Posts by: Robin Berzelius | (1) posts

Getting Personal in Sweden: Liability of Directors, Officers, and Owners for their Company’s IP Infringement

1. Introduction
Picture a scenario where a plaintiff in an IP infringement case in Sweden has received a well earned final ruling in its favor, or perhaps gotten a preliminary injunction issued against an accused infringer.

As the plaintiff is celebrating its success, it receives news that the infringer recently emptied its warehouses of infringing goods at dumping prices, filed for bankruptcy, or went into administration. The on-going infringing business, apart from the shares in the defendant company, has been sold to a third party. The plaintiff is left with not only the losses due to the infringement, but also the costs for the litigation.

Curtain falls and the show is over, or is it not? What actions are available now, and what could have been done to prevent this bleak outcome?

 2. Follow the money – pursue a claim for personal liability
Among the actions available to avoid the unlucky scenario, there is one that stands out from the crowd. This is to pursue the officers, directors or owners involved in the infringing business with claims for personal liability (to pay damages for the infringement). 

In direct contrast to the prevailing misconception that there is practically never any personal liability, Swedish law provides a forceful set of legal tools for a plaintiff to avoid much of the above-mentioned problems with an elusive defendant in IP cases. These tools will be outlined in the next section of this article.

3. Swedish law does give a basis for personal liability
Swedish case law provides a clear precedent that injunctions can be issued against representatives of a company on the same grounds as against the company to avoid possible defiance.

Although a director is not typically personally responsible for the company’s acts and undertakings, personal liability for IP infringement can be established under certain circumstances. 

The basic rule in Sweden is that officers, directors and (active) owners, or board members, of a company who have taken part in, or have furthered, or have failed to prevent an IP infringement can be held directly personally responsible for their company’s IP infringement. 

Personal liability for IP infringement in Sweden can be established on mainly two different grounds, either by the so-called piercing the corporate veil doctrine, or by direct personal liability. These two counts will be discussed in turn below.

3.1 Piercing the corporate veil
The conditions for piercing the corporate veil are not clearly specified under Swedish law. However, from existing case law the following conditions can be listed as important: undercapitalization, lack of independence, undue organization or influence over the business by the owner (“Alter Ego”), and conduct directed against and disloyal to the creditors or other parties who have suffered a loss.

One of the problems with the piercing the corporate veil theory is that undercapitalization does not have any legal, commercial, or even fiscal definition in Sweden. And what is more: undercapitalization is not as such prohibited under Swedish law.

3.2 Direct personal liability
The basic rule of direct personal liability is more straightforward. It applies if a company has infringed someone else’s IP and a director, owner or board member has participated in the decisions or activities leading to the infringement, supposing also at least negligence on part of the director, owner or board member.

The Swedish Supreme Court ruling in NJA 1986 s 702 (“Demonstration music”) together with successive rulings has cemented the principle that a leading representative, such as a CEO, of a limited liability company can be liable to pay damages because of negligent corporate copyright infringement. Intent or gross negligence are not necessary prerequisites.

The duty to investigate whether a product can be protected by IP rights is extensive in Sweden, and to stay uninformed about possibly existing IP rights is normally deemed sufficient to establish negligence in itself.

Nevertheless, even though negligence can be thought to come almost free of charge, most judges in Sweden would not perhaps readily hold that the burden of proof rests solely upon the defendant (to exculpate himself), i.e. the plaintiff makes best by tainting the defendant by dressing him up in culpa.

3.3 Swedish law on personal liability for IP infringement – brief conclusion
The discussion above shows that there are still some pitfalls and surprises left when it comes to personal liability for a company’s IP infringement in Sweden.

For one thing, and as surprising as it may be, personal liability for a company’s IP infringement has not been put to the test by the Swedish Supreme Court in a patent, trademark or design case.

It is also uncertain what it would take for a finding of negligence in cases where the infringing goods only fall within the mere formal scope of protection of, say, a trademark or design right, and where it is clear that blatant copying has not taken place.

However, having said that, the basic rule under Swedish law is still clear. The directors, officers and owners, or board members, of a company who did not do what they should have done can indeed be personally liable to pay damages for their company’s IP infringement.

4. Conclusion: How to deal with an evasive infringer
The situation under Swedish law makes it clear how an IP owner plaintiff should deal with an evasive infringer.

The best way to pursue a claim in such a case is obvious – make thorough preparations and go after everyone already from the start.

There may be challenges along the way, but aggressive action probably gives the best chance for success at the least risk and for a reasonable premium (i.e. initially higher litigation costs, but with the prospects of recovery if the case is won).

It should also be clear that a well founded claim for personal liability is the perfect platform for a good amicable settlement. Clearly, the bravado and confidence in defending an infringement case is usually much higher when the personal belongings and private welfare is not at stake.

Robin Berzelius, Attorney at Law