Lifestyle Wrong To Make Account of Profits

In a judgment handed down on 15 May 2024, former company directors were held not to be personally liable for trade mark infringements made by their dissolved company and so an account of profits remedy was wrongly made.

Background

Mr Kashif Ahmed and his sister, Ms Bushra Ahmed, were directors of Hornby Street Ltd, a company which manufactured and sold clothing, footwear and headgear to retailers. During a period of approximately 10 years, Hornby Street sold various items bearing logos with the words SANTA MONICA POLO CLUB and pictures of polo players on horses.

Lifestyle Equities (Lifestyle) own trade marks featuring a polo player on a horse and the words BEVERLY HILLS POLO CLUB. Lifestyle sued Hornby Street alleging that the use of the SANTA MONICA POLO CLUB signs infringed Lifestyle’s trade marks. Lifestyle also sued the Ahmeds personally, claiming that they were jointly liable with Hornby Street for the infringements.

The trial judge found that the use of the SANTA MONICA POLO CLUB signs by Hornby Street infringed Lifestyle’s trade marks, both because the signs were sufficiently similar to Lifestyle’s BEVERLY HILLS POLO CLUB signs to give rise to a likelihood of confusion on the part of the public and because such use took unfair advantage of, and was detrimental to, the distinctive character and reputation of Lifestyle’s trade marks. The judge also held that the Ahmeds were jointly liable with Hornby Street on the grounds both that they had procured the infringements of Lifestyle’s trade marks and that the infringements were committed pursuant to a common design. The judge made no findings that the Ahmeds knew or ought to have known that there was a likelihood of confusion or infringement. However, on the judge’s view of the law, the absence of such knowledge did not affect their liability.

Hornby Street has since been dissolved. Therefore, Lifestyle claimed the remedy of an account of profits from the Ahmeds. The judge held that the Ahmeds were not liable to account for profits made by Hornby Street from its infringements of Lifestyle’s trade marks, but were liable to account for profits which they had themselves made from the infringements. He apportioned 10% of their salaries during the relevant period to such profits and also decided that a loan made by Hornby Street to Mr Ahmed was a profit derived from the infringements.

On appeals by both parties, the Court of Appeal upheld this decision, except as regards the loan to Mr Ahmed which, it held, was not a profit. Both parties appealed to the Supreme Court.

Judgment

The Supreme Court unanimously dismissed Lifestyle’s appeal, which argued that the Ahmeds should have been ordered to account for profits made by Hornby Street, and allowed the Ahmeds’ appeal. This meant the Ahmeds could not be liable either for procuring the infringements of Lifestyle’s trade mark or on the basis of a common design, when they were not aware of the essential facts which made the use of the SANTA MONICA POLO CLUB signs by Hornby Street wrongful. In any case the Ahmeds could not be required to account for profits made by Hornby Street and on the facts had not themselves made any profits from the infringements.

Comment

The remedy of an account of profits is in principle available against anyone who is liable for the infringement of a trade mark or other intellectual property right, even if the infringement is entirely innocent. The courts below the Supreme Court were right to reject Lifestyle’s argument that the Ahmeds could properly be ordered to account for the profits made by Hornby Street from the infringements. The only profits which a wrongdoer can be required to pay over to the owner of the right infringed are profits which the wrongdoer had made and not profits which someone else has made from the infringing activity. Such as order would amount to a penalty or fine which is not the purpose of the remedy.

The Court of Appeal was right to hold that the loan made by Hornby Street to Mr Ahmed was not a profit and that it was wrong to treat any part of the Ahmeds’ salaries as profits. Even it the Ahmeds had been personally liable for the infringements of Lifestyle’s trade marks, they had not made any profits from the infringements. For these reasons, the orders for an account of profits were wrongly made.