When Are Directors Personally Liable for Trademark Infringement by a Company?

The Ruling: Officers and Directors May Be Personally Liable for the Company’s Trademark Infringement

An Israeli District Court recently ruled in a lawsuit in which the owner of the international Beverly Hills Polo Club brand sued the Israeli company Don Gili Ltd. for about ILS 7 million, alleging breach of a license agreement, product counterfeiting, and trademark infringement.

The court ordered the company to disgorge profits and pay partial compensation.

What makes this ruling particularly significant is that the court also imposed personal liability on the company’s managers for those infringements, without lifting the corporate veil.

Background – What Led to the Imposition of Personal Liability?

The brand owner operated in Israel through an exclusive local agent, who coordinated all interactions with the licensee, including approving models, receiving reports, and handling ongoing management. The plaintiff alleged that Don Gili violated the terms of the license agreement and concealed the actual volume of imports in order to evade payment of the full license fees. As a result of those violations, the plaintiff terminated the license agreement, but Don Gili’s managers continued marketing the plaintiff’s products.

The court ruled that because the agent acted as an extension of the brand owner, and because the plaintiff had not objected over the years to the way the parties operated, the plaintiff was precluded from raising those allegations, and the court therefore rejected them. However, the court did accept the plaintiff’s arguments regarding the continued use of the brand after the termination and expiration of the license agreement.

Contractual Disputes Versus Tort Offenses – When Contractual Liability Becomes Personal Liability

The court ruling explicitly differentiates between contractual liability and tort liability.

As long as the license agreement was in effect, the relationship was contractual. On the contractual front, imposing personal liability on a director or officer is possible only in very rare cases requiring proof of personal and subjective culpability—conditions that the court found were not met in this case.

However, the situation changed once the license agreement came to an end. Once the agreement terminated and the former licensee continued using the Polo trademark  without a valid license, the legal basis of the claim shifted from breach of contract to a tort claim for trademark infringement.

The court relied on tort law, under which any officer who personally commits a tort bears personal liability for it, alongside the company’s liability. In other words, imposing tort liability on the company does not necessarily release its officers from similar liability.

Personal Liability – Even Without Lifting the Corporate Veil

Under the circumstances, the court found no justification for lifting the corporate veil, which allows the court to attribute the company’s debts or liabilities personally to its owners. However, the court did impose personal liability in tort. The distinction lies in the nature of the creditor: while a contractual creditor chose to engage with the company and assumed the risks involved, a party injured by a tort did not choose to enter into a relationship with the company. Therefore, when officers personally commit a tort, they may be held personally liable even without lifting the corporate veil.

The Unsuccessful Defense Argument – “I’m Just a Warehouse Manager”

One of the defendants claimed that his role was limited to warehouse work and that he therefore should not be held personally liable. The court rejected this argument, finding that he was a director, owned 50% of the company’s shares, shared profits equally with his partner, and was an authorized signatory on the company’s documents. A full partner remains a full partner even if he “specializes” in the logistics side of the business. A mere job description does not immunize a defendant from personal liability for a tort if the elements for that tort are satisfied.

Practical Implications for Companies and Officers

• For officers and directors: The distinction between “the company is liable” and “I am liable” is neither clear-cut nor self-evident. Whenever a tort is committed, including intellectual property infringement, any officer or director who personally committed the tort may be ordered to pay out of his or her own pocket, even without lifting the corporate veil.
• After termination of an agreement: Continuing to use intellectual property—whether trademarks, patents, or copyrights—after a license or agreement has expired may result in personal exposure. Even in the absence of an injunction, this does not constitute authorization to continue using the intellectual property asset, and the legal exposure may shift from a contractual dispute to tort liability.
• Officers’ actual involvement: A job title such as “operations manager” or “warehouse manager” is not enough to avoid liability. The conduct of shareholders, officers, and directors will be assessed based on to their actual involvement and status, not on their job titles.

In light of the court’s findings, we recommend that companies and officers:

• Maintain ongoing oversight of the use of intellectual property assets and ensure that each such use complies with the terms of a valid license.
• Upon the termination of an engagement or the expiry of a license, discontinue any relevant use of intellectual property assets and assess the legal exposure, as continued use may also give rise to personal liability.
• Document decisions regarding the use of intellectual property rights and ensure that the company’s control mechanisms continue to operate effectively even after the engagement has ended.
• Advise directors and officers that they may be held personally liable, even when the company is the contracting party, if they are personally involved in committing a tort.

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Adv. Or Levi is an associate in the firm’s Regulation Department.

Dr. Ran Karmi is an associate in the firm’s Antitrust and Competition Department.

Barnea Jaffa Lande’s Regulation Department advises brand owners, licensors, companies, and officers on preventive measures and the management of personal exposure risk. The department is available to assess the specific exposure of any organization.