Limited Copyright Damages By Failing To Act

Ed. Note: This case shows what happens when you sit on your rights. Damages here were limited to two years because the company whose materials were stolen should have known back when it happened that the theft had occurred. The result here is that the former employee and his company got to keep millions in illegally captured business lost by the old employer.

Haughey is a former employee of Graham, a commercial insurance brokerage firm, who went to work for a competing firm. Under an agreement with Graham, Haughey was prohibited from disclosing company information and retaining company documents after termination. Upon leaving Graham's employ, Haughey took a set of binders containing the Standard Survey and Analysis and the Standard Proposal. Graham's employees use language from these works to prepare risk management studies to evaluate a prospective client's insurance needs. Graham learned of Haughey's copying in November 2004, when it received a proposal from a client of Haughey while attempting to solicit that client's business. The jury returned a verdict in Graham's favor and the damages awarded by the jury represented Haughey's profits from acts of infringement going back to 1992. Upon consideration of Haughey's posttrial motion, the court granted a new trial on the question of whether Graham should have reasonably discovered its injuries prior to the expiration of the threeyear statute of limitations.

The court addressed the question of inquiry notice in a copyright action, noting that a multitude of "storm warnings" existed here. Graham knew or should have known that Haughey's copy of the binders containing the works remained in his possession after Haughey was terminated in 1991. The binders were voluminous and Graham emphasized during trial how important the binders were to its business, noting that the eight sets of binders were tightly controlled. Due to the size, significance, and limited number of copies of the binders, Haughey's failure to return his copy would have been obvious, particularly given Haughey's contractual obligation to return the binders. In addition, Graham knew that Haughey had taken a position with a competing firm and understood that Haughey's responsibilities would be the presentation of written client proposals. The only real use Haughey would have had for the works was to copy them in violation of Graham's copyright. Moreover, Graham believed that Haughey was not a person of his word, for Graham considered Haughey in violation of his contractual obligations by continuing to contact Graham clients after his employment ended. Graham's failure to pursue the storm warnings was unreasonable and precluded it from reaping the tolling benefits of the discovery rule. The statute of limitations barred all of Graham's claims that accrued prior to February 9, 2002.