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Design Basics, LLC v. Lexington Homes, Inc.

United States Court of Appeals, Seventh Circuit

June 6, 2017

Design Basics, LLC, et al., Plaintiffs-Appellants,
v.
Lexington Homes, Inc., et al., Defendants-Appellees.

          Argued April 5, 2017

         Appeal from the United States District Court for the Eastern District of Wisconsin. No. 14-CV-1102 - William C. Griesbach, Chief Judge.

          Before Wood, Chief Judge, and Flaum and Hamilton, Circuit Judges.

          Hamilton, Circuit Judge.

         This copyright suit shows the difficulty in finding protected creative expression in a crowded field, in this case, architectural design of single-family homes. The case also shows the challenge in administering intellectual property law to discourage so-called intellectual property "trolls" while protecting genuine creativity.

         Plaintiffs Design Basics, LLC; Prime Designs, Inc.; and Plan Pro, Inc. (collectively, "Design Basics") and their affiliates claim rights to some 2700 home designs. They sued defendants Lexington Homes, Inc. and related parties (collectively, "Lexington") for copyright infringement, contending that Lexington built homes that infringed four of Design Basics' designs.

         The district court granted summary judgment to Lexington, finding no evidence that Lexington ever had access to Design Basics' home plans. Without access, the court reasoned, there could be no copying and no copyright infringement. We affirm. We agree with the district court that Design Basics has no evidence of access. We also conclude that no reasonable jury could find that Lexington's accused plans bear substantial similarities to any original material in Design Basics' plans.

         I. Factual and Procedural Background

         A. Design Basics and the Art of the Intellectual Property Shakedown

         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 prefer to pay modest or nuisance settlements rather than be tied up in expensive litigation. Like the proverbial troll under the bridge, these firms try to extract rents from market participants who must choose between the cost of settlement and the costs and risks of litigation.

         This business strategy is far removed from the goals of the Constitution's intellectual property clause to "promote the Progress of Science and useful Arts." U.S. Const, art. I, § 8, cl. 8. Intellectual property trolls have attracted much attention and derision in scholarly literature and the mainstream media. See, e.g., Matthew Sag, Copyright Trolling, An Empirical Study, 100 Iowa L. Rev. 1105, 1108 (2015) ("The essence of trolling is that the plaintiff is more focused on the business of litigation than on selling a product or service or licensing their IP to third parties to sell a product or a service. The paradigmatic troll plays a numbers game in which it targets hundreds or thousands of defendants, seeking quick settlements priced just low enough that it is less expensive for the defendant to pay the troll rather than defend the claim."); see also David Segal, Has Patent, Will Sue: An Alert to Corporate America, N.Y. Times (July 13, 2013), http://www.ny- times.com/2013/07/14/business/has-patent-will-sue-an-alert-to-corporate-america.html; 441: When Patents Attack!, This American Life (July 22, 2011), https://www.thisamerican-life.org/radio-archives/episode/441/when-patents-attack.

         Courts are aware of these developments. See eBay Inc. v. MercExchange, LLC, 547 U.S. 388, 396 (2006) (Kennedy, J., concurring) ("An industry has developed in which firms use patents not as a basis for producing and selling goods but, instead, primarily for obtaining licensing fees."); Malibu Media, LLC v. Doe, No. 15 Civ. 4369(AKH), 2015 WL 4092417, at *2 (S.D.N.Y. July 6, 2015) ("Recent empirical studies show that the field of copyright litigation is increasingly being overtaken by 'copyright trolls' ... ."); cf. Renaissance Learning, Inc. v. Doe No. 1, No. 11-cv-166-slc, 2011 WL 5983299, at *4 (W.D. Wis. Nov. 29, 2011) ("Remember Mark Antony's funeral oration in Julius Caesar? That's how an experienced business executive or lawyer would view [a patent holder's] assertions that 'we are focused on addressing ... issues without the need for costly and protracted litigation' and 'our client's preferred approach is to conclude licensing discussions without resorting to litigation. We hope you share this objective.' The implied 'or else!' oozes from this letter like lye from lutefisk.").[1]

         B. The Claims Against Lexington

         According to its federal complaint, Design Basics first learned of a possible copyright infringement claim against Lexington on September 11, 2011. Design Basics waited until September 10, 2014-one day before the three-year limitations period would certainly have expired-to bring suit. See 17 U.S.C. § 507(b); Gaiman v. McFarlane, 360 F.3d 644, 653 (7th Cir. 2004) (copyright statute of limitations starts to run "when the plaintiff learns, or should as a reasonable person have learned, that the defendant was violating his rights").

         Design Basics filed a complaint alleging that four Lexington home plans-the Carlisle, Oakridge, Ash wood, and Easton-infringed four Design Basics plans: the Aspen, Kendrick, Taylor, and Womack, respectively. Lexington chose not to settle. After discovery, Lexington moved for summary judgment. In response, Design Basics offered little evidence to try to show that Lexington's agents and employees had ever seen its plans, let alone copied them. Instead, Design Basics offered a declaration by its draftsman, Carl Cuozzo. He opined in conclusory terms that Lexington's four accused plans are "substantially similar" to the four Design Basics plans "in too many ways to have been the product of independent creation." Cuozzo added that Design Basics' plans have been "widely disseminated" via the firm's website, www.designbasics.com, since 1996, though he admitted in his deposition that he had no idea when the particular plans at issue in this case were first uploaded to the website.

         Lexington, by contrast, offered a detailed report by Dr. Robert Greenstreet, Dean of the School of Architecture and Urban Planning at the University of Wisconsin-Milwaukee. Dr. Greenstreet compared the accused plans with Design Basics' plans, identifying dozens of differences between the paired designs and ultimately finding "no evidence ... of substantial similarity between the designs claimed by Design Basics and those created by Lexington." Lexington also relied on its shareholders' and employees' unrebutted declarations that they had never seen the plans at issue prior to this litigation.

         In granting summary judgment for Lexington, the district court focused on the question of access. The court observed that there was no evidence Lexington or its agents received or reviewed any of the plans at issue. See Design Basics, LLC v. Lexington Homes, Inc., No. 14-CV-1102, 2016 WL 8116897, at *2 (E.D. Wis. Sept. 30, 2016). Also, the accused plans and Design Basics' plans were not so strikingly similar as to permit an inference of copying without separate proof of access. Id. at *4. There was evidence that Lexington's employees were generally familiar with Design Basics and may have seen some of its other designs. But the court found the evidence of access to other designs was not sufficient to infer access to the designs claimed in this case. Id. at ""5. The court entered judgment for Lexington. Design Basics appeals.

         II. Analysis

         We review de novo the district court's grant of summary judgment, viewing the evidence in the light most favorable to Design Basics. See Arlington Specialties, Inc. v. Urban Aid, Inc., 847 F.3d 415, 418 (7th Cir. 2017). A non-moving party is entitled to all reasonable inferences in its favor, but "inferences that are supported by only speculation or conjecture will not defeat a summary judgment motion." Herzog v. Graphic Packaging Int'l, Inc., 742 F.3d 802, 806 (7th Cir. 2014), quoting Tu-bergen v. St. Vincent Hospital & Health Care Center, Inc., 517 F.3d 470, 473 (7th Cir. 2008).

         A. Copyright ...


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