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Director once again personally liable on account of IP infringement

Director once again personally liable on account of IP infringement

On 30 September 2014 the Appeal Court of The Hague held a director liable for trademark infringement. The Appeal Court also prohibited him personally from infringing any trademark or design rights or copyrights. He must also compensate the losses suffered by the holder of the intellectual property rights. A similar judgement was handed down last year as well.

This time it involved an infringement of rights related to toys (stuffed toy hamsters) from Zhu zhu pet. Director X bought – with cash – a stock of imitation toys. After the company itself had been convicted, director X provided an intentionally untruthful statement of certain infringement data (and took inordinately long to do so). The particular legal entity subsequently became insolvent. The holder of the intellectual property rights then set its sights on director X of company Y.

The Appeal Court ruled as follows:

‘With regard to the question of whether X is liable as director of Y, the appeal court states the following first and foremost. If a company’s creditor is disadvantaged because its claim on the company remains unpaid and irrecoverable, in addition to the company’s own liability, depending on the circumstances of the concrete case, there will also be grounds for liability on the part of the person who, as director, (i) acted on the company’s behalf or (ii) caused or allowed the company to not comply with its statutory or contractual obligations. In both cases it may generally only be assumed that the director acted unlawfully towards the company’s creditor if, also with regard to his obligation to perform his duty properly as referred to in Article 2:9 of the Dutch Civil Code, he can be adequately seriously blamed for that. The same criterion is appropriate in answering the question of whether a director is personally liable for the company’s unlawful act. The director (in addition to the company) can also be held personally liable for this if he can be seriously and personally blamed for the company’s unlawful act on grounds that he should have prevented the action because of the apparent interests of the disadvantaged party (cf inter alia Supreme Court, 23 November 2012, ECLI:NL:HR2012:BX5881 and Supreme Court, 5 September 2014, ECLI:NL:HR:2014:2628).’

It is established that Y acted wrongfully towards Cepia (the intellectual property right holder) by selling the imitation toys. In the Appeal Court’s view, X could be personally and seriously blamed for this ‘if, at the time of the sale by Y, he was aware or should have been aware of the “Zhu zhu pet” trademark.’

The payment in cash or the fact that no investigation was done into whether the packaging mentioned ‘zhu zhu hamsters’ is not enough to assume liability. Among other things, the unfamiliarity of the brand (at the time) and the fact that X was unfamiliar with the toy sector were factors here.

The consideration of the question of whether X, as director of Y, can be seriously blamed after he was aware of the trademark infringement produced a decision less favourable for X. It is established that it was investigated, by X, whether a trademark infringement had occurred. It is also established that it emerged from that investigation that there had indeed been infringement. Cepia was then informed that X would cease and desist from selling the imitation toy hamsters. The Appeal Court therefore ruled:

‘Since on 24 September 2010 X knew that he had committed a trademark infringement and Cepia had explicitly asked for information in order to prevent further sale of the imitation hamsters, X was, on grounds of the standard of due care (which must be observed in society), required to prevent further trademark infringements by its buyers and at least give Cepia a statement listing the details of its sale of imitation hamsters also to [a third party], in light of Cepia’s apparent interests as trademark holder. X failed to do this and therefore acted unlawfully towards Cepia. X can be personally and seriously blamed for this. As the sole director and actual policy maker for X, he should have ensured that Cepia was provided with information on time and accurately. He failed to do this; not only did he wait almost three months to provide information, he untruthfully informed Cepia that sales had only been made to Y and Z. (…) X was evidently not prepared to be transparent about the matter. The Appeal Court also concludes this from the fact that X still only provided Cepia with inaccurate information, specifically that X’s invoices had not been paid and that there were no further documents that could be sent (…). The Appeal Court disregards the defence that he had forgotten about the delivery (…).’

X also did not share that he knew that the hamsters had been sold to Y, even though he knew, or should have known, that this imitation toy would be sold on, which meant the trademark infringement would be continued.

By Joost Becker

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