Personal Liability For IP Infringement

Personal Liability For Corporate IP Infringement

As you ardently prepare for your quarterly Board meeting, a member of senior management hands you a notice letter alerting your company to the existence of a U.S. patent and suggesting that one of your new products may fall within the scope of one or more claims in this patent. You hand the letter off to a member of your in-house legal department and proceed to the Board room.

This matter does not come up again until you are served with a complaint alleging patent infringement that names your company and you personally as defendants.

As you come to appreciate, corporate officers and directors oftentimes fail to appreciate the concomitant risk to their personal assets resulting from corporate intellectual property (IP) infringement. To assuage these ongoing risks requires steadfast adherence to certain simple guidelines.

Let's start by reciting the basic tenet:
Officers and directors of a corporation may infringe intellectual property rights and thus may be held personally liable for corporate infringement.

Conditions leading to findings of personal liability in patent and trademark infringement cases can be broken down into two main categories:
  • Those cases where a plaintiff successfully pierces "the corporate veil"; and
  • Those cases where a plaintiff successfully establishes that the corporate officer/director actively and knowingly participated in the furtherance of the infringement.
Board Room

Patent Infringement

Included among the available grounds by which a patent owner may seek to establish a corporate officer's/director's personal liability for patent infringement are: (1) the officer/director directly infringed the patent; (2) the officer/ director induced infringement by the company; (3) the company is merely the officer's/director's "alter ego"; and (4) equity demands that the officer/director be held accountable for the infringement.

The Court of Appeals for the Federal Circuit, which has exclusive jurisdiction over all appeals of patent cases, has:
  • Required evidence justifying the piercing of the corporate veil to establish personal liability in cases alleging direct infringement on the part of corporate officers/directors;
  • Found liability without piercing the corporate veil in cases alleging inducement of patent infringement, provided the patent owner can establish that the corporate officer/ director knowingly and actively assisted in the infringement;
  • Required findings of a degree of interest, ownership, or control that serves to merge the separate personalities of corporation and individual, and that continuing to recognize the corporation would result in fraud or injustice to establish alter ego liability; and
  • Required a finding that fraud, illegality, or the like will result if the corporate fiction is not pierced to establish equitable grounds for piercing a corporation's veil.

Trademark Infringement

A trademark owner may enforce his/her trademark rights in an action for trademark infringement and/or unfair competition (e.g., false advertising, trade dress infringement, palming off). As compared to patent infringement cases, it is easier to establish that a corporate officer/ director is personally liable for corporate trademark infringement or unfair competition. In a majority of courts, a finding of personal liability for trademark infringement results when it can be established that the officer/director either personally participated in or directed the infringement, or used the corporation in a willful and intentional manner to carry out the infringement. A finding of personal liability for unfair competition results when it can be established that the officer/director either actually participated in, or authorized and approved the acts of unfair competition.

Conclusion

Reducing the likelihood of personal liability for patent or trademark infringement may be achieved by strict adherence to the following simple guidelines:
  • Adopt and follow good business practices;
  • Obtain/maintain adequate general business liability insurance and intellectually property insurance where available;
  • Adopt and implement appropriate internal policies for clearing new products and trademarks before introduction or use in the marketplace by obtaining appropriate clearances from competent legal counsel; and
  • Immediately act upon all allegations of infringement by: (a) informing competent outside legal counsel; (b) investigating and collecting all relevant information concerning the allegation; (c) providing the results of the investigation to legal counsel; and then (d) obtaining an opinion from counsel on the validity of the allegation.