When is a Director likely to be found personally liable for infringement?

When is a Director likely to be found personally liable for infringement?

When is a Director likely to be found personally liable for infringement?

Inverness Medical Switzerland GmbH v MDS Diagnostics Pty Limited [2010] FCA 108

In this case Justice Bennett concluded that a director and shareholder of the respondent MDS companies was personally liable for patent infringement because his involvement in the companies went beyond being simply a shareholder and director, and contributed to MDS infringing Inverness’ patents. Her Honour’s findings with respect to the relevant principles are applicable to all intellectual property cases where personal liability is in issue.

Facts of the case

The applicant in this case, Inverness, alleged that the respondents’ pregnancy testing devices, marketed under the names of QuickStream and QuickCard, infringed various claims in four patents owned by it. Dr Appanna, the third respondent, was a director of both the first and second respondents, the Australian and New Zealand MDS companies (referred to together as “MDS”). He was described on the MDS website as the ‘Managing Director’ and ‘Founder’ of MDS. One of the issues at trial was whether Dr Appanna was personally liable for the infringement by MDS on the basis of being a joint tortfeasor or for authorising infringement.

The decision

Joint Tortfeasor

The Judge was referred to three tests that have been applied in previous cases in order to determine whether a director is liable as a joint tortfeasor for acts committed by the company:

  1. whether the director ‘directed or procured the infringing act’ (“the Auschina test”);1
  2. whether the director’s conduct is ‘such that it can be said of him that he was so personally involved in the commission of the unlawful act that it is just that he should be rendered liable’ (“the Root Quality test”);2
  3. whether ‘the director made the infringing conduct his own in the sense that the director deliberately, wilfully or knowingly pursue[d] a course of conduct that was likely to constitute infringement or that reflected indifference to the risk of infringement’ (“the Mentmore test”).3

Bennett J held that Dr Appanna’s liability should be determined by reference to his involvement in the management and operations of MDS concerning the MDS devices. Her Honour was of the view that Dr Appanna’s shareholding in the MDS companies or the ‘mere description’ of him as Managing Director was insufficient to establish liability as a joint tortfeasor, i.e. ‘something more’ is necessary.

There was evidence that Dr Appanna was directly involved in:

  • obtaining the distribution rights for MDS to sell the QuickCard and QuickStream products in Australia;
  • obtaining regulatory clearance for the MDS devices in Australia and New Zealand; and
  • the sourcing, supply and sale of the MDS devices.

After considering this evidence, Bennett J held (at [192]) that she was satisfied that Dr Appanna’s position as the Managing Director of MDS and his participation in the procurement and distribution of the MDS devices was sufficient to establish that he ‘deliberately, wilfully or knowingly pursued a course of conduct that resulted in MDS selling products that infringed the Inverness patents’. Further, Dr Appanna was aware of competing products on the market, and was indifferent as to whether or not those products were protected by patents. In taking part in the activities of MDS as a director and in the management of the MDS companies, Bennett J held that Dr Appanna had also ‘directed or procured the obtaining of and the selling of the products that infringed Inverness’ patents’. Accordingly, her Honour held that he was liable under both the Mentmore test and the Aushina test.

Authorisation

It is an infringement of the patentee’s exclusive rights not only to exploit an invention, but also to authorise another person to exploit the invention: section 13 of the Patents Act. Previous cases in this area have held that the word ‘authorise’ in section 13 has the meaning in the comparable context of the Copyright Act (Bristol-Myers Squibb Company v FH Faulding & Co Ltd (2000) 97 FCR 524), and that a person authorises an infringement if he or she ‘sanctions, approves or countenances’ the infringement (University of New South Wales v Moorhouse (1975) 133 CLR 1). However, MDS submitted that these cases should not be followed. MDS argued that the meaning of ‘authorise’ in the Copyright Act is irrelevant and not analogous to ‘authorise’ in section 13 of the Patents Act because of the different contexts of the two Acts. With reference to a dictionary definition of ‘authorise’, MDS submitted that section 13 should be limited to ‘the giving of legal authority’.

Bennett J did not accept MDS’ argument that the different statutory contexts justify different meanings for the word ‘authorise’ in patent and copyright law. Her Honour held (at [202]) that there was no reason to construe ‘authorise’ in section 13 in the narrower way contended for by MDS.

However, this does not mean that a director of a company, by reason only of that position, authorises any act of infringement by the company. It is still necessary to show ‘actions that demonstrate that a person did sanction, approve or countenance the act of infringement’.

Justice Bennett went on to find that Dr Appanna had authorised MDS to sell the infringing products. Dr Appanna had the power to prevent the MDS companies from committing the acts of exploitation. He arranged for the sourcing of the MDS products and personally participated in the distribution of those products. Accordingly, her Honour concluded (at [203]) that Dr Appanna had ‘sanctioned, approved and countenanced the sale of products that infringed Inverness’ exclusive right to exploit’ its patents.

Commentary

This decision confirms that:

  1. A position as a shareholder and/or director is not, without more, sufficient for the Court to find personal liability as joint tortfeasor or authorisation of infringement.
  2. It has not been settled which test for joint tortfeasor liability is to be preferred, which means that all three tests outlined above need to be considered in order to establish liability.

    Justice Bennett did observe that the Full Court has considered these three tests before but did not find it necessary to determine which is the correct one, although some previous single Judge decisions have favoured the Auschina test. More particularly, her Honour referred to the Full Court’s4 comment that the difference between the Auschina test and the Mentmore test may be more apparent than real, as it was not aware of any cases in which the Auschina test was met but the Mentmore test was not met. This was certainly true in the present case, as Bennett J held that Dr Appanna was liable under both the Mentmore test and the Aushina test.

  3. The word ‘authorise’ in section 13 of the Patents Act has the same meaning as in comparable section of the Copyright Act. It requires showing actions that demonstrate that a person did ‘sanction, approve or countenance’ the act of infringement. Authorisation is likely to be interpreted in the same way in disputes under other intellectual property laws.

Endnotes

  1. Per Lindgren in Microsoft Corporation v Auschina Polaris Pty Ltd (1996) 71 FCR 231 at 246.
  2. Per Finkelstein J in Root Quality Pty Ltd v Root Control Technologies Pty Ltd (2000) 177 ALR 231 at [146].
  3. Mentmore Manufacturing Co Limited v National Merchandising Manufacturing Co In (1978) 89 DLR(ED) 195
  4. Allen Manufacturing Co Pty Limited v McCallum & Co Pty Limited (2001) 53 IPR 400 at [43].