Thursday, August 4, 2011

Protect Your Business Work Product: Copyright

USI MidAtlantic, Inc. suffered a $22.5 million judgment for copyright infringement from competitor. A former employee of the competitor joined MidAtlantic and supplied them with binders of information about insurance products created by his former employer. Most lawyers would look to confidentiality agreements and trade secrets, but Graham, the competitor, had done something even better: they copyrighted the material. When MidAtlantic copied language from the binders into over 800 client proposals, they were found to indirectly infringe the copyrights.Graham recovered profits attributable to USI MidAtlantic's infringement, plus prejudgment interest.

The lesson? Copyright can be used to protect business work product. The plaintiff proved lost profits: their task may have been easier if they had promptly registered their copyrights.

The big legal issue in the case how far back can copyright damages go? Three years is the statute of limitations. The issue is, though, whether the statute of limitation runs three years from discovery or from when the claim "accrued," e.g. "occurred." Under the injury rule, a claim accrues, and the statute of limitations begins to run, when the plaintiff suffers the injury. If the discovery rule applies, the claim arises when the plaintiff discovers, or with reasonable diligence should have discovered, the injury. The difference: in this case the shorter limit resulted in $2 million in damages, the longer $20 million.

The Third Circuit went with the Discovery Rule. "Although we have not previously addressed this issue, eight of our sister courts of appeals have applied the discovery rule to civil actions under the Copyright Act. See Warren Freedenfeld Assocs., Inc. v. McTigue, 531 F.3d 38, 44-46 (1st Cir.2008);  Comcast v. Multi-Vision Elecs., Inc., 491 F.3d 938, 944 (8th Cir.2007);  Roger Miller Music, Inc. v. Sony/ATV Publ'g, LLC, 477 F.3d 383, 390 (6th Cir.2007);  Polar Bear Prods., Inc. v. Timex Corp., 384 F.3d 700, 705-07 (9th Cir.2004);  Gaiman v. McFarlane, 360 F.3d 644, 653 (7th Cir.2004);  Lyons P'ship, L.P. v. Morris Costumes, Inc., 243 F.3d 789, 796 (4th Cir.2001);  Daboub v. Gibbons, 42 F.3d 285, 291 (5th Cir.1995);  Stone v. Williams, 970 F.2d 1043, 1048 (2d Cir.1992)."

Defense, it seems, often relies on some shred of hope in some case somewhere. On this issue, it is a New York District Court case that gives copyright defendants hope to limit the limitations to accrual. Auscape Int'l v. Nat'l Geographic Soc'y, 409 F.Supp.2d 235, 247 (S.D.N.Y.2004). And defendants want to broaden a Supreme Court case on FCRA statute of limitations to copyright. TRW Inc. v. Andrews, 534 U.S. 19, 122 S.Ct. 441, 151 L.Ed.2d 339 (2001). That dog, it seems, won't hunt.

Here is the Third Circuit case: WILLIAM GRAHAM COMPANY v. HAUGHEY USI

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