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William A. Graham Co. v. Haughey, et al.

Court denies defendants’ motion for a new trial on the issue of damages in a copyright infringement action.

Court denies defendants’ motion for a new trial on the issue of damages in a copyright infringement action.

In June 2006, the plaintiff, insurance brokerage firm The Graham Company, obtained an $18.7 million verdict against former employee Thomas Haughey and Haughey’s new employer USI MidAtlantic, Inc. (USI). Graham alleged that Haughey misappropriated copyrighted documents used by Graham’s producers in insurance sales presentations when Haughey left Graham for a position with USI’s predecessor. Haughey then used these documents in obtaining insurance sales for USI. A jury awarded Graham damages in the sum of $16.5 million from USI and $2.2 million from Haughey, representing defendants’ profits attributable to the copyright infringement. Defendants moved for a new trial on damages or for an order reducing the size of the damages award.

The district court ordered a new trial and held that the three-year statute of limitations for copyright claims limited the time period for which plaintiff could recover damages. Following a second trial in this action, the jury returned a verdict limiting plaintiff’s damages to $1.4 million against USI and $268,000 against Haughey. However, the U.S. Court of Appeals for the Third Circuit reversed, finding that the plaintiff was not limited to damages occurring in the three years prior to the filing of the complaint. The action was remanded for a determination as to whether defendants should be granted a new trial on damages or remittitur.

On remand, the district court held that a new trial or remittitur should only be granted where “the ‘great weight’ of the evidence cuts against the verdict and ‘where a miscarriage of justice would result if the verdict were to stand.’” The first jury’s multi-million dollar award was not “so irrational as to ‘shock the judicial conscience.’”

In allowing the first verdict to stand, the district court approved of the jury’s calculation of damages. Neither party had contested the jury charge regarding calculation of damages, which were based on the defendants’ profits attributable to the infringement. The Copyright Act allows damages to be calculated in two steps. First, the plaintiff is required to prove USI and Haughey’s gross revenue attributable to the copyright infringement. Second, the defendant is allowed to prove “deductible expenses” and “other elements of profit attributable to factors other than the copyrighted work.”

During the first trial, Graham proved that USI had gross revenues of $31.8 million attributable to Graham’s copyrighted works and that Haughey earned $12.2 million of that amount for USI. Graham also introduced evidence that USI’s deductible expenses were limited to the 25% commissions paid to its producers, reducing USI’s gross revenues to $23.8 million. Defendants failed to introduce any other evidence of deductible expenses. Accordingly, the jury did not err in calculating damages from USI at 70% of the $23.8 million in profits or damages from Haughey at 75% of the 25% commission he earned on the $12.2 million.

The district court also held that the jury was justified in attributing 70% and 75% of defendants’ gross revenues to the copyrighted works because the sales presentation documents were highly influential in a client’s decision to purchase insurance. Moreover, defendants had destroyed various financial documents subsequent to the filing of the complaint in this action, and the jury was free to draw negative inferences against defendants from the spoliation of evidence.