A VEILED THREAT

Officers and Directors may be Liable Along with the Corporation for Patent Infringement
By William B. Bunker

It may come as quite a surprise to a corporate officer that he may be held liable, under certain circumstances, for the corporation's patent infringement, even in the absence of a piercing of the corporate veil. This is an especially serious risk in light of the provisions in the patent statute for up to treble damages, as well as lawyer fees. 35 U.S.C. §§284-85.


Perhaps the high-water mark of this type of personal liability was a 1986 decision in the U.S. District Court for the Eastern District of Pennsylvania. In A. Stucki Co. v. Schwam, 634 F. Supp. 259 (E.D. Pa. 1986), the defendant was president and a director of a company that had originally been sued for patent infringement. The company was found to have infringed the patent, and a judgment was rendered against the company for money damages in the amount of more than $2.5 million. The patent holder was not able to satisfy the entire money judgment by executing on the corporate property, and subsequently successfully sued Schwam personally for patent infringement.


The district court explained: "Where the officer or director has directed or ordered the infringing method of manufacture or has controlled the sale of the infringing goods, he is jointly liable with the corporation for patent infringement without regard to his specific intent or knowledge."


As a result, Schwam, as CEO, was held personally liable for the monies that the corporation had not been able to pay. Moreover, the court refused to permit Schwam to personally relitigate the issues of patent infringement, patent validity, or even the amount of damages, stating that these issues had already been litigated in the prior lawsuit against his corporation.
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