USI Holdings Loses Copyright Dispute in Graham Co. Appeal Case

June 9, 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 Company, a large regional insurance brokerage firm based in Philadelphia, began copyright infringement litigation against USI MidAtlantic, a subsidiary of USI Holdings, 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 written by commercial insurance broker, The Graham Company of Philadelphia. The books contain insurance forms and coverage descriptions, and were used as reference works and sales manuals for commercial insurance brokers.

In June 2006, a federal jury had awarded The Graham Company $18.9 million, finding that USI and Haughey had infringed its copyrights over a period of 13 years. At that time, the jury also heard evidence that USI had destroyed evidence of infringement after the lawsuit had commenced.

Then on Nov. 21, 2006, the district court reversed the federal jury verdict, ruling that The Graham Company 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 has granted its motion for partial summary judgment on a statue of limitations issue in the copyright infringement action

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 Company should not have known about the infringement was fully 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.

“When a library lends a book, they are not expected to assume that the borrower will illegally copy it. I am pleased that the Court of Appeals agrees that businesses are subject to the same standard and will not lose copyright protection simply because a former employee kept valuable books of The Graham Company when he left,” said William A. Graham IV, CEO of The Graham Company.

The Court also “rejected the proposition that the discovery rule places a duty on prospective plaintiffs to inquire into possible future wrongful conduct.” (Slip Op. at 21-22)

“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,” said David Wolfsohn, a partner with Woodcock Washburn, and The Graham Company’s lead trial and appellate counsel.

The litigation will now return to the district court for further proceedings.

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. We look forward to revisiting our alternative grounds for a new trial with the same district court judge.” He added that the alternative grounds would target 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 on when that would occur.

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