Insurent Agency Corporation v. The Hanover Insurance Group, Inc.

Background

Insurent Agency Corporation and RS Holdings Corporation sued The Hanover Insurance Group, Inc., Guarantors LLC doing business as The Guarantors Agency, and Ronald MacDonald. The plaintiffs alleged, among other things, violations of the Copyright Act, the Lanham Act, and the Defend Trade Secrets Act. They claimed that defendants used exact copies of the plaintiffs’ copyrighted legal agreements and misappropriated trade secrets.

The court dismissed all claims against Hanover at summary judgment. The dismissed claims included copyright infringement, New York and federal trade-secret misappropriation, and New York unfair competition. Claims against the other defendants later settled.

Hanover’s Fee Motion

Hanover moved for attorneys’ fees and costs under Section 505 of the Copyright Act, Section 1117(a) of the Lanham Act, Section 1836(b)(3)(D) of the Defend Trade Secrets Act, and the court’s inherent power. Magistrate Judge James Cott recommended denying the motion. Hanover objected to the recommendations concerning the copyright and federal trade-secret claims but did not specifically object to the recommendations concerning the Lanham Act and inherent-power requests.

Copyright Act Fees

Under the Copyright Act, a court may award reasonable attorneys’ fees to a prevailing party. Relevant considerations include whether the claim was frivolous, the parties’ motivations, whether the claim was objectively unreasonable, and whether fees would advance compensation or deterrence.

Hanover argued that the plaintiffs’ copyright claim was objectively unreasonable because the documents were drafted by the plaintiffs’ attorneys and copyright ownership generally must be transferred by the author in writing. The court rejected that argument. It found that no existing case law squarely addressed whether a client owns copyright in work product prepared for the client by its attorney when the plaintiffs brought the claim. The court also relied on evidence that the plaintiffs and their counsel believed in good faith that the plaintiffs’ contributions to drafting the documents supported their copyright claim.

The court concluded that the claim was not clearly without legal or factual support. Because Hanover did not specifically object to the magistrate judge’s findings on the other fee factors, and those findings were not clearly erroneous or contrary to law, the court adopted them. It denied Hanover’s request for Copyright Act fees.

Defend Trade Secrets Act Fees

The Defend Trade Secrets Act permits a fee award when a misappropriation claim was made in bad faith. The court explained that a bad-faith fee award requires both that the claim was meritless and that it was brought for an improper purpose, such as harassment or delay.

The court found insufficient evidence of either requirement. Although the plaintiffs’ trade-secret claim failed as a matter of proof at summary judgment, it was not wholly without merit. A reasonable attorney could have believed that discovery might establish facts supporting the claim. The court also rejected Hanover’s argument that the plaintiffs improperly relied on allegations involving the other defendants. Hanover’s agency relationship with the other defendants had previously been enough for the trade-secret claim against Hanover to survive dismissal.

The court therefore held that it could not award Hanover attorneys’ fees under the Defend Trade Secrets Act.

Lanham Act and Inherent-Power Fees

Hanover did not object to the recommendation denying fees under the Lanham Act and the court’s inherent power. The court found no clear error or legal error in those recommendations and adopted them. It denied Hanover’s motion under both grounds.

Disposition

Judge Lorna G. Schofield overruled Hanover’s objections and adopted the recommendation to deny Hanover’s motion for attorneys’ fees. The court directed the clerk to close the motion at Docket No. 258.