Director personally liable for company patent infringement

Princo Digital Disc used to have a licence from the Dutch electronics giant to import its CD-Rs, but this was withdrawn in March 2000. Undeterred, Princo continued to import the discs into the UK. Another company, Aventi, also imported CD-Rs supplied by Princo into the UK. In doing so, both companies infringed Philips' patent rights.

Philips successfully sued Aventi and Princo, which lost their argument that the patent was invalid. But it also sued Arthur Kuo, Managing Director of Princo. Philips argued that he should be personally liable.

Apart from running Princo, the court learned that Kuo had substantial independent authority and was particularly involved in the development of client relationships.

When Philips sued Aventi, Kuo took the decision that Princo would indemnify Aventi, undertaking to pay the Aventi's legal costs. With the comfort of the indemnity, Aventi continued to import the infringing CD-Rs into the UK.

According to Justice Pumphrey, Kuo's personal liability depended upon whether he "was sufficiently involved in the company's torts". The fact that he was a director did not of itself make him liable. But in the judge's opinion of last week, Kuo's activities extended beyond the boardroom.

Justice Pumphrey wrote:

"He was the business manager of the company. He was responsible for the cultivation of Aventi as a customer, and it was his decision to give the indemnity."

He continued, "I have no doubt that the indemnity was given to encourage Aventi to remain a customer and so to continue to infringe in the United Kingdom."

The mere fact that Kuo had given the indemnities did not in itself make Kuo liable – for that was part of a normal business process. The critical factor was the encouragement given to Aventi to continue importing the infringing CD-Rs.

Kuo's close involvement in the everyday running of the company and his independent authority in making decisions relating to the company ensured that he was sufficiently involved with the infringing behaviour so as to make him jointly liable with Princo.

Interim damages of $180,000, together with interim costs of $300,000 were awarded jointly against Primco and Kuo.