USI Holdings Loses Appeal in Graham Co. Copyright Dispute Case

By | June 10, 2009

The United States Court of Appeals for the Third Circuit ruled that a district court should not have reversed a verdict concerning copyright infringement case William A. Graham Company v. Thomas P. Haughey and USI MidAtlantic Inc.

The Graham Co., a large regional insurance brokerage firm based in Philadelphia, began copyright infringement litigation against USI MidAtlantic, a subsidiary of Briarcliff Manor, New York-based USI Holdings, an insurance and financial services firm, and Haughey, four years ago when Graham claimed that Haughey, a former Graham employee, illegally copied Graham’s copyrighted insurance books and then used that material in hundreds of sales proposals.

At issue was the infringement of two books, the Standard Survey and Analysis and the Standard Proposal, both written by commercial insurance broker, The Graham Company of Philadelphia. The books, each hundreds of pages long, contained insurance forms and coverage descriptions, and were used by Graham producers as reference works and for client proposals for commercial insurance. According to Graham Co., Haughey and USI copied Graham’s copyrighted language from these two books into at least 857 proposals over 13 years from 1992 through 2005.

Graham filed suit against USI in February 2005, asserting claims for copyright infringement against USI and Haughey as well as a breach of contract claim against Haughey. USI moved for partial summary judgment, claiming that any infringement that occurred more than three years prior to filing of the complaint was time-barred under the Copyright Act’s three-year statute of limitations for civil actions. The district court denied the summary judgment motion, holding that the discovery rule applied to infringement claims under the Copyright Act and that therefore Graham was entitled to present evidence to demonstrate that it could not have reasonably discovered USI’s infringement before it actually did so.

The case moved to a jury trial. After Graham voluntarily dismissed the breach of contract claim that it had asserted against Haughey, in June 2006 a jury reached a verdict in favor of Graham on the copyright claim in the amount of $16,561,230 against USI and $2,297,397 against Haughey. The jury found that USI and Haughey had infringed its copyrights over a period of 13 years.

Following the jury verdict, USI moved for a new trial on the statute of limitations issue, and the district court granted the motion. According to the court, the jury’s answer to the statute of limitations interrogatory “was against the great weight of the evidence” because the district court concluded that Graham knew or should have known of certain storm warnings that Haughey would infringe as early as the fall of 1991.

Then on Nov. 21, 2006, the district court reversed the federal jury verdict, ruling that The Graham Co. should have known about USI’s infringement much earlier, and therefore was not entitled to damages for the entire 13 year period of infringement.

In April 2007, USI Holdings Corp. reported that a federal court had granted its motion for partial summary judgment on a statue of limitations issue. The court wrote that “it would be nonsensical for a statute of limitations to begin running before the actual injury had occurred,” but concluded that “we see no reason why the clock on Graham’s claims should not have started to run at the time when Haughey first began to infringe, since there is no sign that any of the storm warnings had abated by that point.”

In the most recent decision, the U.S. Court of Appeals, in a unanimous three judge panel, ruled that the district court should not have reversed the verdict, and that the jury’s decision that The Graham Co. should not have known about the infringement was supported by the evidence.

The court also ruled that, in copyright matters, the statute of limitations does not begin to run until the copyright owner knows or should have known of the infringement, even if the owner knows that the infringer has copies of the copyrighted books. USI had argued that even if the infringer keeps its infringement secret, the statute of limitations runs on the victim three years after infringement — even if the copyright owner was unaware of it.

There were two issues that the district court didn’t rule on when it initially reversed the jury’s verdict. One was that the verdict was excessive and the other issue was that the jury did not properly apportion between the profits that were derived from the infringement and those derived from some other cause such as a close relationship with the sales producer, or other elements in the proposals that were not copied from the Graham materials.

“So now the judge is going to decide those two issues which he didn’t need to before,” said David Wolfsohn, a partner with Woodcock Washburn, and The Graham Co.’s lead trial and appellate counsel.

Wolfsohn said he anticipates that the judge will rule within a few months, but there is a possibility that the judge might grant a new trial.

Commenting on behalf of USI Holdings, Ernest Newborn, senior vice president and general counsel of USI holdings Corp., said: “We are disappointed with the ruling because we believe the trial judge is correct in his rulings following the first trial.”

Newborn said USI will be revisiting options for alternative grounds for a new trial with the same district court judge, including that the first jury verdict was excessive and there was an inappropriate apportionment of the revenues to the alleged infringing conduct.

Newborn said that USI also intends to ask the U.S. Supreme Court to review the ruling of the Third Circuit Court of Appeals, although he was not sure when that would occur.

If the district court judge agrees with USI and grants a new trial, it would mark the third trial for the full damages period in this case. The first trial for the full damages period was for 1992-2005. The second trial was for damages from 2002-2005.

“If he agrees with the defendants then we would have a third trial for the full damages period because the Court of Appeals has said that you can’t cut off the period,” Wolfsohn explained.

Wolfsohn predicts such a motion will be very difficult to win because the jury has already made a decision, and the 3rd Circuit upheld at least some of the issues in the case.

But if the judge rules in favor The Graham Co. on the issues of excessive jury verdict and proper apportionment, then the old verdict shall be reinstated, which was $18.9 million.

Wolfsohn said: “This is an important victory for copyright owners, since it means that infringers will not be able to avoid compensating their victims by keeping their infringement secret until the statute of limitations passes.”

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