Design Basics, LLC v. Forrester Wehrle Homes, Inc.

Citation: 305 F. Supp. 3d 788Docket: Case No. 3:15CV666

Court: District Court, N.D. Ohio; March 27, 2018; Federal District Court

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In a copyright infringement case, plaintiff Design Basics, LLC (DB) claims that defendants Forrester Wehrle Homes, Inc., Wehrle Development, Ltd., and their principals (collectively, FWH) infringed on its copyrights for twenty-three architectural plans. The defendants have filed a partial motion for summary judgment, asserting that claims for damages related to infringing acts occurring more than three years prior to the lawsuit's filing date are barred by the statute of limitations, referencing the Supreme Court's ruling in Petrella v. Metro-Goldwyn-Mayer, Inc. The court denies this motion.

The relationship between DB and FWH began in 1993 when DB licensed two architectural plans to FWH. Since then, DB has sent FWH at least fifteen catalogs of additional designs. In March 2013, DB discovered potential copyright violations by FWH while preparing marketing efforts in Ohio, specifically when a senior designer found that FWH's designs infringed upon DB's copyrighted plans. The alleged infringing homes were reportedly created between 2000 and 2007, and DB filed the lawsuit on April 6, 2015.

The standard for summary judgment under Federal Rule of Civil Procedure 56 requires the moving party to demonstrate the absence of a genuine issue of material fact. If the movant meets this burden, the nonmoving party must provide specific facts to show a genuine issue for trial, supported by admissible evidence rather than unverified pleadings. The court accepts the nonmoving party's evidence as true and construes all evidence in their favor.

The Copyright Act stipulates that civil actions for copyright infringement must be initiated within three years of the claim's accrual, as defined by 17 U.S.C. § 507(b). In the Sixth Circuit, a copyright claim accrues when the plaintiff becomes aware of or should be aware of the infringement, known as the "discovery rule." Each new infringing act resets the three-year period, since each act constitutes a separate harm. FWH contends it is entitled to summary judgment for claims seeking damages for acts occurring before April 6, 2012, arguing that the Supreme Court's decision in Petrella replaced the discovery rule with the "injury rule," which states that a claim accrues upon the occurrence of an infringing act. FWH also asserts that DB had prior knowledge of the infringement, making the claims untimely under the discovery rule. 

The Supreme Court in Petrella clarified that a copyright claim accrues when an infringing act occurs, but did not invalidate the discovery rule, acknowledging that multiple circuit courts utilize it. The Court’s discussion implies that while the incident of injury rule exists, it is not the sole standard for determining the accrual of copyright claims. Subsequent decisions confirm that Petrella does not negate the established precedent in the Sixth Circuit regarding the discovery rule's applicability.

Following the Petrella decision, courts have upheld the viability of the discovery rule in circuits that had previously recognized it. Notable cases include Wolf v. Travolta in the Ninth Circuit, Design Basics LLC v. J. V Roberts Inv. Inc. in the Seventh Circuit, and Lefkowitz v. McGraw-Hill Global Educ. Holdings, LLC in the Second Circuit, each affirming the continued application of the discovery rule. The Eastern District of Pennsylvania articulated key points: the Supreme Court did not overrule the Third Circuit's discovery rule in Petrella, as the case primarily addressed laches, and the relevant comment appeared in a footnote, indicating it was dicta. The court concluded that a footnote cannot overturn established standards across many circuits. Consequently, the discovery rule remains applicable for assessing whether a plaintiff's claims are barred by the three-year statute of limitations.

Additionally, the argument presented by FWH, suggesting the Sixth Circuit abrogated the discovery rule in Allied Erecting & Dismantling Co. v. Genesis Equip. Mfg. Inc., is rejected. In Allied Erecting, the court ruled that a 2013 lawsuit concerning the ongoing misappropriation of trade secrets was linked to a prior claim, thus not undermining the continued applicability of the discovery rule in copyright-infringement cases.

The appeal centered on whether claim-preclusion rules or the statute of limitations barred the plaintiff's 2013 suit regarding trade secret misappropriation. The court highlighted Ohio's "single claim" approach to the statute of limitations, indicating that such a claim arises only once at the time of the initial misappropriation, contrasting it with copyright and patent laws that utilize a "continuing wrong" or "separate-accrual" rule, where each new infringement allows for a separate statute of limitations period. The court noted that FWH argued against the ongoing applicability of the discovery rule for copyright claims, positing that copyright holders have sufficient remedies through the separate-accrual rule, negating the need for additional time provided by the discovery rule.

FWH sought summary judgment, asserting that DB should be deemed aware of FWH's alleged copyright infringements due to DB's proactive measures, such as a "bounty program" incentivizing employees to identify infringements and DB's history of filing over 100 infringement suits since 2009, most after 2013. The parties acknowledged that the Sixth Circuit has not set a standard for determining when a party has knowledge of another's copyright infringement. However, other circuits have established that a plaintiff is on inquiry notice when they receive information indicating potential infringement, prompting an investigation. Despite FWH's claims, the evidence could support a jury finding that DB was unaware of FWH's conduct until it was discovered in March 2013.

FWH was a customer of DB, having licensed two of DB's architectural works and regularly receiving copies of DB's plan catalogs. DB noted that FWH appeared to comply with licensing requirements. There is no evidence that DB suspected FWH of infringement prior to Cuozzo's discovery of violations in March 2013. FWH failed to provide legal authority to support its claim that DB's prior actions against other alleged infringers implied it should have been aware of FWH's conduct. Inquiry notice in copyright cases is specific to individual defendants, as established in relevant case law. Consequently, DB's awareness of infringement by others does not imply knowledge of FWH's alleged infringement.

The court denied FWH’s motion for partial summary judgment and rejected its argument that DB could only recover legally cognizable damages incurred within three years preceding the lawsuit. The court found that while DB's claims for earlier infringements might be timely under the discovery rule, FWH did not present circuit-level authority or evidence to support its position. The court referenced persuasive decisions that allowed recovery of damages incurred before the three-year period. Additionally, despite criticism of DB's enforcement practices, the court defended DB's proactive approach to protecting its intellectual property.