04 Jan IP infringement – avoiding liability for officers & directors
This is Part I of a series on intellectual property law. In Part II, attorney Gina Carter will examine IP infringement in the context of trademarks and patents.
In certain circumstances, federal intellectual property laws hold officers and directors liable for their corporation’s infringing acts. It is important to understand when a corporation’s liability can become a personal liability so that corporate officers and directors conduct themselves appropriately and proper insurance and indemnification agreements are put in place.
Generally speaking, officers and directors have been held personally liable for a corporation’s infringing acts if they take on a role in the infringing activity outside of their role as an officer or director of the corporation. In the context of patents, copyrights and trademarks, corporate officers have been found personally liable if the officer or director intentionally, actively, and knowingly assisted in the corporation’s infringement.
The laws governing copyrights, trademarks and patents each deal with the issues of liability for officers and directors slightly differently. To minimize and manage risks, company officers and directors should clearly understand the circumstances and types of activities that could result in their being held personally liable for infringements.
Copyright Law: Contributing and vicarious infringement
There are two ways that officers or directors could become indirectly liable for the copyright infringement of a company: vicarious liability and contributory infringement. Although the line between the two doctrines is sometimes blurred, for vicarious liability to be found, a defendant officer or director must meet two independent requirements.
The officer or director must “possess the right and the ability to supervise the infringing conduct” and must also have “an obvious and direct financial interest in the exploitation of the copyrighted materials,” even if a defendant initially lacks knowledge of the infringement. Shapiro Bernstein & Co. v. H.L. Green Co., 316 F.2d 304, 307 (2nd Circuit, 1963).
Hence, liability cannot be imposed merely because someone is an officer, director or owner of a company, but if such a person profits from the infringement, has the power to stop it, and declines to do so, infringement can be found. So for example, owners of venues such as dance clubs and sports arenas have been held vicariously liable for copyright violations of bands or companies hired to play music at such locations.
An officer or director may also be found liable as a contributory infringer if he or she intentionally induces or encourages someone to directly infringe. The touchstone of liability under a contributory infringement theory is intentional conduct by the officer or director; that is, active steps taken to encourage infringement. Individuals have been held to contributorily infringe by knowingly advertising an infringing use, instructing someone else to infringe, and actively and knowingly aiding and abetting a direct infringer in the infringement.
Making the case law
A review of case law involving liability of officers and directors for a company’s copyright infringement reveals that there is usually a substantial and continuing connection between the officer or director and the infringing activities of the company.
In Burdick vs. Koerner, a Wisconsin case that addresses imposing liability on officers and directors for copyright infringement under a vicarious liability theory, the court held that mere membership on the board of directors was not sufficient to impose liability on officers or directors based on Wisconsin statute 180.0801(2), which requires directors to “exercise all corporate powers.”
The plaintiff argued that the corporation (through its board) had improperly stolen her research on juvenile justice and published a book without providing her with appropriate credit. The court refused to accept plaintiff’s argument that it impose liability on the directors, stating that neither “the law of Wisconsin or the federal copyright law contemplates such a harsh consequence merely because of one’s membership on a board of directors.” The court stated that:
The better-reasoned case law demonstrates that in order to establish vicarious liability in the context of a claim for copyright infringement, a plaintiff must introduce evidence beyond a defendant’s membership on a board of directors. Thus, a plaintiff must offer proof that an individual board member was sufficiently involved in the day-to-day operation of the company in order to establish that he or she had the right and ability to control the actions of the corporation.
The court, under theories of contributory and vicarious liability, next analyzed the activities of each of the four board members. It determined that with one exception, the evidence did not show that any of the directors were involved in the day-to-day operations or exercised sufficient control within the company to warrant making them personally liable for the corporation’s alleged copyright infringement and granted summary judgment in favor of three of the directors.
The court did not grant summary judgment for one board member where there was some evidence that he was aware that the plaintiff had authored the material that ended up in a publication, which showed the board member as the author. The court held the evidence was factually sufficient to permit the case to go to the jury on a contributory infringement theory.
In order to show that an officer or director is personally liable for copyright infringement, a plaintiff must show that the officer or director was involved in day-to-day operations or had the right or authority to supervise or control the infringing activity.
Next time, we’ll examine IP infringement in the context of trademarks and patents.
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• Joe Boucher: Starting a tech business? Step 1 is minding the intellectual property
• Kristine Strodthoff: Who owns what invention in the workplace?
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