In this article, we discuss the issue of company directors’ liability for infringements of industrial property rights, particularly patents. Companies operating in technological or innovative sectors may find themselves involved in complex disputes in which not only the company, but also its top management, may risk being held liable. A recent case involving Philips has provided an opportunity to clarify the boundaries between corporate liability and the personal liability of directors.
Index:
- Company directors’ liability for patent infringement
- The Philips case
- The condition for directors’ liability
- Conclusions: the role of legal advice
Company directors’ liability for patent infringement
The members of a Joint Stock Company or a Private Limited Company are liable for corporate obligations only within the limits of their shares. Directors, however, are subject to Article 2395 of the Italian Civil Code, under which they are liable for damages directly caused to shareholders or third parties by their intentional or negligent conduct, which includes violating the general obligation of good administration. In this context, directors’ liability has been concretely considered in cases where the company they manage is found liable for patent infringement.
The Philips case
This argument was raised, by no ordinary party, but by a multinational giant such as Philips, in a case brought against a competitor before the Munich Local Division of the Unified Patent Court (UPC) for infringement of a European patent. The thesis was not considered at all far-fetched by the Judges of first instance, who accepted it and held the company’s directors liable not as infringers, but as “intermediaries” under Article 63(1) of the Agreement on the Unified Patent Court, thereby prohibiting them from continuing in the exercise of their functions as directors.
Against this (surprising) decision the defendant obviously appealed to the UPC Court of Appeal. In its judgment of 3 October, the Court, while confirming the infringing nature of the company’s conduct, excluded the liability of its CEO, ruling that the mere status of director does not make that person a co-author or accomplice of the patent infringement.
The condition for directors’ liability
The Court of Appeal clarified that personal liability arises only when the conduct in question goes beyond the typical professional duties of a director, particularly when the director intentionally uses the company to commit patent infringements. Directors may be held liable only if their conduct exceeds the normal scope of their role. This applies especially when the CEO, who knows that the company is infringing a patent, fails to take reasonable and feasible measures to prevent the infringement.
Knowledge of a patent infringement requires not only that the director be aware of the circumstances that gave rise to the infringement. It also requires awareness of the unlawful nature of the conduct.
Conclusions: the role of legal advice
In light of these conditions for directors’ liability, the essential role of legal advice becomes evident. If a CEO seeks legal advice regarding a potential patent infringement, they may generally rely on that advice until a first-instance judgment establishes that the company has infringed.
Therefore, it is the duty (and interest) of any director whose company is sued, or even formally challenged, for infringement of industrial property rights (trademarks, patents, or other titles) to seek support from experienced legal professionals to carefully evaluate the basis of the opposing claims, in order to make the most appropriate and informed decisions.