Design Basics, LLC v. Lexington Homes, Inc.

858 F.3d 1093, 123 U.S.P.Q. 2d (BNA) 1128, 2017 WL 2432294, 2017 U.S. App. LEXIS 9985
CourtCourt of Appeals for the Seventh Circuit
DecidedJune 6, 2017
DocketNo. 16-3817
StatusPublished
Cited by72 cases

This text of 858 F.3d 1093 (Design Basics, LLC v. Lexington Homes, Inc.) is published on Counsel Stack Legal Research, covering Court of Appeals for the Seventh Circuit primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Design Basics, LLC v. Lexington Homes, Inc., 858 F.3d 1093, 123 U.S.P.Q. 2d (BNA) 1128, 2017 WL 2432294, 2017 U.S. App. LEXIS 9985 (7th Cir. 2017).

Opinion

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 [1097]*1097Design 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.pytimes.com/2013/07/14/ business/has-patent-will-sue-an-alert-to-corporate-america.html; HI: When Patents Attack!, This American Life (July 22, 2011), https://www.thisamericanlife.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, 126 S.Ct. 1837, 164 L.Ed.2d 641 (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 Caesarl 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 [1098]*1098resorting 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); Caiman 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, Ashwood, and Ea-ston—infringed four Design Basics plans: the Aspen, Kendrick, Taylor, and Wom-ack, 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.

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858 F.3d 1093, 123 U.S.P.Q. 2d (BNA) 1128, 2017 WL 2432294, 2017 U.S. App. LEXIS 9985, Counsel Stack Legal Research, https://law.counselstack.com/opinion/design-basics-llc-v-lexington-homes-inc-ca7-2017.