to prove that accessories (eg, directors) have knowledge of infringement, litigants will no doubt take extra steps to specifically plead and collate good evidence to prove and support findings on the requisite mental state of the accessories.

 

This article first appeared in WTR Daily, part of World Trademark Review, in May 2024.
For further information, please go to www.worldtrademarkreview.com.