USI Holdings Loses ‘Landmark’ Copyright Dispute with Publisher

New York-based USI Holdings Corporation said it would appeal a jury verdict against USI MidAtlantic, Inc., one of its subsidiaries, in a copyright infringement case that the winning publisher’s lawyers say is a landmark decision.

A jury in the Federal Court in Philadelphia, Eastern District of Pennsylvania, has awarded The Graham Company nearly $19 million in one of the largest so-called “indirect profits” copyright infringement awards in history. The jury deliberated on June 27 for less than three hours in awarding $16,561,230 against USI MidAtlantic, Inc. and $2,297,397 against its employee Thomas P. Haughey.

At issue was the infringement of two books written by commercial insurance broker, The Graham Company of Philadelphia. The books contain insurance forms and coverage descriptions, and were used as reference works and sales manuals for commercial insurance brokers.

According to Graham’s attorneys, the evidence at trial showed that the infringement covered a period of 14 years, after a departing Graham employee provided USI’s predecessor company with the books in 1991. USI used the material as a critical part of their sales program, by copying the books verbatim into their computer system and making them electronically available to all employees and via distribution of hard copies, according to Graham.

Lawyers for the publisher say it is a landmark verdict.

“This is a landmark verdict for two reasons: first, we believe it is the largest verdict ever in an ‘indirect profits’ copyright infringement case, and second, it is the first jury verdict of which I am aware involving copyright infringement of insurance forms and other insurance-related materials,” said David J. Wolfsohn, the lead trial lawyer for The Graham Company and a partner with Woodcock Washburn LLP.

Aleksander Goranin and Loretta Weathers of Woodcock Washburn were also on the trial team.

The case sought damages under 17 U.S.C. section 504(b), which permits the copyright owner to obtain infringer profits. The profits sought were “indirect damages” because the books themselves were not sold by USI. Rather, the books were used to generate revenue in the form of sales commissions.

“We are pleased that the jury seemed to have recognized how unique and important these books are to The Graham Company’s business, and how they ended up being so important to USI’s business as well. And the verdict certainly sends a message that jurors take copyright violations seriously,” said Wolfsohn.

David L. Eslick, chairman, president and CEO of USI Holdings, vowed to fight the decision.

“We could not disagree more strongly with the jury’s conclusion that our subsidiary, USIM, or Thomas Haughey infringed Graham’s copyright or that the commissions we received were attributable to the use of Graham’s materials. We intend to pursue vigorously avenues for post-trial relief from the judgment and will continue to pursue aggressively USIM and Tom Haughey’s coverage under applicable insurance policies,” he said.

The company said it intends to file a motion with the trial court to set aside or significantly reduce the judgment. If the company’s motion is denied, the company intends to pursue an appeal.

USI said it previously notified its insurance carriers of the plaintiff’s claim. Certain of the insurance carriers have denied coverage under their policies, others are evaluating their positions, and one carrier has provided some coverage, according to USI.

The company is currently evaluating the judgment, including its litigation and insurance coverage options. If the company subsequently determines that a contingency reserve is required, the amount will be reflected in the second quarter financial statements. As of March 31, 2006, USI had not established a contingency reserve on this case. It does however expect to boost its contingency reserves and acknowledges that an increase could be material and could negatively impact its financial results for the second quarter of 2006.

The case, William A. Graham Company v. Thomas P. Haughey and USI MidAtlantic, Inc. (U. S. District Court, Eastern District of Pennsylvania, CA No. 05-612) was brought in Federal District Court in Philadelphia in February 2005.

Sources: Woodcock Washburn LLP
USI Holdings