IN THE UNITED STATES DISTRICT COURT

FOR THE EASTERN DISTRICT OF PENNSYLVANIA

WILLIAM A. GRAHAM COMPANY : CIVIL ACTION

:

v. :

:

THOMAS P. HAUGHEY, et al. : NO. 05-612

MEMORANDUM

Bartle, C.J. April 2, 2008

Plaintiff William A. Graham Company ("Graham"), an

insurance brokerage firm, obtained a judgment against defendants

Thomas P. Haughey ("Haughey"), a former Graham employee, and USI

Midatlantic, Inc. ("USI"), another insurance brokerage firm and

Haughey's current employer, for copyright infringement. 17

U.S.C. § 101, et seq. Now pending before the court is the motion

of Graham to amend the judgment in its favor to include

prejudgment interest.

Two jury trials have taken place. At the first trial,

the jury returned a verdict in Graham's favor and awarded damages

in the amount of $16,561,230 against defendant USI and $2,297,397

against defendant Haughey. The court granted defendants' motion

for a new trial on the applicability of the statute of

limitations and on damages and thereafter granted defendants'

motion for partial summary judgment insofar as Graham sought

damages outside the three year statute of limitations. 17 U.S.C.

§ 507(b). At the second trial in January, 2008, which was

limited to damages, the jury had before it the following

Case 2:05-cv-00612-HB Document 262 Filed 04/02/08 Page 1 of 10
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question: "What is the amount of profits attributable to

infringement, if any, that each defendant earned on or after

February 8, 2002?" The jury awarded Graham $1,400,000 in damages

against USI and $268,000 against Haughey. The court thereafter

entered judgment on the verdict. No prejudgment interest was

added.

We must first address the question whether prejudgment

interest is allowable under the Copyright Act, 17 U.S.C. § 101,

et seq. The Act itself is silent on the subject. Though a few

courts have questioned whether such an award is permissible, most

which have faced the issue have determined that prejudgment

interest may be added under the Copyright Act in appropriate

circumstances. Compare Broadcast Music, Inc. v. Golden Horse Inn

Corp., 709 F. Supp. 580, 581 (E.D. Pa. 1989) with Polar Bear

Prods., Inc. v. Timex Corp., 384 F.3d 700, 718 (9th Cir. 2004)

(citing Frank Music Corp. v. Metro Goldwyn-Mayer, Inc., 886 F.2d

1545 (9th Cir. 1989)); Kleier Adver., Inc. v. Premier Pontiac,

Inc., 921 F.2d 1036, 1040-41 (C.A.10 (Okl.),1990) and McRoberts

Software, Inc. v. Media 100, Inc., 329 F.3d 557, 572-73 (7th Cir.

2003). While our Court of Appeals has not had occasion to

resolve the issue, it has reaffirmed in the context of an ERISA

matter the "long-standing rule that, in the absence of an

explicit statutory command otherwise, district courts have broad

discretion to award prejudgment interest on a judgment obtained

pursuant to a federal statute." Skretvedt v. E.I. DuPont de

Nemours, 372 F.3d 193, 205-06 (3d Cir. 2004) (citing Ambromovage

Case 2:05-cv-00612-HB Document 262 Filed 04/02/08 Page 2 of 10
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v. United Mine Workers, 726 F.2d 972, 981-82 (3d Cir. 1984). The

better reasoned view, we conclude, is that prejudgment interest

is a remedy available in copyright infringement cases in the

discretion of the court. 

We now turn to the question whether an award of

prejudgment interest would be appropriate under the present

circumstances. We take guidance from the Courts of Appeals for

the Sixth and Ninth Circuits, which have both held that

prejudgment interest should be awarded under the Copyright Act

when doing so would further the statute's purposes. Robert R.

Jones Associates, Inc. v. Nino Homes, 858 F.2d 274, 282 (6th Cir.

1988) (citing Rodgers v. U.S., 332 U.S. 371 (1947)); Polar Bear,

384 F.3d at 718. The Court of Appeals for the Ninth Circuit

identified these purposes as "making copyright holders whole and

removing incentives for copyright infringement." Polar Bear, 384

F.3d at 718. 

Defendants contend that there is no justification for

an award of prejudgment interest when, as here, the copyright

owner sought and was awarded only the infringers' profits, rather

than the actual loss it, the copyright owner, suffered. Under

the Copyright Act, a "copyright owner is entitled to recover the

actual damages suffered by him or her as a result of the

infringement, and any profits of the infringer that are

attributable to the infringement and are not taken into account

in computing the actual damages." 17 U.S.C. § 504(b). These two

remedies have been described as "two sides of the damages coin –

Case 2:05-cv-00612-HB Document 262 Filed 04/02/08 Page 3 of 10
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the copyright holder's losses and the infringer's gains." Polar

Bear, 384 F.3d at 708. In cases such as this one, where the

copyright owner's losses may be difficult to show, or entirely

nonexistent, the copyright owner's measure of damages may consist

entirely of an infringer's profits. With an award of defendants'

profits, Graham is obtaining a recovery of money which would not

have rightfully belonged to it if defendants had not committed

copyright infringement. According to defendants, Graham would

thus be receiving a windfall if interest is added since it is not

being compensated for the loss of the use of its own funds. John

G. Danileson, Inc. v. Winchester-Conant Properties, Inc., 322

F.3d 26, 51 (1st Cir. 2003); Murray v. Shaw Industries, Inc., 

990 F. Supp. 46, 48 (D. Mass. 1997). 

We agree that prejudgment interest on an infringer's

profits cannot be justified on the ground that it is necessary to

make Graham whole. Prejudgment interest, however, has another

compelling purpose, as identified by the court in Polar Bear. An

award of such interest counters the incentives of those who

engage in copyright infringement and prevents unjust enrichment

on the part of the infringer. 

Defendants maintain that the judgments against them are

sufficiently high so as to deprive them of any benefits from

their infringement, and there is no equitable basis to increase

the amount of the judgment by adding prejudgment interest. 

Drawing on Whelan Associates v. Jaslow Dental Laboratory, Inc.,

defendants further argue that prejudgment interest on the damage

Case 2:05-cv-00612-HB Document 262 Filed 04/02/08 Page 4 of 10
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award should only be granted if "exceptional circumstances" such

as bad faith, are present. 609 F. Supp. 1325 (E.D. Pa. 1989). 

Graham counters that the purpose of permitting a

plaintiff to seek the infringer's profits as a measure of damages

under the Copyright Act is to force the infringers to disgorge

any gains wrongfully obtained as a result of engaging in

copyright infringement. According to Graham, failing to award

prejudgment interest would allow the defendants to benefit from

what was, in essence, an interest-free loan on their wrongfully

obtained profits, and equity demands that defendants disgorge

that as well. In support of this argument, Graham quotes from an

opinion from the Court of Appeals for the Ninth Circuit:

Awarding prejudgment interest on the

apportioned share of defendant's profits is

consistent with the purposes underlying the

profits remedy. Profits are awarded to the

plaintiff not only to compensate for the

plaintiff's injury, but also and primarily to

prevent the defendant from being unjustly

enriched by its infringing use of the

plaintiff's property. For the restitutionary

purpose of this remedy to be served fully,

the defendant generally should be required to

turn over to the plaintiff not only the

profits made from the use of his property,

but also the interest on these profits, which

can well exceed the profits themselves. 

Indeed, one way to view this interest is as

another form of indirect profit accruing from

the infringement, which should be turned over

to the copyright owner along with other forms

of indirect profit. 

Frank Music, 886 F.2d at 1552. Graham also urges that there need

not be exceptional circumstances to justify an award of

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prejudgment interest, and in the alternative that those

circumstances exist in this case. 

Under the facts presented here, we agree that an award

of prejudgment interest against defendants would be appropriate

to effectuate the purpose of the Copyright Act to remove

incentives for copyright infringement. Such an award is

particularly appropriate here where the infringement continued

after defendants had notice of this lawsuit and where defendants

stipulated at the first trial that their copyright violation was

"willful" for purposes of the prejudgment interest issue. 

The next step is the calculation of the prejudgment

interest. First, we must determine what interest rate to apply. 

"In federal question cases, the rate of prejudgment interest is

committed to the discretion of the district court." Sun Ship,

Inc. v. Matson Navigation Co., 785 F.2d 59, 63 (3d Cir. 1986);

Skretvedt, 372 F.3d at 208. Graham suggests that the average

annual prime rate is the appropriate measure. It argues that the

court should use as its benchmark the defendants' cost of

borrowing, which Graham maintains is 1.5% to 3% above the prime

rate. Graham reasons that defendants should have to pay this sum

because they have had the interest-free use of the their wrongful

profits throughout the damages period and without this profit

they would have been required to obtain a bank loan, on which

they would have paid interest. Thus, according to Graham,

applying the prime rate to the verdict amounts is an accurate, if

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conservative, estimate of what defendants must pay fully to

disgorge their profits. 

We disagree. Instead, we think that a preferable

approach is to consider what benefit would accrue to the

defendants from the investment of those wrongfully-obtained

monies during the damages period. It is that amount of indirect

profit which must be added to the judgment to ensure that

defendants disgorge all benefits from their infringement. To

this end, we will apply the weekly average one-year constant

maturity Treasury yield, as published by the Board of Governors

of the Federal Reserve System (the "52-week T-Bill rate"). We do

so for two reasons. First, in the absence of actual evidence of

defendants' return on their investments during this period,

"using the T-Bill rate permits the Court to avoid the speculation

involved with determining whether possibly higher-yielding, but

riskier, investments would have been successful ...." Mars, Inc.

v. Coin Acceptors, Inc., 513 F. Supp. 2d 128, 136 (D.N.J. 2007). 

Second, the T-Bill rate is the federal statutory rate used to

calculate post-judgment interest. 28 U.S.C. § 1961. While

noting that the rate of prejudgment interest is a matter of the

district court's discretion, our Court of Appeals has also stated

that "[i]n exercising that discretion, [] the court may be guided

by the rate set out in 28 U.S.C. § 1961." Sun Ship, 785 F.2d at

63 (citations omitted). We consider the T-Bill rate to be a fair

approximation of any benefit defendants' obtained from the use of

their wrongfully obtained profits during the damages period. 

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Finally, we must decide how to calculate the amount of

prejudgment interest using the T-Bill interest rate. The

infringement period for purposes of damages began on February 8,

2002. Relying on calculations by Graham's expert, Dr. Richard

Gering, Graham has recommended allocating the total judgment

figures for each defendant to the individual years or partial

years that comprise the damages period. At the damages trial Dr.

Gering testified that USI earned a total of $7,307,657 and

Haughey earned a total of $1,072,330 over the full damages period

with respect to the insurance proposals containing infringing

language. Dr. Gering determined what percentage of these totals

was earned in each year of the damages period, 2002 through 2005. 

Dr. Gering has now applied these same percentages to the jury

awards of $1,400,000 against USI and $268,000 against Haughey. 

Having thus allotted the jury verdicts to the separate years from

2002 through 2005, Dr. Gering calculated prejudgment interest for

each of the years from 2002 through January 31, 2008. 

Defendants take issue with Dr. Gering's method. They

assert that it is inaccurate because there is no way to know

whether the jury computed its verdict in the same proportion for

each year as Dr. Gering or computed the defendants' infringing

profits for each year in the same manner. While we recognize

that Graham's method does require that assumption, we find this

method to be sufficiently accurate for the purpose of calculating

interest. Prejudgment interest does not have to be computed with

perfect exactitude. See Skretvedt, 372 F.3d at 208. Thus, in

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1. The calculations provided to the court by both Graham and the

defendants all assume that interest will be compounded annually. 

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performing our calculation, we will apportion the total verdict

amount among the years and partial years of the damages period as

done by Dr. Gering. Having done that, we will multiply the

apportioned verdict amount for each year by the T-Bill rate, and

add the resultant sums, compounding the interest annually. This 1

results in an award of prejudgment interest of $209,513 against

defendant USI and of $40,814 against defendant Haughey. 

Accordingly, the motion of Graham to amend judgment to

include prejudgment interest will be granted. We will enter an

amended judgment against defendant USI in the amount of

$1,609,513 ($1,400,000 + $209,513) and against defendant Haughey

in the amount of $308,814 ($268,000 + $40,814).

Case 2:05-cv-00612-HB Document 262 Filed 04/02/08 Page 9 of 10
IN THE UNITED STATES DISTRICT COURT

FOR THE EASTERN DISTRICT OF PENNSYLVANIA

WILLIAM A. GRAHAM COMPANY : CIVIL ACTION

:

v. :

:

THOMAS P. HAUGHEY, et al. : NO. 05-612

ORDER

AND NOW, this 2nd day of April, 2008, for the reasons

set forth in the accompanying Memorandum, it is hereby ORDERED

that:

(1) the motion of plaintiff William A. Graham Company

to amend judgment to include prejudgment interest is GRANTED;

(2) an amended judgment is entered in favor of

plaintiff William A. Graham Company and against defendant USI

MidAtlantic, Inc. in the amount of $1,609,513; and

(3) an amended judgment is be entered in favor of

plaintiff William A. Graham Company and against defendant Thomas

P. Haughey in the amount of $308,814.

BY THE COURT:

/s/ Harvey Bartle III 

C.J.

Case 2:05-cv-00612-HB Document 262 Filed 04/02/08 Page 10 of 10