United States District Court, N.D. Indiana, Fort Wayne Division
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 ...