USCA Third Circuit, May 16, 2011  

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  • The Third Circuit held that, in an action brought in 2004 for copyright infringement, where the defendant is found to be liable for copyright infringement dating back to 1992, the court may assess pre-judgment interest against the defendant going back to 1992, when the plaintiff’s copyright infringement claim began to accrue, not to 2004, when the plaintiff discovered the infringement.

In 1991, defendant Thomas Haughey left his job with plaintiff William A. Graham Co. (“Graham”) and began working for defendant USI MidAtlantic, Inc. (“USI”), a competitor. When Haughey left Graham, he took with him two binders prepared by Graham employees, which contained hundreds of pages of insurance product marketing and related materials. Although Graham owned the copyright to these binders, Haughey and USI began using these binders in July 1992 to prepare insurance coverage proposals and presentations to sell its own insurance products to its own clients.

Graham did not discover defendants’ infringement until 2004, when it brought an action against Haughey and USI for copyright infringement. Graham sought to recover defendants’ “indirect” profits attributable to the defendants’ indirect use of Graham’s binders in its own insurance sales.

After a trial in the matter, the jury found defendants liable for copyright infringement and awarded Graham the sum of $19 million, representing a percentage of defendants’ net profits from 1992 to 2004 that were attributable to copyright infringement. The evidence at trial showed that USI made $24 million and that Haughey made $3 million in net profits between 1992, when the infringement began, and 2004, when Graham brought its infringement action against defendants. In calculating damages, the jury credited seventy percent of USI’s profits and seventy-five percent of Haughey’s profits to the defendants’ use of plaintiff’s copyrighted marketing materials.

The district court initially set aside the $19 million verdict, finding that Graham should have discovered the infringement as early as 1991, and that under the so-called “discovery rule,” Graham’s claims for damages that were older than three years were time-barred. Both parties cross-appealed. In an earlier decision, the Third Circuit reversed and remanded, finding that for statute of limitations purposes, Graham’s cause of action only began to accrue when it discovered the infringement and that its claims for damages going back to 1992 were not time-barred.

On remand, the district court reinstated the jury verdict and Graham moved for an award of pre-judgment interest going back to 1992. In support of its motion, Graham offered an expert’s report calculating interest between 1992 and 2004. Relying on such report, the district court granted Graham pre-judgment interest in the sum of $4.7 million.

Defendants appealed the district court’s ruling, arguing that the judgment was excessive and that the Copyright Act did not permit recovery of pre-judgment interest, especially in a copyright infringement action for infringers’ profits. The Third Circuit disagreed and affirmed the district court, finding that the judgment did not “shock the conscience” of the court and that pre-judgment interest is available in copyright infringement actions, even if the Copyright Act does not specifically permit recovery of pre-judgment interest. There is also no reason to treat actions for infringers’ profits differently from other actions with respect to awards of pre-judgment interest.

Defendants also argued that even if the court were to award pre-judgment interest, pre-judgment interest should only begin to accrue in 2004, when the Third Circuit previously held that Graham’s claims began to accrue under the discovery rule. The Third Circuit held that a claim “accrues” for the purpose of calculating pre-judgment interest when all of the facts giving rise to the claim have occurred, not when the plaintiff could practically have brought the action. In so holding, the court recognized that it and other courts have used imprecise language in discussing when claims “accrue” under the discovery rule.