Design Basics, LLC v. Signature Constr., Inc.

• Decision Date: 23 April 2021
• Docket Number: No. 19-2716,19-2716
• Citation: 994 F.3d 879
• Parties: DESIGN BASICS, LLC, and Carmichael & Dame Designs, Inc., Plaintiffs-Appellants, v. SIGNATURE CONSTRUCTION, INC., et al., Defendants-Appellees.
• Court: U.S. Court of Appeals — Seventh Circuit

994 F.3d 879

DESIGN BASICS, LLC, and Carmichael & Dame Designs, Inc., Plaintiffs-Appellants,

v.SIGNATURE CONSTRUCTION, INC., et al., Defendants-Appellees.

No. 19-2716

United States Court of Appeals, Seventh Circuit.

Argued January 22, 2020

Decided April 23, 2021

Paul E. Harold, Attorney, Stephen M. Judge, Attorney, John D. LaDue, Attorney, Sean J. Quinn, Attorney, Southbank Legal: LaDue Curran & Kuehn LLC, South Bend, IN, Dana Andrew LeJune, Attorney, Law Office of Dana LeJune, Houston, TX, for Plaintiffs-Appellants.

Anne L. Cowgur, Attorney, Taft Stettinius & Hollister LLP, Indianapolis, IN, for Defendants-Appellees.

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

Sykes, Chief Judge.

Copyright law strikes a practical balance between the intellectual-property rights of authors and the public interest in preserving the free flow of ideas and information and encouraging creative expression, all in furtherance of the constitutional purpose to "promote the Progress of Science and useful Arts." U.S. CONST. art. 1, § 8, cl. 8 ; see generally Google LLC v. Oracle Am., Inc. , ––– U.S. ––––, 141 S. Ct. 1183, 1195, ––– L.Ed.2d –––– (2021). Copyright trolls—opportunistic holders of registered copyrights whose business models center on litigation rather than creative expression—disrupt this balance by inhibiting future creativity with negligible societal benefit. "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." Design Basics, LLC v. Lexington Homes, Inc. , 858 F.3d 1093, 1097 (7th Cir. 2017).

Plaintiff Design Basics, LLC, is a copyright troll. Id. at 1096–97. The firm holds registered copyrights in thousands of floor plans for suburban, single-family tract homes, and its employees trawl the Internet in search of targets for strategic infringement suits of questionable merit. The goal is to secure "prompt settlements with defendants who would prefer to pay modest or nuisance settlements rather than be tied up in expensive litigation." Id. at 1097. As we explained in Lexington Homes , "[t]his business strategy is far removed from the goals of the Constitution's intellectual property clause." Id. Instead, it amounts to an "intellectual property shakedown." Id. at 1096.

This appeal involves yet another Design Basics infringement action, one of more than 100 such suits in the last decade or so. Id. at 1097. When Design Basics was last before this court in Lexington Homes , we were guided by two well-established copyright doctrines—scènes à faire and merger—that constrain the ability of infringement plaintiffs to claim expansive intellectual-property rights in a manner that impedes future creativity. Applying these doctrines, we held that Design Basics’ copyright in its floor plans is thin. Id. at 1101–05. The designs consist mainly of unprotectable stock elements—a few bedrooms, a kitchen, a great room, etc.—and much of their content is dictated by functional considerations and existing design conventions for affordable, suburban, single-family homes. When copyright in an architectural work is thin, only a "strikingly similar" work will give rise to a possible infringement claim. Id. at 1105. Applying this standard, we held that no reasonable jury could find for Design Basics and affirmed a summary judgment against it. Id.

This latest appeal meets the same fate. Design Basics sued Signature Construction, Inc., and related companies, accusing them of copying ten of its registered floor plans for suburban, single-family homes. The district court entered summary judgment for the defendants based largely on the reasoning of Lexington Homes .

Design Basics asks us to overrule Lexington Homes . We decline to do so. And we take this opportunity to restate and clarify the elements of a prima facie case of infringement, both as a general matter and more particularly in cases involving works of this type in which copyright protection is thin. For this category of claims, only extremely close copying is actionable as unlawful infringement. Put more precisely, this type of claim may move forward only if the plaintiff's copyrighted design and the allegedly infringing design are virtually identical. That standard is not satisfied here, so we affirm.

I. Background

We described Design Basics’ business strategy in Lexington Homes ; a brief summary will suffice for present purposes. Design Basics holds registered copyrights in thousands of floor plans for suburban, single-family homes. Lexington Homes , 858 F.3d at 1096. The plans are not technical construction drawings. Rather, they are basic schematic designs, largely conceptual in nature, and depict layouts for one- and two-story single-family homes that include the typical rooms: a kitchen, a dining area, a great room, a few bedrooms, bathrooms, a laundry area, a garage, stairs, assorted closets, etc.

More than a decade ago, Patrick Carmichael and Myles Sherman bought Design Basics "as an investment opportunity."¹ Id. at 1096. Since then, litigation proceeds have become "a principal revenue stream" for the firm. Id. at 1097. Indeed, Design Basics incentivizes its employees to search the Internet for litigation targets by paying a finder's fee—a percentage of net recovery—if they locate a prospective infringement defendant. This is the core of the firm's business model. Id.

The firm maintains an easily accessible website displaying 2,847 floor plans. It also regularly sends mass mailings of its designs to members of the National Association of Home Builders. Over the years the firm has sent millions of publications containing its floor plans to home builders. When it initiates litigation, it hopes—indeed, expects—to find these designs in the defendant's files.

This case has its genesis in that business model. In 2014 Paul Foresman, Director of Business Development at Design Basics, emailed Carmichael with the subject line: "A gift for you." Foresman told Carmichael that by using the Internet Archive's Wayback Machine, he discovered that a firm called "Signature Homes" may have copied some of Design Basics’ home designs. Carmichael was initially confused because Design Basics was already asserting infringement claims against a firm by that name, but Foresman clarified that this Signature Homes—based in Illinois—was a different company. Pleased with Foresman's discovery, Carmichael wrote back: "Wow very nice gift my friend."

This infringement suit followed. In 2016 Design Basics sued Signature Construction and related companies,² alleging that they infringed ten of its floor plans. During discovery, Design Basics learned that Signature's files contained photocopies of four of its plans: "Ainsley," "2461 Shawnee," "2963 Columbus," and "9169 Kempton Court." The photocopies were found in Signature's files for homes labeled "Carlisle," "Lot 119 Lake Falls," "Lot 63 Sommer Place," and "Lot 309 Stonegate," respectively. The photocopy of Design Basics’ 2461 Shawnee floor plan had red markings on it, indicating modifications to the plan. John Tanner, a draftsman at Signature, testified that he received the marked-up image from Steve Meid, a Signature partner, and understood that the markings were modifications that Meid wanted him to make.

At the end of lengthy discovery, Signature moved for summary judgment, relying heavily on our ruling against Design Basics in Lexington Homes . As we explained in that opinion, under the scènes à faire and merger doctrines, Design Basics’ copyright protection in its floor plans is thin, id. at 1101–05, and therefore only a "strikingly similar" plan would give rise to an infringement claim, id. at 1105. Using this standard, we held that no reasonable jury could find infringement. Id. Along the way to this conclusion, we noted that Design Basics had not submitted expert testimony to support its claim, relying instead on a conclusory declaration from one of its draftsmen. Id. at 1104.

Design Basics tried to avoid that same criticism here by submitting an affidavit from a third-party expert in opposition to Signature's summary-judgment motion. The witness, Matthew McNicholas, is an architect and has served as an outside expert for Design Basics in at least 13 lawsuits. McNicholas asserted that Signature "unquestionably infringed" Design Basics’ home plans.

To support that opinion, McNicholas produced a 103-page report. The first 30 pages cover his qualifications and explain his general views on architectural copyright law. Pages 32–85 are descriptions of the ten copyrighted floor plans at issue in this case. This section of his report contains narrative descriptions of the features of each Design Basics floor plan, but the descriptions are remarkably similar to one another. Indeed, some parts are almost word-for-word identical.

A few examples will illustrate. For the Design Basics floor plan called "The Linden," McNicholas wrote: "The idea behind the plan of The Linden focuses on creating a home for entertaining guests, and whose spaces are flexible enough to meet the needs of a broad range of potential homeowner[s]." One of the features he analyzed is the front door:

From the perspective of a guest, the sheltered front door is a welcome area, not just with the covered stoop, but also composed with walls to either side of the entry, which shelter against wind and driving rain. This consideration for waiting guests reinforces the entertainment value of this design decision.

His description of the floor plan called "The Manning" is similarly generic: "The concept driving the plan of the Manning centers around creating a home focused on entertainment, but with enough flexibility to evolve into multiple solutions as the homeowner needs, while maximizing privacy." Again, McNicholas described the front door:

From the perspective of a guest, the sheltered front door is a welcome area, not just with the covered stoop, but also arranged

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