Director liability and patent infringement

Directors of companies, particularly of small companies where the directors are involved in the day-to-day running of the company, should pay careful attention to situations where there is a likelihood that activities of the company could be found to comprise patent infringement. In such situations the courts in the UK have held that where the director does more than vote at board meetings, he or she can be held personally liable for the acts of infringement, in particular where the director was personally involved in the infringing acts.

The question was recently considered by the English Patents Court in the case of Boegli-Gravures SA v Darsail-ASP Ltd. This case concerned a claim for patent infringement against a company (D) and one of the directors (P) of that company. The patent proprietor had hired a private investigator who had dealt with the director P when the defendant company sold him a set of rollers used in producing optical effects on packaging foils used, for example, in cigarette packaging.

The judge held that the supply of the rollers constituted patent infringement. The question then was whether P should be held personally liable for the infringement. Generally, directors who act in the interests of their company avoid personal responsibility for debts and other legal liabilities incurred by the company. However, in certain situations the courts will put aside the legal fiction that the company has separate legal personality and hold the directors personally responsible (often referred to as "piercing the corporate veil"). Famously this occurs when the directors breach their fiduciary duties to the company and act in a manner which is not in the best interests of the company.

In this case the case law dealing with personal liability of directors for patent infringement was reviewed. The judge cited in length from the leading case of MCA Records Inc v Charly Records Ltd where it was held that "a director will not be treated as liable with the company as a joint tortfeasor if he does no more than carry out his constitutional role in the governance of the company-that is to say, by voting at board meetings". Of course in this case, the director P was involved in far more than voting at board meetings; he was involved in the day-to-day running of the company.

In considering the facts of this case, the judge held that the following facts were not sufficient to hold P personally liable: the company was small having between 9 and 12 employees; the director P was one of three shareholders in the company; P had registered the domain name through which the rollers had been offered for sale; and P was one of the named contacts on the web site.

However, the judge held that what was sufficient to hold the director personally liable was that P had personally dealt with the private investigator in supplying the infringing rollers and that he had, together with the other two directors, made the decision to supply the investigator with the rollers. Interestingly, one of the passages which the judge cited with approval from the MCA Records case was the following: "In other words, if, in relation to the wrongful acts which are the subject of complaint, the liability of the individual as a joint tortfeasor with the company arises from his participation or involvement in ways which go beyond the exercise of constitutional control, then there is no reason why the individual should escape liability because he could have procured those same acts through the exercise of constitutional control." The lesson from this case is therefore that Directors who are concerned with the day-to-day operations of the company, in particular those concerned with sales, importing and manufacturing, should take care in any situation where they are concerned that the company may be involved in patent infringement.

Peer Watterson
Electronics, Computing and Physics Group