Construction & Public Contract Law Section Blog: Seventh Circuit Decision Sends Message to Copyright ‘Trolls’ :

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  • Construction & Public Contract Law Section Blog
    November
    28
    2017

    Seventh Circuit Decision Sends Message to Copyright ‘Trolls’

    Eric J. Meier

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    The Seventh Circuit Court of Appeals’ dismissal of a copyright claim against a homebuilder sends message of increased scrutiny to copyright “trolls.” Eric Meier discusses the decision and what it means for designers of single family home plans.

    This year has seen interesting developments relative to patent “trolls,” including a Supreme Court case stifling the practice of filing patent cases in plaintiff-friendly places, such as a federal district in East Texas that is notorious as a favorable venue for patent holders.

    Based on a recent decision by the U.S. Court of Appeals for the Seventh Circuit, it appears that the screws might be tightening on copyright “trolls” as well.

    The Case: Design Basics v. Lexington

    The underlying case originated in the Eastern District of Wisconsin. Design Basics, LLC v. Lexington Homes, Inc.,1 involved Design Basics, LLC; Prime Designs, Inc.; and Plan Pro, Inc. (Design Basics) suing Lexington Homes, Inc., and related parties (Lexington) for copyright infringement relative to four of Design Basics’ designs that were alleged to be similar to homes Lexington built.

    Judge William Griesbach of the Eastern District of Wisconsin granted Lexington’s summary judgment motion, focusing on Design Basics’ failure to prove access. With no access to Design Basics’ plans, there could be no copying and, therefore, no copyright claim.

    In addressing Design Basics’ appeal, the Seventh Circuit opened its opinion2 with the following statement:

    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.

    The court took note of some key characteristics of Design Basics and its business model of “trawling the internet for intellectual property treasures:”

    1) The current ownership of Design Basics admitted not only that Design Basics uses litigation as a principal revenue stream – more than 100 federal lawsuits filed since 2009 – but also that potential copyright infringement cases influenced one current owner’s decision to become an owner in the first place.
    2) Design Basics offers its employees a finder’s fee to scout out potential copyright infringement cases.
    3) Design Basics regularly uses “home cooking” to attempt to explain why its drawings are substantially similar to those whom it sues for infringement: “Design Basics’ repeated reliance on its in-house draftsman’s conclusory testimony in lieu of third-party expert testimony, where the draftsman stands to profit directly if his firm prevails in litigation, strikes us as a questionable workaround to the general prohibition on contingency payments for expert witnesses.”

    Two Elements Plaintiffs Need to Prove

    In analyzing Design Basics’ copyright claims, the court explained that there are two elements plaintiffs need to prove: (a) ownership of a valid copyright; and (b) copying of constituent elements of the work that are original. Relative to the second element, plaintiffs must prove that defendants copied their original work.

    Eric Meier com eric.meier huschblackwell Eric Meier, U.W. 2002, is a partner in Husch Blackwell’s Real Estate, Development, and Construction industry team in Milwaukee, where he concentrates his practice on construction and commercial litigation.

    Thus, if defendants can point to their creation of a work independent of the plaintiffs, they have a defense even if the parties’ respective works are substantially similar. Given that direct evidence of copying is rarely available, courts allow plaintiffs to prove copying by establishing access and substantial similarity.

    While the access requirement is not onerous, both Judge Griesbach and the Seventh Circuit found that Design Basics had not met its burden of proof, even at the summary judgment stage. Design Basics hung its access hat on weak circumstantial evidence that Lexington agents may have been aware of other of Design Basics’ plans and the existence of Design Basics’ website. For the former evidence, Design Basics presented proof that it regularly disseminates its plans to homebuilders’ associations and homebuilders stores.

    Findings: Access and Substantial Similarity

    Ultimately, the Court found that: “Design Basics has no direct proof of access and no probative circumstantial evidence that Lexington may have viewed the plans at issue.”

    As for the website, the Seventh Circuit was unimpressed with Design Basics’ argument and found the Fourth Circuit’s well-developed analysis persuasive. Ultimately, the court decided that “the existence of the plaintiff’s copyrighted materials on the internet, even on a public and ‘user-friendly’ site, cannot by itself justify an inference that the defendant accessed those materials.”

    Perhaps the more interesting analysis related to substantial similarity. The court made clear that when considering substantial similarity, it was critical to focus on “protectable expression:” “Similarity by itself – even close similarity – should not automatically spark an inference of unlawful copying.”

    The court went on to identify various aspects of the market for affordable designs for single-family homes, which presented challenges to proving substantial similarity. For one, there are tight constraints on originality in design given “functional requirements, consumer demands, and the vast body of similar designs already available.” These single family home designs are not intended to be one-of-a-kind works of art, but rather, “are meant to appeal to homebuilders and buyers who want to build, sell, and buy homes that will hold their value.”

    Two Doctrines Distinguishing Protected Expression from Public Domain Material

    Given that the Seventh Circuit had not previously considered the intersection between its cases discussing substantial similarity and copyright claims involving home designs, it looked to the Second Circuit for guidance. The Seventh Circuit took note of two doctrines to distinguish protected expression from material in the public domain:


    • The first was the doctrine of scènes à fairei.e., a plaintiff cannot point to elements of a work that are rudimentary, standard, or otherwise so commonplace that they do not serve to distinguish one work from another.
    • The second was the doctrine of merger, which explains that when there is only a very limited number of ways to express an idea, caution must be used so copyrighting of the expression of the idea does not create a trap by which the idea itself is copyrighted.

    In applying these two doctrines, the Seventh Circuit noted that “Lexington’s accused plans resemble Design Basics’ plans, but only because both sets resemble common home designs one might observe throughout the suburbs of Milwaukee, Chicago, Indianapolis, or many other communities.”

    The logic was fairly simple – there are only so many ways to arrange rooms that are a part of common home designs. Further, the court wondered aloud “whether there is any blueprint for a single-family home anywhere in the country that Design Basics could not match to one of its own designs by applying the loose standard of similarity it relies upon here.” In other words, “[a]n infringement doctrine that would enable an aggressive designer to sue all of its competitors and bring those claims before a jury would turn the law of copyright on its head.” In short, why should Design Basics be allowed to use the over 2,700 home plans it advertises on its website to chill the market for midmarket home designs.

    The Rest of the Story: Addressing the ‘Trolls’

    The so-called rest of the story is interesting as well.

    After the summary judgment was affirmed, Judge Griesbach eventually awarded the homebuilder defendants almost $250,000 for their attorneys’ fees and expenses.

    There is also movement afoot with the National Association of homebuilders (NAHB) to address “troll” activity. The NAHB updated the General Government & Economic Policy section of its handbook to reflect a resolution it adopted in June 2017. Among NAHB’s resolutions are that “NAHB supports efforts before Congress, the Administration, the Courts and the U.S. Patent and Trademark Office to protect small businesses from low-quality patents and from the legal liability related to the granting of such patents, particularly with respect to the abusive measures taken by non-practicing entities who have purchased patents.”

    Among NAHB’s stated goals are to “help ensure that the requirements for patents, trademarks, and copyrights are properly demonstrated and that intellectual property rights are not secured or claimed for inventions, features and elements in designs or marks that are already in common use in residential construction.”

    The Seventh Circuit is not the first court to note that Design Basics model of trawling the internet for intellectual property treasures was far removed from the goals of the Constitution’s intellectual property clause to “promote the Progress of Science and useful Arts.” However, it appears that courts, industry organizations, and state and federal legislatures are increasing the scrutiny on those who use copyrights, patents, etc., as “trolls” seeking to extract rents from market participants who are left to choose between settling and the costs/risks associated with litigation.

    Best Defense Against ‘Trolls:’ Be Proactive

    Attorneys in fields where “trolls” are known to lurk should be proactive in educating their clients about policies and procedures that can help to protect against claims that their clients’ independent creations were unlawfully copied. In those instances where even the best prevention cannot avoid trouble landing on their doorstep, attorneys representing clients in copyright litigation should develop a game plan which uses all available tools to tease out any legitimate claims/evidence from the boilerplate litigation assembly line.

    While “trolls” may be more cautious in coming out from under their bridges, they are unlikely to stop asking for tolls anytime soon.

    Endnotes


    1Design Basics, LLC v. Lexington Homes, Inc., 858 F.3d 1093 (7th Cir. 2017).

    2 Id.





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