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Design Basics, LLC v. Big C Lumber Co. Inc.

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

July 22, 2019

DESIGN BASICS, LLC; PLAN PROS, INC.; CARMICHAEL & DAME DESIGNS, INC.; and W.L. MARTIN HOME DESIGNS, LLC, Plaintiffs,
v.
BIG C LUMBER CO. INC., Defendant.

          OPINION AND ORDER

          HOLLY A. BRADY JUDGE

         This case, one of more than one hundred similar cases filed by Plaintiff Design Basics, LLC and its related entities, alleges that Defendant Big C Lumber Co., Inc. (“Big C”) violated forty-five of Plaintiffs' copyrighted single-family home design plans. Plaintiffs describe Big C's actions as a “brazen” infringement scheme whereby Big C used Plaintiffs' designs to sell building supplies to homebuilders. Big C, on the other hand, claims that the instant litigation is nothing more than another cog in Plaintiffs' copywrite trolling machine and that all the allegedly infringing plans were original creations of Big C's drafters. The parties have filed cross-motions for summary judgment, multiple motions to strike[1], and more than one-hundred supporting and opposing evidentiary exhibits. The Court having reviewed the parties' submissions, this matter is now ripe for determination.

         FACTUAL BACKGROUND

         A. Design Basics' Business Model

         Design Basics describes itself as a small residential design firm founded in Omaha, Nebraska, in the 1980's. Design Basics has designed thousands of home designs from scratch, including more than 390 new designs since 2009. Design Basics registers its architectural works with the United States Copyright Office before or near the time they are published and marketed. Design Basics also acts as an advertising, marketing, and sales agent for other design firms, including the remaining Plaintiffs in this case.

         For most of its existence, Design Basics' primary source of income was in licensing its copyrighted designs. Design Basics 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, Design Basics states that it is “no exaggeration to say that hundreds of thousands-if not millions-of Americans live in homes designed by” Design Basics. (ECF No. 53-1 at 3).

         For much of the time Design Basics was in the licensing business, business was good. Design Basics' licensing fees range from $700 to $6, 000. Since 2009, Design Basics has issued more than 9, 200 licenses totaling more than $7, 135, 000.00 in licensing revenue. Design Basics has issued 834 licenses for the forty-five designs at issue in this case since 2009, for a total of $522, 576 in licensing revenue. At its peak in the late 1990's and early 2000's, Design Basics was earning more than $4, 000, 000 per year from licensing revenues.

         Design Basics earned these kinds of revenues by making their designs ubiquitous. Design Basics' marketing efforts included:

• Circulating more than 4.2 million of its more than 180 home catalogs;
• Distributing its own publications, such as HER Home Magazine, featuring its designs;
• Placing its copyrighted designs in third-party publications like Builder Magazine;
• 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. Design Basics' Business Suffers in the Wake of the Great Recession

         Somewhere between 2006 and 2008, Design Basics 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, Design Basics 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 Design Basics' website, they failed in increasing licensing revenue. Instead, licensing revenue dropped from $4 million in 2004, to $1 million in 2009.

         C. Design Basics Blames Copyright Infringement for its Losses

         Rather than attribute the decline in licensing revenue to the precipitous decline in new home construction, [2] Design Basics determined that its losses were due to “the ready availability of [Design Basics'] copyrighted designs both print and on the internet” which, Design Basics asserts, resulted in “rampant” violations of Design Basics' copyrights. (ECF No. 53-1 at 10). What Design Basics 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. 53-1 at 12), depending on your point of view.

         What is undisputed is that Design Basics 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. Design Basics “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. 53-1 at 12). The detective work was not limited to internet searches for offending designs. Instead, Design Basics conducted multiple “controlled buys”[4] at different lumberyards to find draftsmen who were copying Design Basics's plans. (Id. at 11). Due to these investigative techniques, Design Basics discovered four different instances where its designs were being appropriated. (ECF No. 53-1 at 11).

         As a result of its investigations, Design Basics 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. 53-1 at 13). Forty of those lawsuits were filed in Indiana alone. Although Design Basics has not tried one of these lawsuits to a jury, Design Basics claims it 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). Design Basics' owners have recovered significant amounts from these settlements, netting approximately $5 million in 2016 and 2017 alone. These amounts do not appear to have flowed to the business, as gross revenues for Design Basics over those same two years was approximately $2.5 million.

         D. Design Basics Discovers Big C's Allegedly Infringing Designs

         On July 16, 2013, Paul Foresman, Design Basics' Vice President and Director of Business Development, visited the website of Bayman & Rusk Builders, an Indiana homebuilder. On that website was a plan that Foresman believed to have been copied from Design Basics' Albany plan. The plan included a set of construction drawings with the Big C title block. This led Foresman to believe that Big C had re-drawn the Albany plan for Bayman & Rusk.

         Acting on Foresman's suspicions, Design Basics hired Brett Coppins of Coppins Investigative & Security Group in October 2014 to investigate whether Big C's Granger, Indiana location was copying Design Basics' plans. Coppins went to the Granger, Indiana location on October 8, 2014. Upon his arrival, Coppins asked to speak with Kevin Cullen, the individual in charge of Big C's drafting department. Coppins presented Cullen with Design Basics' Morgan plan and asked if Cullen could create construction drawings from the plan.

         Cullen indicated that Coppins had two options. First, Cullen could re-draw the plan. Cullen said that this could present a “potential copyright issue, ” but that the chances of getting caught were “slim to none.” (ECF No. 53-6 at 2). To address the copyright issue, Cullen encouraged Coppins to considered making minor changes to the Design Basics plan.

         Coppins' second option was to purchase the plans from Design Basics. Cullen advised that the cost of purchasing the plans from Design Basics would be comparable to the cost to have Big C prepare the plans. However, Cullen stated that if Coppins purchased the plans and building materials from Big C, Coppins would receive a rebate on the plans. After determining the available rebates, Cullen quoted $290.00 for Big C to prepare the plans. Coppins agreed and asked Big C to redraw the Design Basics' plan with two minor changes, which Big C did utilizing its drafting software.

         Armed with the evidence from Coppins' investigation, Plaintiffs filed the instant action. Through the course of discovery, Plaintiffs allege that they have identified forty-five different designs that were infringed upon by Big C. (ECF No. 37 at 3-5). From those designs, Plaintiffs allege that Big C prepared one hundred different infringing designs. (Id. at 7-18).

         E. The Battle of the Experts

         Both parties have retained experts for the purposes of comparing the relevant plans. Big C'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 a twenty-nine-page expert report, accompanied by a seventy-eight-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.

The models, which fall squarely into the category of conventional, modestly priced housing, are generated by basic, functional and economic restrictions and a desire to create a traditional, predicable and recognizably conventional homes which satisfy market acceptability and demand. Consequently, it should not be surprising that so many designs in both Design Basics' portfolio and in the work of other housing companies look familiar. They share a common generic background in both layout and appearance that is embedded in a traditional vocabulary that was pre-existing before copyright protection or the advent of the AWCPA.

(ECF No. 50-3 at 18). 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 Big C, 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 27).

         Not to be outdone, Plaintiffs submitted a two hundred eighty-eight-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.

In my opinion, it is clear that the Big C plan are simple variations on the Plaintiffs' plans, if not outright copies. Any variations are only made to inconsequential and unsubstantial elements of the designs, not the arrangement and composition of spaces or overall form, which constitute the expression of the idea for the design and lie at the heart of what is protectable in an architectural work, as stipulated by the AWPCA. As such, in my opinion, this proves the Big C plans are effective copies of the Plaintiffs' plans, with minor variations that are immaterial to the question of copyright infringement, for example, changing a closet location or rearranging the fixtures in a bathroom.

(ECF No. 58-22 at 36).

         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. 58-22 at 125-75). 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 impact “the overall arrangement and composition of the spaces.”

         McNicholas' evaluation of the plans is both micro and macro in scope. In Section 7B of his report, McNicholas resizes, reorients, and overlays selected plans to demonstrate what he believes to be the “supersubstantial similarity” between the plans. Those overlays appear as follows (Plaintiffs' design is in black, with Big C's design in blue):

         TRENTON/BOGONIA

         First floor:

         (Image Omitted)

         Second floor:

         (Image Omitted)

         LANCASTER/FAIRFIELD

         First floor:

         (Image Omitted)

         Second floor:

         (Image Omitted)

         MAYBERRY/LOT ...


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