Another Beverly Hills Polo Club Appeal

UK Supreme Court

Author Christine Smith Licence CC BY-SA 4.0 Deed Source Wikimedia

 

Jane Lambert

In Beverly Hills Polo Club Litigation, I discussed the claim by Lifestyle Equities CV and Lifestyle Licensing BV ("Lifestyle") against Amazon UK Services Ltd and others over the sale of American sourced BEVERLY HILLS POLO CLUB merchandise in the UK that ended in the Supreme Court (see Lifestyle Equities CV and another v Amazon UK Services Ltd and others [2024] UKSC 8 6 Mar 2024).  Lifestyle returned to the Supreme Court recently in another dispute over that brand.  This time, the issue was whether the directors of a company that had infringed Lifestyle's BEVERLY HILLS POLO CLUB trade marks should be ordered to account for the profits that their company had gained from its infringement.  The issue is important because IP owners often sue not just the companies that infringe their rights but also the directors of those companies.  That is because the directors tend to have assets such as homes that can be sold or mortgaged to pay damages or accountable profits and costs to successful IP owners.

In this case, Lifestyle sued 16 defendants including Kashif Ahmed, Bashra Ahmed, Continental Shelf 128 Ltd ("Continental) and Hornby Street Ltd. ("Hornby Street") for trade mark infringement and passing off. Both Kashif and Bashra were directors of Hornby Street and Kashif was also a director of Continental. The action was tried by Mr Recorder Campbell QC (see Lifestyle Equities CV and another v Santa Monica Polo Club Ltd and others [2017] EWHC 3313 (Ch) 21 Dec 2017).  

He found that Kashif Ahmed had been the "ultimate decision-maker". He had managed the intellectual property portfolio for Continental and Hornby Street. He instructed Hornby Street's design director to oversee the design of a logo for the SANTA MONICA POLO CLUB brand. He selected the factory with which to place orders and agreed prices for the manufacture of polo shirts bearing the SANTA MONICA POLO CLUB logo. Bushra Ahmed had been head of sales for Hornby Street. Her role had been a very hands-on one managing the day-to-day running of this business with the help of a salesperson and a warehouse assistant. She had a showroom that stocked SANTA MONICA POLO CLUB goods. It was her decision to display those goods.  She also sold them to customers.  Mr Campbell found that both the companies and the Ahmeds had infringed Lifestyle's trade marks and passed off their goods as and for those of Lifestyle.

Actions for IP infringements usually take place in two phases.  First, the court determines whether the IP owner's rights have been infringed.  If they have, the owner can request an inquiry as to damages or an account of profits but not both. The purpose of the inquiry is to determine the injury, loss or damage that the IP owner has suffered as a result of the infringement and the amount of damages that will compensate him or her for that harm.  An account determines the profits that the infringer has gained from his or her wrongdoing and requires their surrender to the IP owner.  As it is not always obvious which remedy would benefit the IP owner more, the court can order an infringer to provide documents and information about his or her business to enable the owner to make an informed decision (see Island Records Ltd. v Tring International Plc and another [1995] 3 All ER 444).

Even though Continental and Hornby Street went into administration shortly after the first trial and were liquidated, Lifestyle opted for an account of profits.  The account was taken once again by Mr Campbell (see Lifestyle Equities CV and Another v Santa Monica Polo Club Ltd and others [2020] EWHC 688 (Ch) (23 Mar 2020)).  He assessed Hornby Street's accountable profits at £3,129,921. Lifestyle argued that that amount was recoverable from the Ahmeds.  Kashif resisted liability on the ground that he had no improper motive, he had acted on advice and had delegated the design of the logo to a professional design team.  Bushra also argued that she had acted without an improper motive or intention to infringe. The recorder ruled that none of those arguments was a defence in law.  However, he also held that the Ahmeds were liable to account only for the profits that they had personally received and not those that had accrued to Hornby Street.  He held that they should account for the proportion of their remuneration that resulted from the infringement which was £144,192 in Kashif's case and £57,007 in Bushra's. He also ordered Kashif to account for a £635,789 loan that he had received from the company.

Lifestyle appealed to the Court of Appeal against the decision that the Ahmeds were not liable to account for the profits made by Hornby Street. The Ahmeds appealed against the decisions that they were jointly and severally liable for the infringing acts of Hornby Street and that they had gained profits from the company's infringements for which they were liable to account to Lifestyle. The Court of Appeal upheld the recorder's judgment on most points but relieved Kashif Ahmed from liability to account for the loan and deducted the Ahmeds' income tax from the amount of accountable profits (see Lifestyle Equities C.V. and Another v Ahmed and Another [2021] EWCA Civ 675 (7 May 2021)).

The parties appealed to the Supreme Court pursuing the same arguments that they had advanced in the Court of Appeal.   The judgment of the Court was delivered by Lord Leggatt in Lifestyle Equities CV and another v Ahmed and Another [2024] UKSC 17 on 15 May 2024.  For those who are interested, I wrote a much fuller note on that judgment in Trade Marks: Lifestyle Equities v Ahmed on 2 June 2024 in NIPC Law.  The Supreme Court allowed the Ahmeds' appeals and dismissed Lifestyle's. 

The Court held that the Ahmeds had not infringed Lifestyle's trade marks because neither of them had personally used a sign that infringed those marks or done any of the acts that fell within s.10 of the Trade Marks Act 1994 or art 9 of the EU Trade Mark Regulation.  Lord Leggatt considered whether the Ahmeds might have been liable as accessories.  Accessory liability was a common law concept that operated alongside trade mark law and required knowledge of wrongdoing and tortious intent. There were sufficient differences between Lifestyle's trade marks and the signs used by Hornby Street for there to be argument and honest difference of opinion about the extent of the similarity and whether it gave rise to a likelihood of confusion or otherwise resulted in infringement. The recorder had made findings about the Ahmeds' knowledge that fell well short of a finding that they had the knowledge required for accessory liability. It followed that the courts below had been wrong to hold that the Ahmeds were jointly liable with Hornby Street for the infringements of Lifestyle's trade marks committed by Hornby Street. 

Having exonerated the Ahmeds from liability as primary tortfeasors and as accessories, it followed that they had ceased to be liable to account to Lifestyle for anything.  However, the Supreme Court agreed with the Court of Appeal that the only profits for which a person should be ordered to account were those that he or she had received and not those that had been received by anybody else. A person ordered to account for someone else's profits would not be giving up a gain but paying a penalty or fine which would be tantamount to an award of punitive damages.  Even if the Ahmeds had been liable as accessories there was no basis for requiring them to account for a portion of their salaries or, in Kashif's case, the loan.

There was a great deal more to Lord Leggatt's judgment than was strictly necessary for the disposal of appeals.  It appears that the Ahmeds had argued that company directors and possibly other agents are exempt from liability for the wrongs of their companies in certain circumstances.  Lord Leggatt analysed their argument and the cases cited in support and found no such rule. His lordship also analysed the development of accessory liability tracing one limb to Lumley v Gye (1853) 2 E & B 216; 118 ER 749 and the other to The Koursk [1924] P 140.  His dicta is likely to be cited in agency, company and employment law cases as well as intellectual property disputes.

Ever since the Supreme Court's judgment in Fish & Fish Ltd v Sea Shepherd UK [2015] AC 1229, [2015] UKSC 10, [2015] 2 All ER (Comm) 867, [2015] 4 All ER 247, [2015] 1 Lloyd's Rep 593, [2015 ] WLR(D) 102, [2015] 1 AC 1229, [2015] 2 WLR 694 it had become almost routine for claimants in intellectual property claims to join directors of small private limited companies as defendants to infringement suits on the basis that they were "controlling minds" or had participated in a common design.  Following Lifestyle Equities, it will be necessary to prove knowledge or intent on the part of company directors.

Anyone wishing to discuss this article may call me on 020 7404 5252 during UK office hours or send me a message through my contact page at any other time.

Beverly Hills Polo Club Litigation

Author Roger Schultz Licence CC BY-SA2.0 Deed Source Wikimedia Commons

  

Jane Lambert

Sometimes the same brand is owned by different businesses in different countries.  That did not matter much in the days before the Internet because the only consumers who were likely to come across the same brand in different hands would have been travellers,  Nobody minded if a tourist purchased goods marketed under a familiar label that were cheaper, better or simply not available at home while on holiday and brought them home. The only time there might have been a problem would have been if a trader imported large quantities of branded goods from overseas and attempted to resell them here. He or she would have risked an action for trade mark infringement from the owner of the brand in the United Kingdom. 

All that changed with the Internet because it created a worldwide marketplace for goods and services.  Trade marks protect brands within the country or territory for which they are registered.  They cannot prevent the use of the registered mark beyond that country or territory's shores.  There is in theory nothing to stop a consumer in the United Kingdom from selecting branded goods from a foreign website, paying and taking delivery of them abroad and arranging for a carrier to transport them home.  The consumer is not infringing any trade marks because he is not using the marks in the course of trade,  Nor is the retailer because the sale takes place abroad.  Yet such transactions would render trade marks useless in electronic commerce if they were allowed to continue.

The Court of Justice of the European Union has developed two doctrines to regulate such transactions:

• One is to treat targeting of consumers in a particular market as an infringement of the trademarks that have been registered in that market; and 
• The other is to the rule in Blomqvist's case (Case C-98/13 Martin Blomqvist v Rolex SA [2014] EUECJ C-98/13, [2014] Bus LR 356, [2014] WLR(D) 47, ECLI:EU: C:2014:55, [2014] ECDR 10, [2014] ETMR 25, EU: C:2014:55) in which the Court held that the mere entry of a counterfeit watch into Danish territory entitled customs officers and the IP owner to impound it,

The concept of targeting is better developed than the rule in Blomqvist's case but the UK Supreme Court has referred to only a handful of European and English cases in support of that doctrine.

The issue arose in Lifestyle Equities CV and another v Amazon UK Services Ltd and others [2021] FSR 19, [2021] EWHC 118 (Ch).   The word mark BEVERLY HILLS POLO CLUB and the equestrian logo shown below are held by different entities in Europe and the United States:

Clothing and luxury goods intended for the American market are marketed on Amazon's US website.  From time to time consumers in the UK have purchased trade marked items from that site and arranged for them to be transported to their homes.  

Lifestyle Equities CV and Lifestyle Licensing BV ("Lifestyle") sued Amazon.com Inc. for trade mark infringement alleging that Amazon's US site had targeted British consumers.  The action was tried by Mr Justice Michael Green who dismissed the claim for the following reasons:

"(i) the USA website advised incoming consumers from the UK about the availability of the UK website, (ii) that this would for UK consumers produce lower delivery times and prices than the USA website, (iii) that there were statistically very few sales of the US branded goods to the UK, and (iv) that Lifestyle's purpose in bringing the claim was not so much to prevent sales to the UK but to prevent UK consumers who strayed onto the USA website learning of the low prices of the US branded goods, thereby downgrading the value of the marks."

He also distinguished Blomqvist on the basis that the sale had been made in Denmark or the watch was intended for onward sale.

Lifestyle appealed to the Court of Appeal which found that  Mr Justice Michael Green had erred in several respects.  It carried out its own assessment of the facts and found that Amazon had targeted British consumers and had therefore infringed art 9 of the EU Trade Mark Regulation and s,.10 (1) of the Trade Marks Act 1994,  It granted an injunction and an inquiry as to damages to Lifestyle (see Lifestyle Equities CV and another v Amazon UK Services Ltd and others [2023] 1 All ER 905, [2022] EWCA Civ 552, [2023] Bus LR 1010, [2022] WLR(D) 199, [2023] 1 All ER (Comm) 189, [2022] FSR 20).

Amazon appealed to the Supreme Court which handed down judgment on 6 March 2024 (Lifestyle Equities CV and another v Amazon UK Services Ltd and others [2024] UKSC 8).  The Supreme Court carried out its own multifactorial assessment which led it to conclude that there had been targeting of British consumers and consequential trade mark infringement.  The Court of Appeal had erred as had Mr Justice Michael Green but as the Court of Appeal had reached the right decision the Supreme Court did not disturb its injunction or order for an inquiry as to damages.  Having found that Amazon had infringed Lifestyle's trade marks by targeting consumers it was unnecessary for the Supreme Court to make a finding on the rule in Blonqvist's case and the justices declined to do so.

Because of the numbers who use Amazon this judgment could have important and far-reaching consequences.  For those who want to learn more about this case, I have written a more detailed article in NIPC Law entitled Trade Marks: Lifestyle Equities v Amazon.  That article links to the judgments of the Supreme Court, Court of Appeal and Mr Justice Michael Green and other materials on the Supreme Court's website.  I am also willing to discuss this case with anyone who calls me on +44 (0)20 7404 5252 during normal business hours or sends me a message through my contact page,