The Divergence of Corporate Officer Liability Doctrine Under Patent and Copyright Law

• Published date: 01 September 2015
• DOI: http://doi.org/10.1111/ablj.12052
• Date: 01 September 2015
• Author: Lynda J. Oswald

The Divergence of Corporate Officer

Liability Doctrine Under Patent and

Copyright Law

Lynda J. Oswald

INTRODUCTION

Can a corporate officer be held personally liable for the patent infringe-

ment of his or her corporation if “sufficient evidence [exists] to justify

piercing the corporate veil?”

1

Can an individual who has the ability to

control a firm’s allegedly infringing activity in his or her role as an offi-

cer, as well as a financial interest in that activity in his or her role as an

owner, be held personally liable for copyright infringement?

2

Traditional doctrines of corporate, agency, and tort law would suggest

that the answers to these questions should be a resounding “no.” Veil

piercing is a theory applicable to corporate shareholders, not officers.

The differing roles that a single individual holds as an owner and as an

officer must be respected lest the benefits of the corporate form be

eradicated.

However, patent and copyright case law would answer both of these

questions with an emphatic “yes.” Corporate officer liability doctrines

Professor of Business Law, Stephen M. Ross School of Business at the University of Michi-

gan. I gratefully acknowledge the research assistance of Margaret Twomey and the com-

ments, insights, and suggestions of the participants at the Colloquium on “Managing the

Legal Nexus Between Intellectual Property and Employees: Domestic and Global Con-

texts,” sponsored by the Stephen M. Ross School of Business, University of Michigan and

the Terry College of Business, University of Georgia, in April 2014. An earlier version of

this article was selected as a finalist for the 2014 Holmes-Cardozo Award for outstanding

scholarship by the Academy of Legal Studies in Business.

1

Al-Site Corp. v. VSI Int’l, Inc., 174 F.3d 1308, 1331 (Fed. Cir. 1999) (citation omitted).

2

Arista Records LLC v. Lime Group LLC, 715 F. Supp. 2d 481 (S.D.N.Y. 2010).

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C2015 The Author

American Business Law Journal V

C2015 Academy of Legal Studies in Business

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American Business Law Journal

Volume 52, Issue 3, 557–619, Fall 2015

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under both the Patent Act of 1952

3

and the Copyright Act

4

diverge

markedly from traditional doctrine. No statutory authority requires that

federal intellectual property law deviate from traditional rules of corpo-

rate, agency, and tort law in this manner; rather, the departure from

traditional norms is a seemingly unconsidered and underanalyzed con-

sequence of federal case law.

This article explores why the case law in federal patent and copyright

cases differs not only from traditional legal norms, but from each other

as well. It posits that the incorrect articulations of individual officer

liability found in both patent and copyright law can be attributed to two

factors: (1) the different avenues of appeals that patent and copyright

cases take that result in different models of judicial decision making and

(2) judicial reluctance to apply the strict liability standard of patent and

copyright law to individuals as opposed to entities. The cumulative

effect of these two factors is an erosion of the traditional protection

offered to corporate officers that puts active owners of small and closely

held firms at particular risk because of the dual roles they occupy.

It is premature to consider how to correct erroneous officer liability

doctrine before it is understood why such doctrine has arisen. This arti-

cle seeks to address that question of why. Part I outlines the baseline

against which specialized patent and copyright infringement liability

rules should be measured, by providing a brief overview of traditional

corporate, agency, and tort law concepts. These include the limited

liability afforded corporate owners—shareholders—absent a piercing of

the corporate veil, as well as the traditional tort law rules that impose

liability upon a corporate officer for his or her own wrongful acts and

agency rules of respondeat superior that would impute an agent’s actions

to the corporation. These rules evolved to facilitate the corporate form

and business activity, and should not be lightly overridden or dismissed

by the courts.

Parts II and III examine individual officer liability for patent and

copyright infringement, respectively, finding that in both instances the

courts apply tests for officer liability that diverge from traditional norms,

but in different ways. In evaluating officer liability for direct patent

infringement, the U.S. Court of Appeals for the Federal Circuit

3

35 U.S.C. §§ 1–376 (2012).

4

15 U.S.C. §§ 101–810 (2012).

558 Vol. 52 / American Business Law Journal

(“Federal Circuit”) has adopted a distorted application of veil-piercing

theory, a theory that is appropriately applied to corporate owners, not

officers. By contrast, the regional circuit courts of appeals address copy-

right infringement through vicarious liability, failing to consider that

that test was originally developed to evaluate the liability of the firm,

not an officer.

Thus, the rules that have evolved for corporate officer liability for

patent and copyright infringement are notable for not only their con-

flict with traditional rules of corporate liability that shield officers from

personal liability in the absence of personal participation in the

infringing acts, but also for their variance from each other. Part IV

posits two explanations for these phenomena. First, while the value of

assigning all patent cases to the Federal Circuit is heightened uniform-

ity in patent doctrine, the value of the regional circuits hearing copy-

right cases is a moderating influence that has kept copyright doctrine

closer to traditional doctrine. Part IV.A explores these effects by look-

ing at the impact of specialized jurisdiction on the jurisprudential vir-

tues that flow from “percolation” and “cross-pollination.” Second, as

Part IV.B discusses, judicial disquiet with applying the strict liability

standards of direct patent infringement liability and direct and second-

ary copyright infringement liability to corporate officers likely impelled

the adoption of doctrines intended to mitigate the harsh effects of

such liability standards. However, in turning to piercing doctrine (in

patent law) and tests of financial benefit (in copyright law), the courts

set patent and copyright doctrine on a collision course with traditional

doctrine, inadvertently diminishing traditional protections afforded to

corporate officers.

Clearly, the courts need to readdress and rewrite their doctrines to

adhere to traditional norms. That requires, however, that the courts rec-

ognize and address the error of the current doctrines and make a con-

certed effort to understand and adhere to traditional doctrines intended

to protect corporate actors. Part IV.C discusses these issues.

I. INDIVIDUAL LIABILTY OF CORPORATE OFFICERS

UNDER TRADITIONAL DOCTRINE

To understand the error of current officer liability rules for patent and

copyright infringement, one must first understand the parameter of

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