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

Court holds that prejudgment interest is appropriate in this case because it provides full compensation to the plaintiff and acts as a deterrent to willful copyright infringement; court calculates prejudgment interest from the date the infringement began, not the date plaintiff learned of the infringement.

Plaintiff William A. Graham Co. is an insurance brokerage firm where defendant Thomas P. Haughey was employed at one point as an insurance producer. Later Haughey went to work for defendant USI MidAtlantic, Inc., another insurance broker. In 2006, a jury found that USI and Haughey infringed Graham’s copyrights in documents that Graham’s employees used to prepare surveys, analyses and proposals for clients or prospective clients. These documents described insurance coverage concepts in lay terms and were instrumental in the sales process. The jury returned a verdict in favor of Graham and against USI and Haughey in the amounts of $16,561,230and $2,297,397, respectively.

Thereafter, the court granted the defendants’ motion for a new trial on the issue of whether the discovery rule applied in a copyright infringement action. Under the discovery rule, Graham's "cause of action for each act of infringement did not accrue until Graham discovered, or with reasonable diligence should have discovered, the injury underlying its claim." After the court granted the motion for a new trial, USI and Haughey filed a motion for partial summary judgment on the issues of statute of limitations and damages. The court granted this motion, and as a result Graham was barred from collecting damages for more than the three-year period prior tothe institution of suit. The court then ordered a new trial to decide damages for the three-year period immediately preceding the filing of the complaint.

The second jury returned a verdict in favor of Graham and against USI in the amount of $1,400,000 and against Haughey in the amount of $268,000. The court entered judgment on this verdict. Thereafter, Graham filed its second motion to amend the second judgment to include prejudgment interest and the court granted this motion. In 2009, the U.S. Court of Appeals for the Third Circuit affirmed the application of the discovery rule to determine when a claim for copyright infringement accrues. However, it reversed the district court’s orders granting the motions of USI and Haughey for a new trial and partial summary judgment. The amended judgment entered after the second trial, including the court’s award of prejudgment interest, was vacated. The Court of Appeals remanded the action for a determination of the remaining unresolved issues raised by USI and Haughey after the first trial in their motion for judgment as a matter of law, or in the alternative, for a new trial. In 2010, the court denied the motion of the defendants for a new trial on damages and reinstated the judgment originally entered on the docket on June 28, 2006.

In the court’s 2008 memorandum, it explained that an award of prejudgment interest is available under the Copyright Act at the discretion of the court, even though the Act is silent on the issue. The court also explained that the Sixth and Ninth Circuits have held that such an award is appropriate when doing so would further the statute's purposes of making copyright holders whole and removing incentives for copyright infringement.

In this decision, the court reiterated that an award of prejudgment interest is appropriate in this case because it prevents the defendants from being unjustly enriched as a result of their willful and continuing infringement of Graham’s copyrights; it provides full compensation to the plaintiff; and it acts as a deterrent to willful copyright infringement.

The court disagreed with the defendants’ assertion that prejudgment interest should not be awarded on infringer profits because such profits do not represent losses incurred by the plaintiff as a result of the infringement, noting that the defendants relied on two “dated cases” and that the law as to awards of prejudgment interest in copyright infringement cases has evolved to allow such interest where it would have been previously disallowed.

The court also held that prejudgment interest should be calculated based on when the infringement began in 1992 and not on the date when the plaintiff learned of the infringement in 2004. (The parties did not dispute that postjudgment interest should be awarded at the annual rate of 5.24%, compounded annually, and should run from the date of the judgment.) According to the court, the accrual date, which is significant for statute of limitations purposes, is not “the appropriate point for prejudgment interest to begin when the acts of infringement predate the accrual date and were not discovered and could not have reasonably been discovered before the accrual date.” The court noted that the plaintiff was being harmed before November 2004 even though it did not know it at the time. Furthermore, according to the court, the plaintiff may recover damages that occurred before the accrual date, so “we see no reason why prejudgment interest may not be recoverable coincident with those damages.”

The court rejected the defendants’ argument that awarding prejudgment interest on such large judgments amounts to a sanction. “In this case, the equities require an award of prejudgment interest for the entire infringement period. First, the defendants engaged in deliberate violations and have so stipulated. Their willful conduct continued after the lawsuit was initiated and after they were on notice of Graham's copyrights in the Works. In addition to their knowing violation of the statute, the defendants destroyed key financial documents that were subject to discovery production pursuant to an Order of this court. . . . The deliberateness of the defendants' conduct, coupled with their destruction of relevant evidence, weighs heavily in favor of the exercise of our discretion to award prejudgment interest so as to compensate plaintiff fully.”

The court granted plaintiff’s motion for prejudgment interest in the amount of $4,112,859 against USI MidAtlantic, Inc. and $570,542 against Thomas P. Haughey. The court also granted plaintiff's motion for postjudgment interest at the annual rate of 5.24% to be compounded annually.