Graham v. USI MidAtlantic: Should I Be Concerned?
August 2006
The Graham Company recently won an $18.9 million
verdict against USI MidAtlantic. It is the first time in the history of copyright
law that damages were awarded for copyright infringement with regard to insurance
materials. Insurance organizations need to take heed to both avoid liability
for infringement and protect its own valuable intellectual property.1
by Sanford
E. Warren Jr. and Eric Klein
Akin Gump Strauss
Hauer & Feld LLP
Beginning in the 1980s, Graham drafted hundreds of pages of prose, as well
as standardized forms and lists, to assist its employees in preparing insurance
documents for its customers. The documents were used to present customer-specific
proposals that analyzed a particular customer's business and risk situation.
Graham contends that developing the standard documents required the "expenditure
of tremendous time and effort." Graham called this written material the Standard
Survey and Analysis and the Standard Proposal. These documents were registered
with the U.S. Copyright Office in 1995.
In late 1991, an employee who had access to the copyrighted documents left
Graham and went to work for a competitor which was later acquired by USI. The
employee had an employment agreement with Graham that provided the employee
would not disclose Graham's information to anyone for a period of 3 years after
termination of his employment with Graham. Additionally, the agreement provided
that the employee would turn over all books, files, records, notes, and lists
upon termination.
Shortly after joining USI, the employee provided the Standard Survey and
Analysis and the Standard Proposal to USI, and it was subsequently entered into
USI's computer system. Employees of USI had full access to the Standard Survey
and Analysis and the Standard Proposal and were free to incorporate the language
from these documents into proposals to USI's customers. In 2004 Graham became
aware of USI's actions after USI sent a proposal containing Graham's copyrighted
materials to a former employee of Graham.
Graham filed suit against USI and the employee, claiming copyright infringement
and breach of contract. The employee admitted that he used Graham's copyrighted
materials as they existed in 1991 in more than 900 proposals over a 15-year
period.
Copyright Infringement
A copyright infringement claim requires proof of (1) ownership of a valid
copyright and (2) actionable copying, which is the copying of constituent elements
of the work that are copyrightable. Two separate inquiries must be made to determine
whether actionable copying has occurred.
The first question is whether the alleged infringer copied or actually used
the copyrighted material in his own work. Circumstantial evidence may support
an inference of copying if the defendant had access to the copyrighted work
and there is probative similarity between the copyrighted work and the allegedly
infringing work.
The second question is whether substantial similarity exists between the
copyrighted work and the allegedly infringing work. To answer this question,
a side-by-side comparison must be made between the original and the copy to
determine whether a layman would view the two works as substantially similar.2
In a case before the U.S. District Court for the Eastern District of Pennsylvania
on June 29, 2006, the jury found that both USI and Graham's former employee
were liable and awarded significant damages to Graham.
Issues To Consider
This case raises two important questions that every insurance company should
consider:
- Are my company's materials protectable, and should I seek protection?
In the insurance industry, forms are a way of life. Most insurance companies
must continually navigate constantly changing legal issues and find that
providing form language to its employees allows them to stay in compliance
with various laws and regulations.
Some of the language used on forms in a particular industry may actually
be common phrases that are used by virtually everyone in the industry. So,
when does a piece of work become protectable under current copyright laws?
It is settled law that to obtain a valid copyright, the applicant need
not show that the material in question is unique or novel; it need only
be original. Thus, a work may be protected by copyright even though it is
based on a prior copyrighted work or something already in the public domain
if the author, through his skill and effort, has contributed a distinguishable
variation from the older works. In such a case, of course, only those parts
which are new are protected by the new copyright.3
In determining the amount of originality required, it is frequently stated
that the standards are minimal, and that in copyright law, originality means
little more than a prohibition against copying. Nevertheless, something
more than merely refraining from outright copying is required before a new
variation on an old work has sufficient originality to be copyrightable.
The author must add some substantial—not merely trivial—originality. The
variation must be meaningful and must result from original creative work
on the author's part.4
Put simply, if you currently use common form language that can be found
in most typical proposals or contracts in the insurance industry, it probably
is not protectable. However, if you have taken that common language and
made changes that cause it to become distinguishable from the original work,
it may be protectable. The inquiry on whether a work is protectable under
copyright law is one that is both factually and legally driven.5
Keeping the above guidelines in mind, if you have protectable materials
that you deem to be important to your business, it makes sense to pursue
a copyright. Having a copyright will allow you to safeguard your valuable
materials from competing business.
- Are any of my employees using copyrighted forms that could expose my
business to liability?
It is difficult to know whether your business is currently using copyrighted
materials by a mere inspection. There are, however, a few things you can
do to help protect against becoming a target.
Know Your Employee's Obligations
First, if you hire employees from competitors, always check and see if that
individual is obligated under any agreements with that competitor. Specifically,
tell the new employee that he/she must fully comply with any employment or termination
agreements imposed by their old employer. If the agreement requires the return
of all company materials, make sure that your new employee fully complies. Instruct
the new employee to avoid bringing any of his former employer's documents or
materials into their office. It is always good business to know about and fully
understand the obligations that your new employee will be bound by in their
new position.
Know Your Documents
Second, when putting together a set of forms or standard materials, track
the evolution of the documents very closely. Make sure that someone does not
incorporate a protected piece of material into your project thereby contaminating
the entire document. A little bit of due diligence in the early stages of standardization
will help ensure that your final product is both protectable and will not subject
your business to liability due to copying.
Taking a few precautionary measures in your business could save you time
and money down the road. Also, consider registering your protectable materials
with the U.S. Copyright Office. It will ensure that you are protected and allow
a means for relief if someone is using your materials without authorization.
Eric J. Klein's practice focuses on all aspects of intellectual property litigation, including
patent, copyright, and trademark matters. Mr. Klein received his B.S.C.E. from
Texas A&M University and both his M.B.A. and J.D. degrees from Texas Tech University.
He is a member of the State Bar of Texas, the Dallas Bar Association, the American
Bar Association, and the American Intellectual Property Association. He can
be reached by calling (214) 969-2751 or by e-mail at .
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