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Design Basics, LLC v. Kerstiens Homes & Designs Inc.

United States District Court, S.D. Indiana, Indianapolis Division

September 19, 2018

DESIGN BASICS, LLC, PLAN PROS, INC., and PRIME DESIGNS INC., Plaintiffs,
v.
KERSTIENS HOMES & DESIGNS, INC., T-KERSTIENS HOMES CORP., KERSTIENS REALTY, INC., KERSTIENS MANAGEMENT CORP., KERSTIENS LEASING CORP., KERSTIENS HOLDING CORP., and KERSTIENS DEVELOPMENT INC., Defendants.

          ENTRY ON PENDING MOTIONS

          TANYA WALTON PRATT, JUDGE

         This matter is before the Court on Motions for Summary Judgment filed by Defendants Kerstiens Management Corp., Kerstiens Leasing Corp., Kerstiens Holding Corp., and Kerstiens Development, Inc. (collectively, the “Management Defendants”) (Filing No. 88), and Defendants Kerstiens Homes & Designs, Inc., and T-Kerstiens Homes Corp. (collectively, the “Home Defendants”) (Filing No. 136).[1] Plaintiffs Design Basics, LLC (“Design Basics”), Plan Pros, Inc. (“Plan Pros”), and Prime Designs Inc. (“Prime Designs”) (collectively, “Plaintiffs”) filed this copyright infringement action alleging that Defendants have violated and continue to violate Plaintiffs' exclusive rights in certain architectural works and technical drawings depicting architectural works. The Management Defendants contend that they are entitled to summary judgment because Plaintiffs cannot demonstrate how they infringed upon Plaintiffs' copyrights in certain architectural works, and they are not even in the business of creating house plans or building houses. The Home Defendants argue they are entitled to summary judgment because Plaintiffs cannot show that they had access to Plaintiffs' copyrighted works or that the Home Defendants' architectural plans are substantially similar to Plaintiffs' copyrighted materials, their architectural plans were independently created, and Plaintiffs have failed to establish that they own the registrations in the copyrighted works.

         Also pending are several other motions: Motion for Oral Argument on Kerstiens' Motion for Summary Judgment (Filing No. 149), Renewed Motion to Require Plaintiffs to Post Bond for Costs and Expenses (Filing No. 159), Defendants' Objections to Expert Testimony That May Be Proffered by Plaintiffs (Filing No. 176), Plaintiffs' Motion to Exclude Expert Testimony and Request for Daubert Hearing (Filing No. 196), Plaintiffs' Motion in Limine Regarding Evidence not Provided By Defendants in Discovery (Filing No. 197), and Plaintiffs' General Motion in (Filing No. 199). For the following reasons, the Court grants the Home Defendants' Motion for Summary Judgment and denies as moot the Management Defendants' Motion for Summary Judgment, as well as the other pending motions.

         I. BACKGROUND

         The following facts are not necessarily objectively true, but as required by Federal Rule of Civil Procedure 56, the facts are presented in the light most favorable to Plaintiffs as the non-moving parties. See Zerante v. DeLuca, 555 F.3d 582, 584 (7th Cir. 2009); Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 255 (1986).

         Plaintiff Plan Pros, Inc. is in the business of designing homes through its single designer and draftsman, Carl Cuozzo. It has designed five new home plans since 2016 (Filing No. 147-1 at 2-3). Similarly, Plaintiff Prime Designs, Inc. designs home plans through a single designer, Marc Behrens (Filing No. 147-7 at 2). Plan Pros and Prime Designs generate revenue by licensing home designs to builders through Plaintiff Design Basics and other plan brokers (Filing No. 147-1 at 3; Filing No. 147-7 at 2; Filing No. 147-9 at 4).

         Plaintiff Design Basics is a residential design firm founded in Omaha, Nebraska, in the 1980s by Dennis Brozak. Design Basics creates custom and ready-made home plans for single and multi-family homes. It markets these home plans through plan catalogs, home building industry publications, brokerage marketing partners, client-specific publications, and the internet (Filing No. 147-9 at 3). Design Basics has designed thousands of home designs from scratch, including 350 new home plans since 2009. It licenses these home plans as complete sets of construction drawings that can be modified to meet the customer's design needs. Design Basics registers its designs with the United States Copyright Office before or near the time of publishing and marketing. Id.

         Since 1990, Design Basics has published more than 180 home catalogs and other publications containing its home designs and has circulated more than 4.2 million copies of those publications to builders and other consumers across the country. Design Basics rented targeted lists from the National Association of Home Builders, which included the contact information of builder members of local home builders associations. Design Basics used these lists and other lists to compile mailing lists and then send its publications to potential customers across the country (Filing No. 147-20 at 3-4).

         Since the early 2000s, Design Basics' home plans, plan catalogs, and other publications have been displayed at Carter Lumber and Menards locations across the country, which total 446 stores, including 28 stores in Indiana. Design Basics also has distributed its home plan publications as handouts at numerous home shows, conventions, and trade shows. Id. at 4-5. It has widely disseminated its house plans on the internet on its own website as well as on the websites of leading plan broker companies. Id. at 5-9.

         Design Basics has had success marketing and licensing its home designs to builders. It has more than 164, 000 customers across the country who have purchased more than 135, 000 licenses to build homes from plans marketed or designed by Design Basics. At its peak in the late 1990s and early 2000s, Design Basics was earning more than $4 million annually from licensing revenues (Filing No. 147-9 at 3, 4, 9). Design Basics currently offers single-build licenses for any home design in its inventory of more than 2, 800 plans for fees ranging from $700.00 to $6, 000.00. Since 2009, it has issued 8, 272 licenses for its home plans for a total of more than $6, 000, 000.00 in licensing revenue. More than 2, 500 licenses have been sold in the last three years. Concerning the seven home designs at issue in this lawsuit, Design Basics has earned $25, 000.00 in licensing revenue from selling 116 licenses since 2009. Id. at 3-4.

         After Design Basics made its house plans readily available on the internet, it noticed a precipitous decline in house plan licensing revenue. At its peak, Design Basics' licensing revenue was above $4 million annually, but that dropped to less than $1 million annually after making its house plans widely available on the internet. Corresponding with the decline in licensing revenue was a precipitous decline in the number of licenses that builders and other customers purchased from Design Basics. Id. at 9-10.

         Among the thousands of house plans that Design Basics licenses to builders and other customers are seven house plans that are at issue in this copyright infringement case. The seven house plans at issue are the 3098 Duncan, 3385 Brittany, 8096 Pine Ridge, 8026 Sun Ridge, Kirsten, Bloom, and Cartwright (collectively, “Copyrighted Works”). Design Basics created and owns the 3098 Duncan, 3385 Brittany, 8096 Pine Ridge, and 8026 Sun Ridge designs. Plaintiff Plan Pros created and owns the Kirsten and Bloom designs. Plaintiff Prime Designs created and owns the Cartwright design. All of the house plans at issue in this case were created from scratch with the exception of the Kirsten plan, which was a derivative of Plan Pros' Leftwich design, and the Cartwright plan, which was a derivative of Prime Designs' Dekyan plan. The Leftwich and Dekyan plans were created from scratch (Filing No. 147-1 at 4-5; Filing No. 147-7 at 3-4; Filing No. 147-9 at 8-9).

         Defendant Kerstiens Homes & Designs, Inc. is a construction company that has specialized in residential construction for nearly fifty years. It is based out of Jasper, Indiana (Filing No. 147-36 at 2-3). Defendant T-Kerstiens Homes Corp. was started around 1995 to do work in residential construction. It sometimes did business as Kerstiens Homes & Designs (Filing No. 147-32 at 9, 11, 12, 93).

         Defendant Kerstiens Holding Corp. does not engage in any business; rather, it is a holding company that owns stock of other companies. Defendant Kerstiens Management Corp. is in the business of renting properties that it owns. It has never built any houses or created any house plans. Defendant Kerstiens Leasing Corp. is in the business of leasing vehicles and equipment. Like Kerstiens Management, Kerstiens Leasing has never built any houses or created any house plans. Defendant Kerstiens Development, Inc. is in the business of purchasing land, subdividing the land into lots, and selling the lots. It also has never built any houses or created any house plans (Filing No. 89-1 at 2). The Kerstiens entities are owned and controlled by a combination of the same four individuals: Jerome and Doris Kerstiens and their two sons, Todd and Bart (Filing No. 147-32 at 118-19).

         In June 2013, Design Basics' director of business development conducted market research in Indiana in an effort to develop more business. He researched the websites of home builders throughout Indiana, which had previously been one of Design Basics' best-selling states. When he went to the website of Kerstiens Homes & Designs, he discovered what he believed to be infringing copies of the Copyrighted Works. He returned to the website again in July 2014 and found the same house plans that he believed infringed the Copyrighted Works (Filing No. 147-26 at 3-4).

         Plaintiffs' Amended Complaint was filed on August 30, 2016 (Filing No. 38), which asserts claims of copyright infringement against the Management Defendants and the Home Defendants. Thereafter, the Management Defendants filed a summary judgment motion, asserting they are not in the business of creating house plans or building houses and did not infringe the Copyrighted Works (Filing No. 88). The Home Defendants also filed a summary judgment motion, asserting that Plaintiffs' evidence cannot support the elements of a copyright claim. They also assert that their house plans were independently created, and Plaintiffs have not shown they own the registrations in the Copyrighted Works (Filing No. 136).

         II. SUMMARY JUDGMENT STANDARD

         The purpose of summary judgment is to “pierce the pleadings and to assess the proof in order to see whether there is a genuine need for trial.” Matsushita Elec. Indust. Co. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986). Federal Rule of Civil Procedure 56 provides that summary judgment is appropriate if “the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law.” Hemsworth v. Quotesmith.com, Inc., 476 F.3d 487, 489-90 (7th Cir. 2007). In ruling on a motion for summary judgment, the court reviews “the record in the light most favorable to the non-moving party and draw[s] all reasonable inferences in that party's favor.” Zerante, 555 F.3d at 584 (citation omitted). “However, inferences that are supported by only speculation or conjecture will not defeat a summary judgment motion.” Dorsey v. Morgan Stanley, 507 F.3d 624, 627 (7th Cir. 2007) (citation and quotation marks omitted). Additionally, “[a] party who bears the burden of proof on a particular issue may not rest on its pleadings, but must affirmatively demonstrate, by specific factual allegations, that there is a genuine issue of material fact that requires trial.” Hemsworth, 476 F.3d at 490 (citation omitted). “The opposing party cannot meet this burden with conclusory statements or speculation but only with appropriate citations to relevant admissible evidence.” Sink v. Knox Cty. Hosp., 900 F.Supp. 1065, 1072 (S.D. Ind. 1995) (citations omitted).

         “In much the same way that a court is not required to scour the record in search of evidence to defeat a motion for summary judgment, nor is it permitted to conduct a paper trial on the merits of [the] claim.” Ritchie v. Glidden Co., 242 F.3d 713, 723 (7th Cir. 2001) (citations and quotation marks omitted). “[N]either the mere existence of some alleged factual dispute between the parties nor the existence of some metaphysical doubt as to the material facts is sufficient to defeat a motion for summary judgment.” Chiaramonte v. Fashion Bed Grp., Inc., 129 F.3d 391, 395 (7th Cir. 1997) (citations and quotation marks omitted).

         III. DISCUSSION

         The Home Defendants argue they are entitled to summary judgment based on a lack of access to the Copyrighted Works, and their house plans are not substantially similar to the Copyrighted Works. They also argue summary judgment is appropriate because their house plans were independently created, and Plaintiffs have not shown they own the registrations in the Copyrighted Works. The Management Defendants independently argue they are entitled to summary judgment because they do not create house plans or build houses, and thus, they did not infringe the Copyrighted Works.

         A. Copyright Principles

         Under 17 U.S.C. § 102(a), “copyright protection subsists . . . in original works of authorship fixed in any tangible medium of expression . . . from which they can be perceived, reproduced, or otherwise communicated.” Copyright protection applies to several categories of works of authorship, including “architectural works.” 17 U.S.C. § 102(a)(8). An “architectural work” is defined as “the design of a building as embodied in any tangible medium of expression, including a building, architectural plans, or drawings. The work includes the overall form as well as the arrangement and composition of spaces and elements in the design, but does not include individual standard features.” 17 U.S.C. § 101. “The following structures, ...


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