Design Basics, LLC v. Heller & Sons, Inc.

          OPINION AND ORDER

          HOLLY A. BRADY, JUDGE UNITED STATES DISTRICT COURT.

         Plaintiff is a prolific design firm, copyrighting more than 2, 500 different designs and plans for moderately priced single-family homes. This case involves a claim by Plaintiff for copyright infringement of five of those designs. The issue before the Court now is Defendant's Second Motion for Summary Judgment (ECF No. 64), wherein Defendant asks this Court to determine, as a matter of law, that it did not infringe on any of Plaintiff's copyrights. Also before the Court is Defendant's Motion to Exclude and Strike Matthew McNicholas' Expert Report and to Bar Expert Testimony (ECF No. 80).^[1] The Court concludes that, while the designs at issue bear superficial similarities to their allegedly infringing siblings, there nonetheless exist numerous differences which defeat any claim of copyright infringement. Accordingly, Defendant's Motion for Summary Judgment will be granted.

         FACTUAL BACKGROUND

         A. Plaintiffs Business Model

         Plaintiff describes itself as a small residential design firm founded in Omaha, Nebraska, in the 1980's. Plaintiff has designed thousands of home designs from scratch, including more than 390 new designs since 2009. Plaintiff registers its architectural works with the United States Copyright Office before or near the time they are published and marketed.

         For most of its existence, Plaintiffs primary source of income was in licensing its copyrighted designs. Plaintiff has more than 164, 000 customers across the country that have purchased over 135, 000 construction licenses, including more than 2, 500 licenses in the last three years alone. Since many of the licenses were good for an unlimited number of builds for the licensed plan, Plaintiff states that it is “no exaggeration to say that hundreds of thousands-if not millions-of Americans live in homes designed by” Plaintiff. (ECF No. 73-1 at 2).

         For much of the time Plaintiff was in the licensing business, business was good. Plaintiffs licensing fees range from $700 to $6, 000. Since 2009, Plaintiff has issued more than 9, 200 licenses totaling more than $7, 135, 000.00 in licensing revenue. Plaintiff has issued 234 licenses for the five designs at issue in this case since 2009, for a total of $131, 718 in licensing revenue. At its peak in the late 1990's and early 2000's, Plaintiff was earning more than $4, 000, 000 per year from licensing revenues.

         Plaintiff earned these kinds of revenues by making their designs ubiquitous. Plaintiffs marketing efforts included:

• Publishing and circulating more than 4.2 million copies of 180 different catalogs and other publications containing the designs to builders like Defendant;

• Placing its copyrighted designs in third-party publications like Builder Magazine;

• Displaying its home plans, plan catalogs, and other publications at 446 big box retail locations;

• Distributing its home plan publications at home shows, conventions, and trade shows; and

• Displaying its copyrighted designs across the internet, including on its own site, www.designbasics.com.

         B. Plaintiffs Business Suffers in the Wake of the Great Recession

         Somewhere between 2006 and 2008, Plaintiff decided that it would be easier and cheaper to cease its bulk mailing strategy and instead to focus on marketing through the internet. To that end, Plaintiff invested $435, 000 in capital improvements, including updating its database system, purchasing and building two new websites, and working to raise its internet profile through search engine optimization (“SEO”). While these efforts succeeded in driving internet traffic to Plaintiff s website, they failed in increasing licensing revenue. Instead, licensing revenue dropped from $4 million in 2004, to $1 million in 2009.

         C. Plaintiff Blames Copyright Infringement for its Losses

         Rather than attribute the decline in licensing revenue to the precipitous decline in new home construction, ^[2] Plaintiff determined that its losses were due to “the ready availability of [Plaintiffs] copyrighted designs both print and on the internet” which, Plaintiff asserts, resulted in “rampant” violations of Plaintiff s copyrights. (ECF No. 75-2 at 7). What Plaintiff did in response was either an “intellectual property shakedown” and “copyright trolling, ” Design Basics, LLC v. Lexington Homes, Inc., 858 F.3d 1093, 1096-98 (7th Cir. 2017), or the vigorous protection of its copyrighted works (ECF No. 73-1 at 10), depending on your point of view.

         What is undisputed is that Plaintiff set out on a concentrated effort to uncover what it viewed as the violation of its intellectual property rights. A large part of this effort was turning its staff and even its independent contractors into copyright detectives. As described by its COO, Plaintiff “compensated employees or independent contractors . . . who discovered incidents of infringement that led to settlements or judgments by paying them a percentage of the amount recovered from litigation.”^[3] (ECF No. 73-1 at 11). The detective work was not limited to internet searches for offending designs. Instead, Plaintiff conducted multiple “controlled buys”^[4] at different lumberyards to find draftsmen who were copying Plaintiff's plans. (Id. at 9). Due to these investigative techniques, Plaintiff discovered five different instances where its designs were being appropriated. (ECF No. 75-2 at 5-6).

         As a result of its investigations, Plaintiff has filed suit against approximately 150 builders alleging copyright infringement. This represents a lawsuit against 1 in every 300 builders in the United States. (ECF No. 73-1 at 11). Forty of those lawsuits were filed in Indiana alone. Plaintiff does not settle cases for “nuisance value, ” but instead states that its “settlement revenue reflects defendants' assessment of the risks of substantial infringement verdicts.” (Id.) (original emphasis). While the amount of “settlement revenue” has not been disclosed to the Court, counsel for Plaintiff in a different matter described the revenue as “substantial.” Lexington, 858 F.3d at 1098, n.1.

         D. Plaintiff Discovers Defendant's Plans

         Following the Great Recession, Plaintiff took steps to update its database to account for new home builders. Between May and July 2013, Plaintiff's Director of Business Development compiled a list of 527 Indiana home builders “for the purpose of determining whether the company would make further direct marketing efforts to current and potential builder customers.” (ECF No. 73-2 at 2). He then visited the websites for each of the 527 builders “to see the types of homes the builder was building so [he] could see if the builder would be a good candidate to become a Design Basics customer.” (Id.).

         On June 11, 2013, the Director of Business Development visited Defendant's website. During that visit, he “discovered four home plans that appeared to be copies from Design Basics' home designs.” Those plans, and Plaintiff's corresponding designs, were:

         (Table Omitted)

         From a subsequent review of more than 1, 000 home plans produced by Defendant, Plaintiff believes that at least 143 instances of infringement occurred.

         Because a determination of infringement can only be made from a review of the actual plans, it is necessary to review the plans. The following represents a side-by-side comparison of the relevant plans:

         (Image Omitted0

         E. The Battle of the Experts

         Both parties have retained experts for the purposes of comparing the relevant plans. Defendant's expert, Robert Greenstreet, is an Oxford-educated architect and the current Dean of the School of Architecture and Urban Planning at the University of Wisconsin-Milwaukee. Professor Greenstreet submitted an eighteen-page expert report, accompanied by a fifty-two-page appendix setting forth what he viewed as the differences between Plaintiff's and Defendants' plans.

         Professor Greenstreet recognizes a superficial similarity between the plans, but attributes the similarity to the nature of the homes being designed rather than infringement.

Given their similar building programs and niche within the housing market, even in the absence of any copying or use of the Plaintiff's plans, they are likely to conform to generally accepted expectations in scale, size, inventory of rooms, layout and appearance, maintaining the same look and feel, and therefore will not appear markedly different from many other standard housing variants in the residential market.

(ECF No. 69 at 8). Given the general similarity of moderately priced, single-family dwellings, Professor Greenstreet focuses on the details of the plans. As a result of that focus, Professor Greenstreet concludes:

Despite general similarities normally anticipatable in the traditional, conventional housing market, there are still many differences detectable between the compared models produced by Design Basics and Heller, specifically in their respective square footage, dimensions, program, plan layouts, massing, use of materials and appearance that reject the notion of substantial similarity.

(Id. at 16).

         Not to be outdone, Plaintiff submitted a two hundred twenty-six-page expert report from Matthew McNicholas, a Notre Dame-trained architect and owner of his own architecture firm. Unsurprisingly, McNicholas rejects the opinion of Professor Greenstreet. In large part, McNicholas' rejection of Professor Greenstreet's report stems from his belief that the differences identified by Professor Greenstreet are not differences in design, but instead variations within the same design.

And focusing the infringement analysis on individual standard elements like doors, décor, or building materials, or on “subtle differences” . . . like a transom window, the presence/absence of a linen closet, or the placement of fixtures ignores the primary design intention and elevates the tertiary aspects. In other words, it is not a true evaluation of design.

(ECF No. 73-15 at 25) (original emphasis).

         McNicholas expounds on this critique in painstaking detail in Section 5B of his report, where he specifically responds to each and every difference identified by Professor Greenstreet. (ECF No. 73-15 at 70-143). In large part, McNicholas' responses fall into one or both of two categories: (1) differences that are “immaterial” because they involve “standard elements”; or (2) differences that “do not change the arrangement and composition of the spaces or the overall form.”

         Rather than dwell on the micro, McNicholas' evaluation of the plans is macro in scope. In Section 7D of his report, McNicholas resizes, reorients, and overlays the plans to demonstrate what he believes to be the “supersubstantial similarity” between the plans. Those overlays appear as follows (Plaintiff's design is in blue, with Defendant's design in red):

         (Image Omitted)

         (ECF No. 73-15 at 193-217). The report also contains a detailed breakdown on the similarities in what McNicholas describes as the “elective design decisions” in the plans; i.e., those decisions not ...