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West Palm Beach, Fla.-A small North Palm Beach stock market newsletter publisher that claimed investment banker Legg Mason Inc. illegally distributed its publication electronically to more than 1,000 of its employees has won a $20 million judgment against the financial services giant. On Oct. 3, a U.S. district court jury in Baltimore found that Legg Mason had willfully infringed on the copyright owned by Lowry’s Reports, a seven-employee company whose newsletter, Technical Market Advisory, is sold on an e-mail subscription basis for $700 a year. Legg Mason employees purchased three subscriptions to the newsletter and widely circulated them to their colleagues despite a clause in the subscription agreement that forbids that practice. The case could serve as a warning to many companies and law firms whose employees widely share Internet subscriptions to publications. Legg Mason media spokeswoman Maura Fox said the company was “shocked” at the size of the award, which she called “grossly excessive.” Asked if the verdict would be appealed, she said Legg Mason would “aggressively pursue all options to protect the interests of our stockholders.” Founded in 1938, Lowry’s claims to be the nation’s oldest technical analysis publisher. Baltimore-based Legg Mason reported net earnings of $190.9 million in the fiscal year ending March 2003, with assets under management of $192.2 billion. Both parties in the suit drew on legal talent from some of Washington’s top firms. Lowry’s was represented by partner Thomas Kirby and senior associate Scott Bain at Wiley, Rein & Fielding. Legg Mason was represented by partner Terence Rose and associate Thomas Dupree of Los Angeles’ Gibson, Dunn & Crutcher. Lowry’s President Paul Desmond said the issue of possible copyright infringement first came to his attention in December 2000 when a former Legg Mason employee purchased a subscription. “He said he’d read [the newsletter] for years,” Desmond said. “But now he said he had to pay for it.” According to Kirby, Lowry’s sent Legg Mason a cease-and-desist letter in July 2001, and the financial services company agreed to stop distributing the newsletter internally. But Lowry’s filed suit in December 2001 when Legg Mason continued the infringement, he said. Discovery in the suit was impeded by Legg Mason’s failure to preserve company e-mails and other electronic documents, according to Kirby. “The judge called it stonewalling,” he said. “It made it difficult to prove the scope of the infringement.” Under federal law, the doctrine of fair use allows limited exceptions to exclusive rights under copyright. The law’s four-part test to determine fair use considers the purpose of the use, the nature of the copyrighted work, the proportion of the work excerpted and the effect of the use on the work’s market value. Damages for copyright infringement generally vary from $750 to $30,000 per infringed work, depending on the degree to which the violation is knowing and intentional. In cases of willful violation, penalties can be as much as $150,000 per infringed work. Demonstrating willfulness Last July, U.S. Magistrate Judge William Quarles granted Lowry’s motion for partial summary judgment in the case, holding that 208 of an alleged 240 violations of fair use had been proven. Kirby said Legg Mason’s willfulness was demonstrated in several ways. “In addition to ignoring our cease-and-desist letters, they at first denied that there were any internal company guidelines on copyright infringement,” he said. “When they finally produced them, the guidelines only addressed reproduction and distribution outside the firm.” In its verdict, the Baltimore jury assessed Legg Mason $50,000 for each of 102 Lowry’s works infringed prior to the publisher’s July 2001 cease-and-desist letter. The jury assessed $100,000 for each of 138 willful infringements following receipt of the letter. The jury also assessed damages of $825,270 for breach of contract, for Legg Mason’s violation of its subscription agreement with Lowry’s. Kirby said copyright infringement via internal distribution, as in the Legg Mason case, is “widespread throughout corporate America, particularly when the material is from small publishers.” “If this kind of practice by big investment houses went unchecked, we’d be out of business,” Desmond said. “The problem has gotten worse with the growth of electronic publishing. Now infringement is just mouse clicks away. Maybe verdicts like this will put them on notice.”

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