Design Basics, LLC v. Windsor Homes, Inc.

Citation Codes

Equivalent Citations

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Docket Number

CAUSE NO.: 1:16-CV-51-TLS

Motions

Motion for partial summary judgment : Denied Defendant

Attorney(S)

Judges

Theresa Lazar Springmann

Acts

Judiciary And Judicial Procedure — District Courts; Jurisdiction — Jurisdiction And Venue — Patents, Plant Variety Protection, Copyrights, Mask Works, Designs, Trademarks, And Unfair Competition
Copyrights — Copyright Infringement And Remedies — Limitations On Actions

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Smart Summary

Factual and Procedural Background

The Plaintiff, Design Basics LLC, a Nebraska-based company specializing in creating, marketing, publishing, and licensing architectural works and technical drawings, filed a copyright infringement lawsuit against Defendants Windsor Construction, Inc., Windsor Construction, LLC, Windsor Homes, Inc., and Windsor, Inc., companies operating in Fort Wayne that build homes. The Complaint, filed on February 3, 2016, alleges that the Defendants published, distributed, marketed, and advertised architectural designs for single-family residential homes that infringe the Plaintiff’s copyrighted works. The Defendants have publicly used and built homes based on the contested floor plans for over twenty years, including periods before and after the three-year "Look-Back Date" of February 3, 2013. Following the filing of an Amended Answer, the Defendants moved for Partial Summary Judgment on October 21, 2016, arguing that claims based on infringing acts occurring prior to the Look-Back Date are barred by the statute of limitations under the Copyright Act. The motion was fully briefed and ripe for decision.

Legal Issues Presented

Whether the statute of limitations under the Copyright Act bars the Plaintiff’s claims for infringing acts that occurred prior to February 3, 2013.
Whether the Supreme Court’s decision in Petrella v. Metro-Goldwyn-Mayer, Inc. abrogated the Seventh Circuit’s "discovery rule" for determining when a copyright claim accrues.
Whether the "discovery rule" or the "incident of injury" rule governs accrual of copyright infringement claims in the Seventh Circuit.

Arguments of the Parties

Defendants' Arguments

The statute of limitations provision in the Copyright Act bars any claims based on infringing acts occurring prior to the three-year "Look-Back Date" of February 3, 2013.
The Supreme Court’s decision in Petrella determined that a copyright claim accrues at the time of the infringing act, thereby eliminating the discovery rule.

Plaintiff's Arguments

Petrella did not change the Seventh Circuit’s established "discovery rule," which holds that a claim accrues when the injured party discovers or should have discovered, with due diligence, the infringing act.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
Petrella v. Metro-Goldwyn-Mayer, Inc., 134 S. Ct. 1962 (2014)	Held that the statute of limitations generally begins to run when the infringing act occurs; discussed but did not resolve the discovery rule issue.	The Court interpreted Petrella as not abrogating the Seventh Circuit’s discovery rule for accrual of copyright claims.
SCA Hygiene Prods. Aktiebolag v. First Quality Baby Prods., LLC, 137 S. Ct. 954 (2017)	Confirmed that the Supreme Court has not resolved whether the discovery rule applies to accrual of claims under statutes of limitations.	Supported the Court’s conclusion that Petrella did not change the accrual rule in the Seventh Circuit.
Gaiman v. McFarlane, 360 F.3d 644 (7th Cir. 2004)	Established the Seventh Circuit’s adoption of the discovery rule for accrual of copyright claims.	The Court reaffirmed that this rule governs accrual in this Circuit.
Chicago Building Design, P.C. v. Mongolian House, Inc., 770 F.3d 610 (7th Cir. 2014)	Addressed the three-year look-back period and noted uncertainty about whether Petrella abrogated the discovery rule.	The Court noted no opinion was expressed on abrogation of the discovery rule, leaving it intact.
Consumer Health Information Corp. v. Amylin Pharmaceuticals, Inc., 819 F.3d 992 (7th Cir. 2016)	Distinguished accrual rules for copyright ownership claims versus infringement claims.	The Court recognized that infringement claims accrue at the time the wrong occurs, consistent with Petrella, but did not alter the discovery rule's application.
Frerck v. Pearson Educ., Inc., 63 F. Supp. 3d 882 (N.D. Ill. 2014)	Confirmed the obligation of district courts to follow Seventh Circuit precedent regarding accrual rules.	Supported the Court’s adherence to the discovery rule in this case.
Goodman v. Nat'l Sec. Agency, Inc., 621 F.3d 651 (7th Cir. 2010)	Outlined standards for summary judgment including the requirement of no genuine dispute of material fact.	Guided the Court’s procedural standard in resolving the motion for summary judgment.
Luster v. Ill. Dep't of Corrs., 652 F.3d 726 (7th Cir. 2011)	Clarified evidentiary standards for summary judgment motions.	Used as part of the standard of review framework.
Waldridge v. Am. Heochst Corp., 24 F.3d 918 (7th Cir. 1994)	Emphasized the court’s limited role in deciding summary judgment motions.	Reinforced the Court’s approach to evaluating the motion.
Smith v. Severn, 129 F.3d 419 (7th Cir. 1997)	Defined material facts as those outcome determinative under applicable law.	Informed the Court’s assessment of material facts for summary judgment.

Court's Reasoning and Analysis

The Court began by recognizing its original jurisdiction under 28 U.S.C. § 1338(a) for copyright claims. It identified the three-year statute of limitations under 17 U.S.C. § 507(b), which requires that claims be commenced within three years after accrual. The Defendants argued that accrual occurs at the time of the infringing act, as interpreted in Petrella. The Plaintiff countered that the Seventh Circuit's discovery rule, under which accrual occurs when the plaintiff discovers or should have discovered the infringement, remains controlling.

Examining Petrella, the Court noted the Supreme Court explicitly declined to decide whether the discovery rule or the incident of injury rule governs accrual in copyright cases. The Court further relied on the Supreme Court’s decision in SCA Hygiene, which confirmed that the Supreme Court has not resolved the accrual question definitively. The Court then reviewed Seventh Circuit precedent, including Gaiman, Chicago Building Design, and Consumer Health Information, which continue to apply the discovery rule in this Circuit.

The Court emphasized it is bound to follow Seventh Circuit precedent and concluded that Petrella did not abrogate the discovery rule. Therefore, claims for infringing acts occurring more than three years before the lawsuit commenced are not barred as a matter of law if the Plaintiff did not have actual or constructive knowledge. Accordingly, the Defendants’ Motion for Partial Summary Judgment was denied.

Holding and Implications

The Defendants' Motion for Partial Summary Judgment is DENIED.

The Court held that under current Seventh Circuit precedent, the discovery rule governs the accrual of copyright infringement claims. The Supreme Court’s decision in Petrella does not alter this rule within the Seventh Circuit. Consequently, Plaintiff Design Basics LLC’s claims based on infringing acts occurring more than three years before the suit was filed are not barred if the Plaintiff lacked actual or constructive knowledge of those acts. This decision directly affects the parties by allowing the Plaintiff to pursue claims for older alleged infringements. The opinion does not establish new precedent but reaffirms existing Seventh Circuit law.

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DESIGN BASICS, LLC, Plaintiff, v. WINDSOR HOMES, INC., et al., Defendants.

CHIEF JUDGETHERESA L. SPRINGMANN UNITED STATES DISTRICT COURT

OPINION AND ORDER

This matter comes before the Court on the Motions for Partial Summary Judgment [ECF No. 29] filed by Defendants Windsor Construction, Inc., Windsor Construction, LLC, Windsor Homes, Inc., and Windsor, Inc., on October 21, 2016. In that Motion, the Defendants argue that the statute of limitations provision in the Copyright Act bars Plaintiff Design Basics LLC's claims based on infringing acts that occurred prior to February 3, 2013 (the "Look-Back Date"). This matter is fully briefed and ripe for review.

BACKGROUND

The Plaintiff is a Nebraska company that creates, markets, publishes and licenses the use of architectural works and technical drawings. The Defendants are Fort Wayne companies that build homes. On February 3, 2016, the Plaintiff filed a Complaint [ECF No. 1] against the Defendants for "publish[ing], distribut[ing], market[ing], and advertis[ing] certain architectural designs for single family residential homes" that infringe the Plaintiff's copyrighted works. (Compl. ¶¶ 9-26, ECF No. 1.) The Defendants have "publicized and built homes based on floor plans named in [the Plaintiff's] Complaint for over twenty years prior to" the lawsuit, spanning both before and after the Look-Back Date. (Defs.' Br. in Supp. of Mot. Summ. J. 3, ECF No. 30.) The Defendants filed an Amended Answer [ECF No. 24], on July 28, 2016. On October 21, 2016, the Defendants moved for Partial Summary Judgment. The Plaintiff filed its Response to the Defendants' Motion [ECF No. 36] on November 21, 2016, and the Defendants' Reply [ECF No. 39] was filed on December 5, 2016.

STANDARD OF REVIEW

Summary judgment is warranted when "the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Fed. R. Civ. P. 56(a). Summary judgment is the moment in litigation where the nonmoving party is required to marshal and present the court with evidence on which a reasonable jury could rely to find in that party's favor. Goodman v. Nat'l Sec. Agency, Inc., 621 F.3d 651, 654 (7th Cir. 2010). A court should only deny a motion for summary judgment when the nonmoving party presents admissible evidence that creates a genuine issue of material fact. Luster v. Ill. Dep't of Corrs., 652 F.3d 726, 731 (7th Cir. 2011) (first citing United States v. 5443 Suffield Terrace, 607 F.3d 504, 510 (7th Cir. 2010); then citing Swearnigen-El v. Cook Cty. Sheriff's Dep't, 602 F.3d 852, 859 (7th Cir. 2010)). A court's role in deciding a motion for summary judgment "is not to sift through the evidence, pondering the nuances and inconsistencies, and decide whom to believe. [A] court has one task and one task only: to decide, based on the evidence of record, whether there is any material dispute of fact that requires a trial." Waldridge v. Am. Heochst Corp., 24 F.3d 918, 920 (7th Cir. 1994). Material facts are those that are outcome determinative under the applicable law. Smith v. Severn, 129 F.3d 419, 427 (7th Cir. 1997). Although a bare contention that an issue of material fact exists is insufficient to create a factual dispute, a court must construe all facts in a light most favorable to the nonmoving party, view all reasonable inferences in that party's favor, see Bellaver v. Quanex Corp., 200 F.3d 485, 491-92 (7th Cir. 2000), and avoid "the temptation to decide which party's version of the facts is more likely true," Payne v. Pauley, 337 F.3d 767, 770 (7th Cir. 2003).

DISCUSSION

This Court has original jurisdiction over copyright claims pursuant to 28 U.S.C. § 1338(a). The Copyright Act states that "[n]o civil action shall be maintained under [its] provisions . . . unless it is commenced within three years after the claim accrued." 17 U.S.C. § 507(b) (emphasis added). The Defendants argue that the recent Supreme Court decision in Petrella v. Metro-Goldwyn-Mayer, Inc., 134 S. Ct. 1962 (2014), determined that a copyright claim "accrue[s]" at the time of the infringing act. The Plaintiff argues that Petrella did not change the Seventh Circuit "discovery rule" that a claim accrues when the injured party discovers or should have discovered with due diligence that an infringing act occurred. The Court must decide which party's interpretation of the law is correct.

Petrella concerned the classic film Raging Bull, the copyright to which the plaintiff possessed and which she claimed MGM infringed by marketing and distributing it for roughly three decades. 134 S. Ct. at 1970-71. The question before the Supreme Court was limited to the "application of the equitable defense of laches to copyright infringement claims brought within the three-year look-back period." Id. at 1972. In discussing the Copyright statute as a whole, the Supreme Court stated that in an infringement suit "the limitations period generally begins to run at the point when 'the plaintiff can file suit and obtain relief.'" Id. at 1969. "A copyright claim thus arises or 'accrue[s]' when an infringing act occurs." Id. But in a footnote, the Supreme Court noted that "nine Court of Appeals have adopted, as an alternative to the incident of injury rule, a 'discovery rule,' which starts the limitations period when 'the plaintiff discovers, or with due diligence should have discovered, the injury that forms the basis for the claim," and that it would "not pass[] on the question" of which one was correct. Id. at 1969 n.4. Accordingly, the Supreme Court did not purport to change any accrual laws in its Petrella opinion.

A recent Supreme Court decision confirms this reading of Petrella. See SCA Hygiene Prods. Aktiebolag v. First Quality Baby Prods., LLC, 137 S. Ct. 954 (2017). SCA Hygiene presented the same question—whether the equitable defense of laches brought within a statute's limitations period—but in the similar context of the Patent Act. Id. at 959. The respondent argued that "the accrual of a claim, the event that triggers the running of a statute of limitations, occurs when a plaintiff knows of a cause of action. Id. at 962. The Supreme Court noted that such a statement

is not ordinarily true. As we wrote in Petrella, "[a] claim ordinarily accrues 'when [a] plaintiff has a complete and present cause of action. . . .' " While some claims are subject to a "discovery rule" under which the limitations period begins when the plaintiff discovers or should have discovered the injury giving rise to the claim, that is not a universal feature of statutes of limitations. . . . And in Petrella, we specifically noted that "we have not passed on the question" whether the Copyright Act's statute of limitations is governed by such a rule.

Id. (citations omitted). SCA Hygiene confirms that the Supreme Court has not weighed in, one way or another, on when a cause of action accrues for purposes of a copyright claim.

The Seventh Circuit follows the "discovery rule" for accrual purposes. Gaiman v. McFarlane, 360 F.3d 644, 653 (7th Cir. 2004). Two Seventh Circuit opinions since Petrella confirm that the Supreme Court's decision did not abrogate the discovery rule within this Circuit. Like Petrella, Chicago Building Design, P.C. v. Mongolian House, Inc., 770 F.3d 610 (7th Cir. 2014), involved a defendant's infringing acts that occurred within the "three-year lookback period." Id. at 616. To determine if the plaintiff's complaint was time barred, "the right question to ask . . . [wa]s whether the complaint contain[ed] allegations of infringing acts that occurred within the three-year lookback period from the date on which the suit was filed." Id. However, the court "express[ed] no opinion" as to whether "Petrella abrogate[d] the discovery rule in copyright cases," id. at 618, and thus it was not central to its holding. In Consumer Health Information Corp. v. Amylin Pharmaceuticals, Inc., 819 F.3d 992 (7th Cir. 2016), the Seventh Circuit considered a "dispute over copyright ownership." Id. at 995. The Seventh Circuit stated that "when the gravamen of a copyright suit is a contest over copyright ownership, the claim accrues when the claimant has express notice of a competing claim of ownership." Id. at 996. This rule for a copyright ownership claim was distinguished from an infringement claim, the latter of which accrued "at the time the wrong occur[ed]." Id. (citing Petrella, 134 S. Ct. at 1969). The Court did not discuss Petrella further or its impact upon the discovery rule.

In remanding the case, the Seventh Circuit allowed for the possibility that the plaintiff could seek "a right to recover for infringing acts that occurred . . . outside the three-year lookback period," which was not an issue properly before the court. Id. Assuming Petrella abrogated the discovery rule, such a suggestion would have been impossible because any infringing act that occurred greater than three-years prior would necessarily have fallen outside the three-year lookback period and thus been time barred. The Seventh Circuit's suggestion makes more sense if the discovery rule remained unchanged after Petrella, as the plaintiff could seek recovery for infringing acts that occurred outside the three-year lookback period so long as the plaintiff did not have actual or constructive knowledge. --------

Although the discovery rule may be abrogated within this Circuit someday, this Court is "bound to follow Seventh Circuit precedent." Frerck v. Pearson Educ., Inc., 63 F. Supp. 3d 882, 887 n.3 (N.D. Ill. 2014) (holding same). As that precedent stands today, the discovery rule controls the determination of when a copyright infringement claim accrues, and Petrella does not instruct otherwise. Accordingly, the Plaintiff's claims regarding infringing acts that occurred more than three-years before this action commenced are not barred as a matter of law. The Defendants' Motion for Partial Summary Judgment is denied.

CONCLUSION

For the foregoing reasons, the Defendants' Motion for Partial Summary Judgment [ECF No. 29] is DENIED.

SO ORDERED on May 8, 2017.

s/ Theresa L. Springmann

CHIEF JUDGETHERESA L. SPRINGMANN

UNITED STATES DISTRICT COURT