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OCEAN ATLANTIC WOODLAND CORP. v. DRH CAMBRIDGE HOMES

May 16, 2003

OCEAN ATLANTIC WOODLAND CORPORATION, A VIRGINIA CORPORATION, PLAINTIFF, VS. DRH CAMBRIDGE HOMES, INC., A CALIFORNIA CORPORATION, COWHEY GUNDMUNDSON, LEDER, LTD. AN ILLINOIS CORPORATION, AND PUGSLEY & LAHAIE, LTD., AN ILLINOIS CORPORATION CORPORATION, DEFENDANTS.


The opinion of the court was delivered by: Edward Bobrick, Magistrate Judge

MEMORANDUM ORDER

Before the court is DEFENDANTS' JOINT MOTION FOR A PROTECTIVE ORDER, BIFURCATION OF DISCOVERY, AND FOR OTHER RELIEF.*fn1 Also before the court are two motions filed by plaintiff namely: OCEAN ATLANTIC WOODLAND CORPORATION'S MOTION TO COMPEL ANSWERS TO INTERROGATORIES AND PRODUCTION OF DOCUMENTS FROM DRH CAMBRIDGE HOMES, INC. AND PUGSLEY & LAHAIE, LTD. and OCEAN ATLANTIC WOODLAND CORPORATION'S MOTION TO COMPEL ANSWERS TO INTERROGATORIES AND PRODUCTION FROM COWHEY, GUNDMUNDSON, LEDER, LTD. On December 20, 2002, the motions [ Page 2]

were granted in part and denied in part and the parties were requested to file a detailed order setting forth the rulings on specific parts of the contested discovery. The parties, after protracted negotiations, were not able to agree on the content of the order. We now issue our detailed order.

I. BACKGROUND

This court has described in detail the facts of this case in our September 25, 2002 Report and Recommendation submitted to Judge Guzman. We will thus limit our description to those facts necessary to understand the basis for our rulings which resolves the discovery disputes.

Ocean Atlantic Woodland Corporation ("Ocean Atlantic"), through recent purchase on April 9, 2002, acquired copyright ownership in two development plans made specifically for a parcel of land (known as the "Liberty Grove" development) in the Village of Plainfield.*fn2 The Plans are part of an annexation agreement governing the village's incorporation of that parcel of land and are based on the contours of the land to be developed. It is worth noting that although the Development Plans were adopted by the Village, Ocean Atlantic does not have any rights to develop the land under the plans due to its failure to close on the sale of the land on time. See Elda Arnhold and Byzantio v. Ocean Atlantic Woodland Corp., 284 F.3d 693 (7th Cir. 2002). Ocean Atlantic now pursues a claim of [ Page 3]

copyright infringement against DRH Cambridge Homes, Inc. ("Cambridge"), the developer who finally acquired the rights to develop the parcel, and is developing the land, in accordance with the subject copyrighted Plan adopted in the annexation plan and incorporated by the Village. Also joined in this suit as defendants are the firms that provided engineering services and landscaping architecture services at the development site.*fn3

Ocean Atlantic seeks massive document production involving all aspects of Cambridge's financial activities, including costs, sales, and profits on all its developments and all of its home sales throughout the country since 1997. Significantly, Ocean Atlantic's requests are not limited to business activities at the development site at issue, nor to the time period at issue. This same discovery approach — albeit to a lesser degree — was made upon the other two defendants. The document production Ocean Atlantic seeks — ostensibly to identify damages — is extraordinarily broad in scope. To fully get the flavor of this, one need only peruse the directions Ocean Atlantic gave to the defendants as to what documents are to be produced.*fn4 Because Ocean Atlantic's discovery requests range far beyond the [ Page 4]

development site involved in this case, and encompass a time period five years prior to its copyright acquisition, we find grave difficulty with them. [ Page 5]

II. DISCUSSION

A. Discovery of Defendants' Business Activities Outside and Apart From the Liberty Grove Site Under the Village's Annexation Plan
Rather than limit its discovery requests to the development site at issue, the site being developed under the copyrighted plan, Ocean Atlantic's interrogatories and production requests seek all of the defendants' financial records relating to their entire business and professional activities, on all construction projects throughout the country, beginning from 1997 through present date. Included within these interrogatories and production requests are demands for the production of customer identification and communications, advertising plans, and costs, sales data, cost of development, payments and profits among the defendants, and filings with government agencies. It can be said, essentially, that Ocean Atlantic is seeking every single business and management record of defendants for all their construction and development activities, no matter where and when done, beginning from 1997 to present date. Obviously, the physical production of these documents would number in the hundreds of thousands of pages and would involve an extraordinary costly undertaking for the defendants. This court first asks then — can anything remotely relevant to the claims and defenses — or more pointedly to damages — arising from use of the Development Plans at the Liberty Grove development site justify this massive body of discovery? We hardly think so. [ Page 6]

Discovery under Fed.R.Civ.P. 26(b) is not without limits; the manner and scope of discovery must be tailored to some extend to avoid harassment or being oppressive. When the purpose of the discovery is to obtain information for reasons other than the prosecution or defense of the lawsuit, unless vital information is at stake, discovery will be denied in its entirety. Echostar Communications Co. v. News Co., 180 F.R.D. 391, 395-96 (D.Colo. 1998). Ocean Atlantic's request for broad discovery into all of the defendants' business activities not involved with the subject development is not only off the mark as legitimate discovery but, even more so, inconsistent with copyright law. A copyright owner's entitlement to recover an accused infringer's profit, if warranted, is limited to profits flowing from the infringing activities. Leigh v. Engle, 727 F.2d 113, 138 (7th Cir. 1984) Ocean Atlantic has made no attempt to limit the scope of discovery to the activities relating to the alleged infringement at the Liberty Grove site.

This court perceives an improper motive and purpose to this broad discovery. We cannot conceive of any relevance to the claims or defenses asserted in this copyright infringement case, or of any legitimate purpose of this massive discovery demand. The production of virtually the entirety of defendants' business books and records relating to all of its projects could not lead to any admissible evidence. We easily conclude that Ocean Atlantic's demands for this line of discovery dating from 1997 — five years prior to Ocean Atlantic's purchase of the Plans — were deliberately employed, in this grudge fight over the lost opportunity to profitably develop the Liberty Grove project, to increase the cost of the [ Page 7]

litigation that defendants must bear in this lawsuit. We conclude that this oppressive and burdensome discovery was so vexatious and unreasonable that it multiplied the proceedings and was aimed at creating excessive costs for defendants (See 28 U.S.C. § 1927). Pure and simple, it was designed to harass the defendants. It will, of course, be denied.

B. Ocean Atlantic's Discovery of Defendants' Business and Financial Records at the Liberty Grove Development Site

Copyright law allows a copyright owner to recover his actual damages and any profits of the infringer that are attributable to the infringement and are not taken into account in computing the actual damages. 17 U.S.C. § 504(b). Since a copyright infringement suit is a form of tort, Taylor v. Meirick, 712 F.2d 1112, 1117 (7th Cir. 1983) (copyright infringement is a statutory tort), causation still needs to be shown. See PAR Miscrosystems, Inc. v. Pinnacle Dev. Corp., 995 F. Supp. 658, 661 (N.D. Tex. 1998) (causation absent for lost profit). As a result, where the relationship between the profit and infringement is so attenuated or speculative, the plaintiff is not entitled to recover defendant's profits. Frank Music Corp. v. MGM, 886 F.2d 1545, 1553 (9th Cir. 1989) (downstream corporate profits are too attenuated to the infringing activities to be recoverable). Moreover, if the profits from infringement have been taken into account in computing the actual damages of the same economic transaction, the owner of the copyright is not entitled to recover both. Taylor, 712 F.2d at 1120. A copyright owner's entitlement to recover an accused infringer's profit, if [ Page 8]

warranted, is limited to profits flowing from the infringing activities. Leigh v. Engle, 727 F.2d 113, 138 (7th Cir. 1984).

Ocean Atlantic's discovery requests, even those aimed at defendant's financial and business records pertaining to the Liberty Grove project, are outside the scope of legitimate discovery on the issue of Ocean Atlantic's damages and lost profits resulting from the alleged infringement. Actual damages are usually calculated on three bases: first, it could be that but for the infringement, Ocean Atlantic would have made the profit out of its own sale/use of the work; second, it could be that Ocean Atlantic suffered a loss because the defendant might have purchased the material from Ocean Atlantic; and third, when the defendant reproduced Ocean Atlantic's copyrighted material, it may have damaged Ocean Atlantic to the extent of value of use of the assets in terms of acquisition costs saved by the defendant. Deltak v. Advanced Systems, 767 F.2d 357, 360 (7th Cir. 1985). Here, because Ocean Atlantic lost its entitlement to develop the land for which the development plan was specifically designed, the market value of the plan is in no way affected by the alleged infringement. The basis for calculating damages is, therefore, either the reasonable cost of acquiring such a plan or the value of Cambridge's use of the plan. The reasonable cost of acquisition is easily ascertainable here through identifying the amount Ocean paid to the original owners of the plans, that being the engineers and architects who created the plans. The value of Cambridge's use (and to a lessor extent use by the other defendants) can be [ Page 9]

assessed at the saved cost of acquisition. Under either theory, however, any award of profits from the development would constitute double-counting under copyright law.

In cases like this, when a developer pays for the use of the plan and uses it for its intended purpose, the copyright owner's claims are exhausted, because a developer's profit from developing the land is independent from the cost of acquiring the copyrighted plan. As pointed out in Dealtak, a contractor who hopes to profit from the construction of a building incurs the cost of the architectural plans, whether or not he does actually profit. 767 F.2d at 361. As a corollary, once the developer pays for the acquisition of the architectural plan, whether he makes profits or loses money in constructing the building is of no concern to the copyright owner.*fn5 We see no material difference between the development plan and architectural works in terms of their respective value to a developer or contractor. In both cases, the profits made by the alleged copyright infringer are the saved acquisition costs. See Atlantic Monthly Co. v. Post Pub. Co., 27 F.2d 556, 560 (D. Mass. 1928)(awarding saved acquisition cost as profit made by copyright infringer). Any further award of profits from [ Page 10]

developing the land would constitute double-counting of damages, as prohibited by the statute. 17 U.S.C. § 504(b).

The proper damages calculation in this case, therefore, is either the amount Ocean Atlantic paid for the acquisition of the plan in the first place, which is readily ascertainable with other discovery not needed, or the value of use or the saved acquisition cost to Cambridge and perhaps the other defendants if used by them. Value of use of infringing work in terms of saved acquisition costs amounts to no more than a determination of what a willing buyer would have been reasonably required to pay a willing seller for Ocean Atlantic's work, the Plans. Sid & Marty Krofft Television Productions, 562 F.2d at 1157, 1174 (9th Cir. 1977). Such a calculation can come through testimony of experts in the field of large scale home development. It is only through this evidence that the value of these preliminary drawings could be readily ascertained. Of course, under the facts of this case, we see little likelihood of Ocean Atlantic recovering anything more than what it paid to the engineers for the creation of the development plan in the first place — but that issue is for the fact finder at a later date.

The history of this case further persuades this court that relying on expert testimony is the best solution to the current discovery dispute, if Ocean Atlantic is not content with being compensated for the amount it paid the engineers when it purchased the Plans. Ocean Atlantic first lost the rights to develop the land and the profits therefrom due to its own failure to close on the sale of the land on time. Arnhold, 284 F.3d 693. By way of the current [ Page 11]

copyright infringement suit, Ocean Atlantic again attempts to recover those profits emanating from developing the land, and in this attempt it initiated discovery into every conceivable financial or business record created by defendant's in conjunction with the development of the project. We conclude that Ocean Atlantic's discovery demands will not lead to relevant information, nor will they lead to the discovery of admissible evidence on the issue of damages in this copyright suit. Whatever profits are realized on this development, after engineering, excavation, design, construction, and sale activities, among other things, are completed, they will be so attenuated or distant from the alleged use of the copyrighted development plan, as to render Ocean Atlantic's extensive discovery at Liberty Grove meaningless. Accordingly, these discovery efforts by Ocean Atlantic will likewise be denied.

III. SPECIFIC RULING ON OCEAN ATLANTIC'S DISCOVERY

DEFENDANTS' JOINT MOTION FOR PROTECTIVE ORDER is granted and both OCEAN ATLANTIC WOODLAND CORPORATION'S MOTIONS TO COMPEL are denied with the following rulings on the parties' respective motions relating to the specific discovery requests.

A. Defendant Cowhey's Objections

This Court finds that Defendant Cowhey's objections to Ocean Atlantic's second set of interrogatories and requests for production are not waived, as Ocean Atlantic argues, because Cowhey joined in Defendants' ...


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