director personal liability

15 January 2004

Philipp Moritz Cepl

When a third person’s intellectual property rights have been infringed by a company, it is clear that the ability to take legal action against the directors in a personal capacity may be advantageous. It will help to ensure that the judgment, particularly if this is injunctive, is effective. For example, if legal action is brought against the company only then a director may be able to continue the unlawful activity through another company. Perhaps most importantly, the potential personal liability of the director may act as a deterrent.

There is no express provision in German law governing the liability of directors for a company’s infringement of a third person’s intellectual property rights. However, caselaw has established that directors of limited liability companies (GmbH) can be held liable as can board members of stock corporations (AG). Caselaw has drawn a distinction between active infringement by directors or board members and indirect infringement.

Generally, a director’s liability will depend on the structure of the company. Directors’ responsibilities may be separate and divisible depending on the size of the company. If the directors’ responsibilities cannot be carved up then any director will be liable for any infringement of a third person’s intellectual property rights if he knew of the infringement and did nothing to prevent it. If the director’s lack of knowledge can be shown to be due to negligence then it is thought that lack of knowledge will be no defence and he may still be personally liable. However, this has not yet been established by caselaw.

Conversely, if the directors’ responsibilities are separate and can be carved up then a director might be personally liable if an infringement occurs within his area of responsibility and if he knew or should have known of the infringement. If the infringement occurs in another director’s area of responsibility the legal position may be different. For example, the Regional Court Düsseldorf held that the CFO of a company, which infringed a utility model, was not personally liable because he was not concerned with the marketing and development of the infringing product. However, as soon as the infringement is brought to the attention of any director (regardless of the internal distribution of responsibilities) then he must do everything possible to stop the infringing acts or he will become personally liable.

With regard to damages, a director’s liability is based on fault. Therefore, if a director had no knowledge of the infringement then he will not be liable for damages caused by past infringement but might be responsible for damage caused by future infringement from the moment of notice. According to the Federal Supreme Court, the director must have had the legal and actual possibility to exert his influence on the infringer i.e. the company.


Important - The information in this article is provided subject to the disclaimer. The law may have changed since first publication and the reader is cautioned accordingly.