Suing company directors for IP breach
When identifying who to sue for intellectual property infringement, generally the company infringing the intellectual property rights is named as a defendant in the infringement action and not the directors individually as a joint tortfeasor (joint infringer). However, a recent decision of the Intellectual Property Enterprise Court has indicated that in certain circumstances it may be suitable to join directors personally.
Grenade (UK) Limited (Grenade), markets foods and drinks for sports that offer energy and improve performance. Grenade has trade marks for the word ‘Grenade’ and for a device mark. It brought claims for passing off and trade mark infringement against Grenade Energy Limited (GEL) and Mr Chawla (sole director and sole shareholder of GEL), who supply energy drinks, in relation to their use of the word ‘Grenade.’
Grenade applied for summary judgment in the proceedings and GEL conceded that it had infringed Grenade’s trade marks but argued it had an arguable defence that there had been no passing off on the basis that there had not been any damage.
Mr Chawla further argued that he was not jointly liable with GEL for trade mark infringement or, passing off on the basis the infringing acts were carried out by GEL.
In relation to GEL’s denial of passing off on account of there being no damage, the Court found that given there had been a misrepresentation by GEL it was inevitable that Grenade would suffer damage. This damage would manifest in (i) loss of sales; and/or (ii) loss of control of the Grenade’s goodwill.
The Court further found that Mr Chawla was jointly liable for passing off and trade mark infringement. In considering this issue, the Court found that by being a sole director and shareholder there is an evidential presumption that the sole director and shareholder is jointly liable for the alleged acts of infringement. However, this presumption can be discharged if the sole director and shareholder can show that the alleged infringing acts were not initiated or, controlled by him. In this case Mr Chawla was not able to identify anyone else who was responsible for the infringing acts.
The Court’s finding that there was damage serves as a useful reminder that in order to succeed in a passing off action a claimant only needs to show that there is a (1) likelihood of damage (not actual damage); (2) if there is a finding of misrepresentation, damage is likely to be inferred; and (3) damage does not just include loss of sales but also can include loss of control of the goodwill in the brand.
The Court’s finding in relation to the presumption of joint infringement will be a useful weapon in claimants’ arsenals in order to apply pressure to sole director and shareholder. The finding will also assist claimants as instead of claimants having to prove that the director and shareholder actively co-operated with the company and intended that co-operation to bring about an infringement, the onus is now for the sole director and shareholder to show that the infringing acts were not initiated or, controlled by him.