William A. Graham Co. v. Haughey
| Decision Date | 16 May 2011 |
| Docket Number | No. 10–2762.,10–2762. |
| Citation | 98 U.S.P.Q.2d 1774,646 F.3d 138 |
| Parties | WILLIAM A. GRAHAM COMPANY, d/b/a The Graham Companyv.Thomas P. HAUGHEY; USI MidAtlantic, Inc., Appellants. |
| Court | U.S. Court of Appeals — Third Circuit |
OPINION TEXT STARTS HERE
Aleksander J. Goranin, David J. Wolfsohn (Argued), Woodcock Washburn, Henry E. Hockeimer, Jr., Ballard Spahr, Philadelphia, PA, for Appellee.Floyd Abrams (Argued), Cahill, Gordon & Reindel, New York, NY, Elizabeth S. Campbell, Thomas E. Zemaitis, Pepper Hamilton, Philadelphia, PA, for Appellants.Before: FUENTES, SMITH, and VAN ANTWERPEN, Circuit Judges.
Defendants Thomas Haughey and USI MidAtlantic, Inc. appeal a second time from a judgment entered against them in the Eastern District of Pennsylvania. (Our earlier decision, to which we will refer as Graham I, is reported at 568 F.3d 425 (3d Cir.2009).) A jury found Haughey and USI liable for surreptitiously infringing the William A. Graham Company's copyrights over the course of more than a decade, and returned a verdict in Graham's favor totaling nearly $19 million. To this the District Court added an award of more than $4.6 million in prejudgment interest. In the defendants' view, the jury verdict is so large as to shock the judicial conscience, and the prejudgment interest award is contrary to law. We disagree with both contentions and will therefore affirm.
In 1991, Haughey left his job with Graham, an insurance brokerage, for one with USI, a Graham competitor. When he changed employers, Haughey took with him two binders containing hundreds of pages of text describing various types of insurance coverages, exclusions, conditions, and similar matter. These binders had been prepared by Graham employees and were subject to that firm's copyrights. From July 1992 until 2005, Haughey and the rest of USI made use of these materials in preparing insurance coverage proposals for presentation to their clients. This use of Graham's creation constituted a long-running copyright violation, though not in the paradigmatic, “direct,” reproduction-and-sale-of-protected-works form. The infringement was instead “indirect,” in that the defendants used the copyrighted materials without permission in order to sell their own insurance products. This conduct was hidden from view, and Graham apparently did not discover it until November 2004.
On February 8, 2005, Graham filed suit against Haughey and USI under the Copyright Act, 17 U.S.C. § 101 et seq. The defendants raised the Act's three-year statute of limitations as a defense, but the District Court held that the “discovery rule”—which tolls the limitations period until the plaintiff learns of his cause of action or with reasonable diligence could have done so—applied to the Copyright Act and therefore saved at least part of the complaint, subject to the jury's determination of when Graham should have learned of its cause of action.
The case proceeded to trial. Although the Copyright Act permits the plaintiff in an infringement action to recover either statutory damages or “actual damages and any additional profits of the infringer,” 17 U.S.C. § 504(a), Graham eschewed the statutory damages provision and did not claim to have suffered any actual damages. It was therefore left to seek only the infringers' profits—that is, “any profits of the infringer[s] that are attributable to the infringement.” Id. § 504(b). To succeed on such a claim, a plaintiff is first required to prove the defendants' gross revenues over the course of the relevant time period, and then to establish a causal nexus between the infringement and the profits sought. Graham I, 568 F.3d at 442 (citing Polar Bear Prods., Inc. v. Timex Corp., 384 F.3d 700, 711 (9th Cir.2004)). Graham proved gross commissions of about $32 million for USI and $3 million for Haughey personally. The jury also made the necessary causation finding.
Once the plaintiff has done its part, the burden shifts to the defense to prove that some of its revenues were “attributable to factors other than the copyrighted work,” and are therefore not recoverable. 17 U.S.C. § 504(b). Graham conceded that 25 percent of USI's revenues were deductible expenses, reducing its potential recovery against USI to around $24 million. From there, the defendants argued for further reductions to account for their own contributions to their success. The jury credited these arguments in part, and accordingly awarded Graham $16,561,230 from USI and $2,297,397 from Haughey—representing about 70 percent of USI's profits, and 75 percent of Haughey's, over the course of the relevant time period. The jury also found that Graham had not been on notice of the infringement prior to February 9, 2002—which meant that no part of its claim was time-barred.
After the jury returned its verdict, the District Court determined, based on the trial evidence, that Graham had in fact been placed on inquiry notice of the defendants' conduct through the existence of “storm warnings” as early as the fall of 1991. The court therefore set aside the jury's verdict and held a second trial limited to damages that had arisen within three years of the commencement of Graham's action. The second jury entered a verdict in the amount of $1.4 million against USI and $268,000 against Haughey.
The parties cross-appealed. Graham argued that the District Court's “storm warnings” analysis was mistaken, and that the initial verdict should be reinstated. The defendants argued that Graham had failed adequately to prove the requisite causal nexus. We affirmed in part and reversed in part. Causation, we said, had been adequately proven at the first trial. Graham I, 568 F.3d at 442–43. But while the District Court had correctly held that the discovery rule applied to Copyright Act claims, it had erred in finding “storm warnings” in the face of the first jury's well-supported conclusion that Graham could not reasonably have discovered the infringement at any time before February 9, 2002. Id. at 441. We accordingly remanded the case for consideration of the defendants' argument that the 70 and 75 percent apportionments of their profits were unsupported by the evidence and that the verdict was therefore excessive.
The District Court rejected the excessiveness argument and reinstated the original jury's verdict. It also granted Graham's motion for prejudgment interest, which the court awarded in accordance with the calculations of Dr. Richard J. Gering. Dr. Gering's report, the substance of which the defendants neither challenged nor rebutted, is premised on interest beginning to accumulate in 1992, when the first infringement occurred. The defendants took exception to this choice of date, arguing that interest should have been awarded, if at all, only from the date in 2004 on which Graham discovered its cause of action. They also asserted that prejudgment interest is not available in infringers'-profits copyright cases, as a matter of law. The District Court rejected these arguments and ordered interest awards totaling $4,112,859 against USI and $570,542 against Haughey.
The defendants appeal, arguing both that the jury's verdict shocks the judicial conscience and that the prejudgment interest award is improper. The District Court had jurisdiction under 28 U.S.C. §§ 1331 and 1338(a); ours is premised on 28 U.S.C. § 1291.
We first address the defendants' claim that the damages award is excessive. This is a steep climb. A district court's decision regarding a request for a remittitur is reversed only for abuse of discretion, and a case is remanded for a new trial “only if the verdict is so grossly excessive as to shock the judicial conscience.” Gumbs v. Pueblo Int'l, Inc., 823 F.2d 768, 771 (3d Cir.1987) (citations and internal quotation marks omitted); Tormenia v. First Investors Realty Co., 251 F.3d 128, 138 (3d Cir.2000). The climb is made even steeper by the fact that the defendants bore the burden of proving the extent to which the verdict should be reduced to account for “factors other than the copyrighted work.” 17 U.S.C. § 504(b). In the ordinary remittitur case, an aggrieved defendant need “only” show that the other side's evidence did not justify the award. “Grossly excessive” is a hard thing to show, but the defendant can proceed by demonstrating that his opponent's case is feeble, or that the damages are out of proportion to the actual injury. Here, Haughey and USI are in the position of having to prove that the jury underweighted their own evidence to the point of shocking the judicial conscience.
In making their case, the defendants emphasize the several months and hundreds of man-hours of research and relationship-building that precede every sale. Before USI can earn a commission, a salesman has to know what risks to look for, discern which ones the prospective client faces, determine which underwriters are willing to insure those risks and at what prices, and develop a coverage scheme that he must then sell to the client. This process requires detailed knowledge of the insurance industry and the sorts of products that are available, and demands that the salesman establish his credibility and trustworthiness through face-to-face meetings and sales pitches. All this effort, the defendants insist, accounts for the vast majority of their earnings. Furthermore, they argue that only relatively small portions of the text of the written proposals was lifted from the copyrighted materials, and that much of this was boilerplate that cannot have had a large influence on their clients' coverage-purchasing decisions.1
We have some sympathy for the argument that these efforts accounted for more than 25 or 30 percent of the defendants' earnings (though the defendants coyly decline to say just how much more). Any such sympathy is not, however, sufficient to justify overturning the jury's verdict. Graham has pointed to substantial evidence of...
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