Topic: Copyright infringement of internal business procedure materials.
Facts: Insurer William A. Graham Co. ("Graham") federally registered its copyright in materials it used to create sales proposals for new clients. Former employee Haughey took the materials with him when he left Graham to work for one of its competitors. Both Haughey and the competitor then used the copyrighted materials as part of their sales process over a period of many years. When Graham finally discovered the use, it sued Haughey and his employer for copyright infringement. A jury awarded Graham more than $19 million in profit-disgorgement damages. The district court decided that part of Graham's claims were time-barred and held a new trial on damages. On initial cross appeals, the Third Circuit Court of Appeals found the district court had erred regarding the statute of limitations. The Third Circuit remanded the matter to the district court and instructed it to determine whether the jury's first verdict was excessive. The district court rejected the excessiveness argument and reinstated the jury's original verdict. In addition, the district entered judgment for $4.6 million in pre-judgment interest.
Following a second round of appeals, the Third Circuit Court of Appeals affirmed the district court. The Third Circuit agreed that enough evidence existed to support the jury's award even though it amounted to 70-75% of the profits earned during the period of copyright violation. The court also agreed that the Copyright Act's silence on the question favors awards of prejudgment interest. Finally, the court explained the differences between accrual of an action for purposes of prejudgment interest calculations and the discovery rule for purposes of determining whether a statute of limitations should be tolled. The court held that the obligation to pay interest begins at the objective existence of a viable cause of action. Otherwise, plaintiffs would not receive full compensation and defendants would have "additional incentives to conceal their tortious or otherwise illegal actions."
- Know your copyrights. As long as company documents and sales materials meet copyright law requirements for originality, they are afforded copyright protection as soon as they "become fixed in a tangible medium." The materials do not need federal registration to be deemed copyrighted.
- Know when to register. While registration is not needed to obtain copyrights, federal copyright registration is a mandatory pre-requisite to protecting those rights through litigation. The remedies of statutory damages and attorneys' fees are available if the registration is filed before the first act of infringement occurs. Copyright holders who wait to register a work until after infringement begins will find themselves limited to a narrower set of remedies such as actual damages and/or an injunction. To the extent that the materials do not contain confidential or sensitive information, businesses might therefore consider taking the additional step - as Graham did - of federally registering their copyright even when there is no anticipated litigation to ensure it can obtain the full set of available remedies if infringement does occur.
- Control use of outside materials. Though the former employee in Graham wrongfully took copyrighted materials, the lion's share of the $23 million award will come out of his new employer's pocket. Companies should carefully consider policies that address a new employee's use of materials or information acquired in previous employment.
Your company's intangible assets are not just its trade secrets, trademarks, and patents; copyright can also be a tool in the fight against unfair competition. Even a company that wants to keep its materials a secret until a dispute arises can still seek copyright protection, though certain remedies may be foreclosed by waiting to register. Liberal rules allowing preregistration filings in aid of anticipated litigation permit copyright holders to still pursue an infringement claim even if the material at issue does not yet have a formal certificate of registration.
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