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

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

September 30, 2019

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

          ORDER ON DEFENDANTS’ MOTION FOR COSTS, INCLUDING ATTORNEY FEES

          TANYA WALTON PRATT, JUDGE.

         This matter is before the Court on a Motion for Costs, Including Attorney Fees (Filing No. 235) filed by Defendants Kerstiens Homes & Designs, Inc., T-Kerstiens Homes Corp., Kerstiens Management Corp., Kerstiens Leasing Corp., Kerstiens Holding Corp., and Kerstiens Development, Inc. (collectively, “Defendants” or “Kerstiens”).[1] The Defendants filed their Motion for Costs pursuant to 17 U.S.C. § 505 of the Copyright Act after they became the “prevailing party” in this Copyright Act case. For the following reasons, the Court grants the Defendants’ Motion and awards them $518, 457.80 in fees and costs.

         I. BACKGROUND

         On March 31, 2016, Plaintiffs Design Basics, LLC, Plan Pros, Inc., and Prime Designs Inc.[2] (collectively, “Plaintiffs” or “Design Basics”) filed a complaint in this Court against the Defendants, asserting a claim pursuant to the Federal Copyright Act and the Architectural Works Copyright Protection Act of 1990, 17 U.S.C. §101 et seq., for copyright infringement of numerous house plans. The Plaintiffs are in the business of creating and designing custom and ready-made house plans for single and multi-family homes. They license these house plans as complete sets of construction drawings that can be modified to meet the customer’s design needs. The Plaintiffs register the designs with the United States Copyright Office before or near the time of publishing and marketing. They market the house plans through plan catalogs, home building industry publications, brokerage marketing partners, client-specific publications, and the internet. When the Plaintiffs filed this lawsuit against the Defendants for copyright infringement of numerous house plans, they requested damages and injunctive relief as well as attorney fees and costs.

         The Defendants filed motions for summary judgment, arguing they were entitled to judgment as a matter of law on the Plaintiffs’ copyright infringement claim. Summary judgment was granted in favor of the Defendants, and with the copyright infringement claim being dismissed on summary judgment, the Court entered Final Judgment in favor of the Defendants and against the Plaintiffs on September 19, 2018 (Filing No. 232; Filing No. 233).

         On October 3, 2018, the Defendants filed their Motion for Costs pursuant to 17 U.S.C. § 505 (Filing No. 235). As prevailing defendants in a copyright action, the Defendants seek their costs and attorney fees under the Copyright Act.

         II. LEGAL STANDARD

         Under 17 U.S.C. § 505, in any copyright civil action, the district court in its discretion may allow the recovery of all costs of litigation, including an award of a reasonable attorney’s fee as part of those costs, to the prevailing party. A party prevails “when it obtains a ‘material alteration of the legal relationship of the parties.’” Hyperquest, Inc. v. N’Site Solutions, Inc., 632 F.3d 377, 387 (7th Cir. 2011) (quoting Riviera Distributors, Inc. v. Jones, 517 F.3d 926, 928 (7th Cir. 2008)). “Defendants who defeat a copyright infringement action are entitled to a strong presumption in favor of a grant of fees.” Hyperquest, 632 F.3d at 387. “When the prevailing party is the defendant, who by definition receives not a small award but no award, the presumption in favor of awarding fees is very strong.” Assessment Techs. of WI, LLC v. Wire Data, Inc., 361 F.3d 434, 437 (7th Cir. 2004); see also FM Indus. v. Citicorp Credit Servs., 614 F.3d 335, 339 (7th Cir. 2010) (“a defendant that prevails in copyright litigation is presumptively entitled to fees under § 505”). The United States Supreme Court has directed that in determining whether to exercise its discretion to award costs and fees in a copyright case, district courts should look to a number of nonexclusive factors including: (1) the frivolousness of the action; (2) the losing party’s motivation for filing or contesting the action; (3) the objective unreasonableness of the action; and (4) the need to “advance considerations of compensation and deterrence.” Fogerty v. Fantasy, Inc., 510 U.S. 517, 535 n.19 (1994).

         III. DISCUSSION

         The Defendants assert that they are entitled to an award of attorney fees and costs because they are prevailing defendants in a copyright infringement case, and the Fogerty factors favor an award of their fees and costs.

         The Defendants argue that Design Basics maintained a frivolous lawsuit because another case involving Design Basics, Design Basics, LLC v. Lexington Homes, Inc., 858 F.3d 1093 (7th Cir. 2017), placed Design Basics on notice that copyright infringement claims regarding “substantial similarity” would not prevail in the Seventh Circuit. The Seventh Circuit explained in that case that “to whatever extent the parties’ plans resemble one another, they likewise resemble countless other home designs in a crowded market.” Id. at 1105. The Defendants point out that they prevailed on summary judgment in this Court for the same reason explained by the Seventh Circuit in Lexington Homes, and Design Basics maintained its lawsuit even after having notice from the Seventh Circuit of its losing argument.

         The Defendants next argue that Design Basics’ improper motive for filing the action further supports an award of their fees and costs. The Defendants assert that Design Basics’ motivation is to obtain proceeds from litigation or settlements rather than protecting a legitimate copyright. The Defendants again point to the Seventh Circuit decision from Lexington Homes to support the improper motivation factor:

Design Basics has been in the business of producing market-ready designs for modest single-family homes for several decades. In 2009, Patrick Carmichael and Myles Sherman purchased Design Basics as an investment opportunity. Carmichael acknowledged in his deposition that “potential copyright infringement cases influence[d his] decision to become an owner of Design Basics.” He testified that proceeds from litigation have become a principal revenue stream for Design Basics.
A search of the Public Access to Court Electronic Records (PACER) system reveals that Design Basics has been party to over 100 federal lawsuits, the vast majority of which have been filed since the 2009 change in ownership. Nearly all involve copyright claims asserted by Design Basics. Design Basics offers its employees incentives to scout out potential copyright infringement cases, paying its employees a finder's fee in the form of a percentage of the net recovery relating to any home plans that they located. Design Basics filed this lawsuit after employee Carl Cuozzo discovered Lexington’s website and its supposedly infringing plans while investigating other Design Basics cases on the Internet. Design Basics’ business model of trawling the Internet for intellectual property treasures is not unique. In recent years, opportunistic holders of copyrights, patents, and other intellectual property have developed unsavory reputations for “trolling, ” bringing strategic infringement claims of dubious merit in the hope of arranging prompt settlements with defendants who would ...

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