Sales rep’s use of former employer’s copyrighted form book leads to $18 million verdict against new employer

A federal appeals court has just upheld (in part) a jury verdict of $18 million in favor of William A. Graham Co., an insurance broker, against USI Midatlantic, another broker, for copyright infringement. See William A. Graham Co. v. Haughey, No. 08-2007 (3d Cir. June 5, 2009) (reversing and remanding district court’s setting aside of jury verdict).

Years before, USI’s predecessor company had hired a sales representative (a.k.a. a ‘producer’) who had recently left Graham. The sales rep brought with him to the new job — in breach of both his employment agreement and his separation agreement with Graham — binders containing Graham’s (copyrighted) form paragraphs for use in client proposals. The sales rep and his new colleagues used Graham’s copyrighted form paragraphs for some 13 years. The business they wrote using those paragraphs generated some $27 million in net commissions for USI. See id., slip op. at 4-8.

When Graham learned about the infringement — years after it had begun — it filed suit against both the sales rep and USI. The jury found that approximately 70% of USI’s net commissions in question were attributable to the unauthorized use of Graham’s copyrighted form paragraphs. It awarded that percentage, some $18 million, as damages for copyright infringement. See id., slip op. at 9-10 & n.5.

(The case isn’t over yet: USI’s challenge to the jury’s 70% allocation must now be heard. The trial court, ruling in favor of USI on the statute-of-limitations issue, had elected not to address USI’s allocation challenge. The appeals court, though, reversed on the statute-of-limitations issue, so the case now goes back to the trial court for further proceedings.)

Moral:

• A breach of contract case can become extra-complicated if intellectual property is involved — even if the breach was long ago, the meter might still be running as far as damages are concerned.
• It’s just not street-smart to take copyrighted- or confidential information from a former employer — especially when you’ve signed agreements saying you won’t do so.