Hashtag Burgers Pty Ltd recently lost its appeal against In-N-Out Burgers, Inc in the Full Court of the Federal Court of Australia and the decision has particular importance for the assessment of the personal liability of directors.
The Full Court held the directors of Hashtag Burgers liable as joint tortfeasors for the company's wrongdoings after its incorporation. A tortfeasor is an individual or entity that has been found to have committed a civil offence that injures another party. Such disputes are resolved in the branch of the justice system that is known as tort law.
To minimise risk of this kind, directors should:
- before using a mark, understand the difference between being inspired by, or appropriating, another mark;
- be aware of competitors' marks and avoid appropriating a third party's mark thereby capitalising on (spring boarding from) a competitor's identifiable reputation; and,
- consider whether the director's conduct as an individual goes beyond performing their role as director.
The Full Court held that the directors' conduct went beyond the threshold of performing their roles as directors based on a combination of the following factors:
- they were the sole directors of Hashtag Burgers;
- they alone made decisions as to its management;
- they alone received the profits derived from it;
- there was no significant difference between how the two individuals operated the business before incorporation on 23 June 2017 and how they operated it through the corporate vehicle after it was formed; and,
- they were knowingly involved in the company's wrongdoing.
Accordingly, the primary judge's findings on infringement, misleading or deceptive conduct and passing off were upheld with the Full Court identifying:
- the primary judge erred in finding the directors to be dishonest, as there was no actual evidence of dishonesty, such a finding 'is not a necessary part of the assessment; and Her Honour separately found the requisite intention to cause confusion on the part of [the directors]'; and,
- in addition to a finding of personal liability before incorporation of Hashtag Burgers, the company's directors were also liable as joint tortfeasors with Hashtag Burgers for trade mark infringement and passing off after the company's incorporation date.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.