IRVINE, Calif. - Legg Mason Inc. has settled a major copyright infringement lawsuit brought by an investment newsletter publisher.
In 2003, a Baltimore jury awarded $19.7 million to the publisher, Lowry's Reports Inc. of North Palm Beach, Fla.
Legg Mason of Baltimore appealed the verdict, but the parties settled, and the 4th U.S. Circuit Court of Appeals in Richmond, Va., dismissed the case June 17.
The dismissal came one week before Legg Mason announced that it was swapping its brokerage division for New York-based Citigroup Inc.'s asset management unit.
Terms of the confidential settlement were not disclosed.
But according to a June 9 Securities and Exchange Commission filing, Legg Mason said that it had reversed $8.2 million of the $20.7 million it previously had reserved to cover costs of the litigation, indicating that the case cost Legg Mason a total of about $12.5 million.
Paul Desmond, president of Lowry's, said he did not know what motivated Legg to reach a settlement other than possible concerns about losing the case at the appeals court level.
Legg Mason spokesman Jeffrey Bukowski declined to comment.
The jury award was the third-largest amount awarded in a U.S. copyright case and the largest ever against an investment firm, said Thomas Kirby, senior litigation partner at Wiley Rein & Fielding LLP in Washington, an attorney for Lowry's.
Case sends warning
The case serves as a "clear warning" to users of investment newsletters, said Thomas Curley, a copyright lawyer at Levine Sullivan Koch & Schultz LLP in Washington.
Mr. Curley represented the Newsletter and Electronic Publishers Association in Arlington, Va., which filed a legal brief supporting the case made by Lowry's.
As a result of the large jury award, "I know that a number of [investment] organizations have launched internal self-examinations to make sure" they're not infringing on copyright law, Mr. Kirby said. "A fair number have done that" kind of review.
Copyright infringement is "particularly a problem for newsletters, because they're almost entirely dependent on subscription revenue," Mr. Curley said.
Newsletter publishers especially are concerned about the ease with which electronic subscriptions can be reproduced. Most offer site licenses for organizations that want to distribute a publication widely, Mr. Curley said.
For many publications, passing along a single copy is no problem, he added. "What's a clear violation is regularly copying something cover to cover and making it available to others," Mr. Curley said.
But many financial services firms continue to do just that, Mr. Kirby said.
"We continue to encounter a significant number of cases where [financial firms] have infringed systematically [by taking] one subscription and making 20 copies," he said.
But unlike Legg Mason's initial reaction, which was to deny any wrongdoing, infringers today "are much more likely to acknowledge what they did is wrong and settle," Mr. Kirby said.
According to the U.S. District Court in Baltimore, where the case was heard, Legg paid for a single $700 annual subscription to Lowry's New York Stock Exchange Market Trend Analysis, a daily and weekly report that measures money flow in and out of the market.
Lowry's subscription agreement prohibited any reproduction or dissemination.
But from 1994 until July 1999, Legg's research department regularly faxed the Lowry's reports to branch offices, where they were further duplicated, the court said.
In July 1999, the firm began posting Lowry's reports on its firmwide intranet, according to a court ruling.
Even after Lowry's asked Legg Mason to stop the unlicensed distribution, the company continued to circulate the reports within its research department, which the court ruled also was an infringement of the Lowry's copyright.
Risks can be large
The jury gave Lowry's $50,000 for each infringement that occurred before Lowry's alerted the firm and $100,000 for each infringement done after the warning, Mr. Curley said.
Reproduction of each new issue of the reports was counted as one infringement.
Legg Mason argued that the actual harm to Lowry's in lost subscription revenue was $59,000 and that the $19.7 million verdict was so disproportionate to the actual harm that it violated due process.
Lowry's argued that the lost subscription revenue was nearly $7 million.
In denying Legg Mason's request for a new trial last year, the district court said the jury award was not excessive, because Legg Mason's maximum liability under the Copyright Act for its "willful infringement" of 240 Lowry's reports was actually $36 million.
The case made clear that "statutory damages, in the hands of a jury, can be a very potent remedy," Mr. Kirby said.
Historically, statutory damages have been lower and usually awarded by judges. But eight years ago, the U.S. Supreme Court ruled that damages under the Copyright Act are a matter for juries to determine, not judges, Mr. Kirby said.
Congress raised the statutory-damage amounts several years prior to the Legg Mason case, he added.