Copyright: Architect vs. Developer

This case came out of the Federal District Court in Florida on May 2, 2005. Home Design Services, Inc. V. Park Square Enterprises, Inc., 2005 WL 1027370. (M.D. Fla.). The plaintiff is an architectural firm that designs and sells plans for residential homes. The defendant is a construction firm that develops and constructs residential homes. Plaintiff alleged copyright infringement of two of its plans by the defendant. In ruling on cross-motions for summary judgment, the trial court’s opinion touches on some interesting issues that are often encountered in this type of litigation, including the following:

• whether there was a transfer of copyright ownership;
• who bears the burden of proof of damages and profit elements;
• the effect of late registration;
• affirmative defenses, including copyright misuse, fair use, unclean hands, statue of limitations;

The court also addresses counterclaims involving slander of title and unfair competition.

The first issue on the architect’s summary judgment motion involved a purported transfer of rights by the architect to another party (excerpts from the case follow):

The Copyright Act provides that only the "legal or beneficial owner of an exclusive right under a copyright" may "institute an action for any infringement of that particular right while he or she is the owner of it." 17 U.S.C. § 501(b). Defendants argue that Home Design transferred all ownership rights in the HDS-2089 design to Reiche & Silliman, thereby relinquishing the right to sue for infringement of the design. The transfer of rights, Defendants contend, is reflected in the following language contained in Zirkel's letter to the owner of Reiche & Silliman:

We will not sell the aforementioned plans to any builder within a fifty mile radius of the intersection of SR-50 and I-4, an area of approximately 7850 square miles. This policy will cover all past, present and future designs from this date forward.

The critical flaw in Defendants' argument, as Home Design points out, is the absence of any reference in Zirkel's letter to the HDS-2089 copyright. While it is true that "[a] transfer of copyright ownership" may "be satisfied by an oral assignment later ratified or confirmed by a written memorandum of the transfer," Imperial Residential Design, Inc. v. Palms Development Group, Inc., 70 F.3d 96, 99 (11th Cir.1995) (interpreting requirement set forth under 17 U.S.C. § 204(a) [FN2]) (citation omitted), the memorandum should, at a minimum, make mention of the copyright which is being transferred. See Radio TV Espanola S.A. v. New World Entm't, Ltd., 183 F.3d 922, 928 (9th Cir.1999) ("[W]ithout language indicating finality, § 204(a) is not satisfied"); Foraste v. Brown Univ., 290 F.Supp.2d 234, 240 (D.R.I.2003) (specifically requiring that the subject matter of the agreement be identified) (citing Saenger Org., Inc. v. Nationwide Ins. Licensing Assocs., Inc., 864 F.Supp. 246, 250 (D.Mass.1994), aff'd, 119 F.3d 55 (1st Cir.1997)). Because Zirkel's letter makes no such reference and otherwise fails to evince an intent by Home Design to transfer the copyright in the HDS-2089 design, Defendants' argument that Home Design lacks standing to bring its HDS-2089 infringement claim fails. [FN3]

FN2. Section 204(a) provides that "[a] transfer of copyright ownership, other than by operation of law, is not valid unless an instrument of conveyance, or a note or memorandum of the transfer, is in writing and signed by the owner of the rights conveyed or such owner's duly authorized agent."

FN3. Curiously, it is Defendants who argue that the parol evidence rule prohibits the use of extrinsic evidence "to import additional language into the terms of the agreement" between Home Design and Reiche & Silliman. (Doc. 156 at 6).

The second issue involves the burden of proof of profits of the infringer. Here, the defendant argued that the plaintiff architect was required to do more than just demonstrate the gross profits of the infringer (defendant). The court rejected this argument:

Should Home Design ultimately prevail on its claims, Section 504(b) provides that it shall be entitled to both actual damages as well as "any profits of the infringer that are attributable to the infringement and are not taken into account in computing the actual damages." In establishing the extent of such profits, Section 504(b) further provides that "the copyright owner is required to present proof only of the infringer's gross revenue." It is the infringer's burden "to prove his or her deductible expenses and the elements of profit attributable to factors other than the copyrighted work."

Notwithstanding the plain language of Section 504(b), Defendants maintain that, to survive summary judgment, Home Design must proffer "non-speculative evidence" which supports a causal link between Defendants' profits and the their alleged infringing activities. As there is no basis here to depart from the plain language of a statute, Defendants' argument fails. In the event that Home Design's claims succeed, the onus will lie with Defendants "to show both the net profit (revenues less expenses) and the profit elements attributable to factors other than use of the copyrighted work." [FN4] Home Design Servs., Inc. v. Schwab Dev. Corp., No. 6:03-cv-596, slip op. at 7 (M.D.Fla. January 7, 2005) (citing On Davis v. The Gap, Inc., 246 F.3d 152, 159 (9th Cir.2001).

FN4. Any effort by Defendants to limit their damages will likely "depend on [proof of] whether [Home Design's] plans are unique or, conversely, whether they are merely an adaptation of similar plans readily available in the marketplace." Home Design Servs., Inc. v.. Schwab Dev. Corp., No. 6:03-cv-596, slip op. at 7 (M.D.Fla. January 7, 2005). In other words, the "relative value" assigned to Home Design's plans will depend on the basic principles of "supply and demand." Id.

Defendants' alternative contention is that Home Design's entitlement to damages should be limited as a matter of law to 10-15% of what it would have cost to purchase the two allegedly infringed house plans. [FN5] In making this contention, Defendants rely on a statement by Zirkel that the price of a home is generally determined by adding 10-15% to building costs. This argument also fails.

FN5. According to Defendants, the price of Home Design's house plans ranges from $400 to $600. Thus, under Defendants' theory, Home Design's damages would be limited to $40 to $90 per plan.

Zirkel's remarks merely concerned the standard method for calculating home prices. As such, the remarks have no direct bearing on the degree to which architectural designs generally factor into a builder's profits and even less bearing on the more precise issue of what value to assign to Defendants' alleged use of the HDS-2089 and HDS-2680 designs. Once again, if a finding of infringement is made, Defendants will have an opportunity to demonstrate what portion of Park Square's revenue was actually attributable to the copying of Home Design's plans. Limiting damages to the extent the Defendants endeavor to here, however, will likely require evidence far more probative than Zirkel's testimony.

The next issue involves proof of copyright ownership. Normally, the plaintiff furnishes the copyright certificate as evidence of ownership. In this case, however, the certificate was not registered until 2000, while the date of publication was 1991, removing the presumption created by the Copyright Act:

The Copyright Act provides:

In any judicial proceedings the certificate of a registration made before or within five years after first publication of the work shall constitute prima facie evidence of the validity of the copyright and of the facts stated in the certificate. The evidentiary weight to be accorded the certificate of a registration made thereafter shall be within the discretion of the court.

17 U.S.C. § 410(c). As Defendants contend, the registration for the HDS-2089 copyright reflects that it was first published on August 11, 1991 but was not registered until August 8, 2000. As such, the registration appears to fall short of the requirement under § 410(c) that the certification of registration be made within five years after the first publication of the work. Home Design has offered no evidence to the contrary. Under these facts, it cannot be determined that Home Design has succeeded in establishing a prima facie case that it is the owner of the HDS-2089 copyright. Accordingly, Home Design's motion for summary judgment on the issue of copyright ownership in the HDS-2089 design must be denied.

The builder raised several affirmative defenses that are discussed by the court. The first involved the statute of limitations:

The Copyright Act provides that "[n]o civil action shall be maintained under the provisions of this title unless it is commenced within three years after the claim accrued." 17 U.S.C. § 507(b). A copyright claim accrues "when the plaintiff learns, or should as a reasonable person have learned that the defendant was violating his rights." James W. Ross, Inc. v. Cecil Allen Constr., Inc., No. 6:03-cv-792, 2004 WL 1146104, at *2 (M.D.Fla. Apr. 26, 2004) (quoting Gaiman v. McFarlane, 360 F.3d 644, 653 (7th Cir.), reh'ng and reh'ng en banc denied (7th Cir.2004)); see also Calhoun v. Lillenas Publ'g, 298 F.3d 1228, 1236 (11th Cir.2002) (Birch, J., specially concurring).

Defendants assert that Home Design "was aware of [Park Square] using the designs at issue since at least 1997 (and possibly 1990), and did not enforce its claimed copyright until the filing of this lawsuit in 2002." (Doc. 160, Ex. L). In making this contention, Defendants point out that, during the period of the alleged infringing activity, Park Square had promoted its products in the Parade of Homes, conducted business with Home Design, and maintained one of the larger building operations in Central Florida. In its motion for summary judgment, Home Design argues that Defendants' statute-of-limitations defense relies on the proposition--considered and rejected by the Court in James W. Ross--that an owner of a copyrighted house plan must take extraordinary measures "to ensure that no infringing houses are being built." 2004 WL 1146104, at *3 (rejecting the notion that "every owner of a copyrighted house plan would need to employ a full-time investigator to scour public records and drive around every housing development to ensure that no infringing houses are being built").

While it is true that Home Design was not required to take extraordinary measures to determine whether Defendants were infringing upon its designs, this determination alone does not resolve the question of whether Home Design should have known that its plans were being used. Defendants do not contend that Home Design was required to "employ a full-time investigator" or routinely "drive around ... housing development[s]" to police its copyrighted house plans but argue instead that--given the scope and transparency of Park Square's building operations--Home Design reasonably should have known of the alleged infringements. This argument raises questions of fact that cannot be determined at the summary judgment stage. See id. (denying summary judgment).

Unclean hands was another affirmative defense:

"The defense of unclean hands will bar enforcement of a valid copyright when a plaintiff commits wrongdoing 'of serious proportions." ' Saxon v. Blann, 968 F.2d 676, 680 (8th Cir.1991) (quoting 3 Nimmer on Copyright, § 13.09[B] (1991)). To successfully assert the unclean hands defense, a defendant must show: (1) "that the plaintiff's wrongdoing is directly related to the claim against which it is asserted;" and (2) "that it was personally injured by [the plaintiff's] conduct." Calloway v. Partners Nat'l Health Plans, 986 F.2d 446, 450-51 (11th Cir.1993).

Defendants argue that Home Design has dirtied its hands by failing to identify third-party authors of the HDS-2089 and HDS-2680 designs and by seeking to assert rights in common, unprotectable elements contained in the designs. In its motion for summary judgment, Home Design contends that Defendants' unclean hands defense constitutes an illegitimate attack on its First Amendment right to petition the courts.

Home Design's reliance on the right to petition is misplaced. First, there is no indication in this case that Defendants' assertion of the unclean hands defense aims to take away Home Design's right to avail itself of the courts. Nor, for that matter, is it clear how the assertion of the unclean hands defense or any other defense could ever implicate a plaintiff's right to petition. After all, the occasion to defend oneself against suit arises precisely because the complaining party has already been granted access to the courts. An affirmative defense, moreover, cannot be used, as a counterclaim might, to deter claimants from filing suit through the threat of damages. See Hirschfield v. Spanakos, 104 F.3d 16, 19 (2d Cir.1997) (noting that the right to petition "protects plaintiffs from damage claims" ) (emphasis added); Video Int'l Prod., Inc. v. Warner-Amex Cable Communications, 858 F.2d 1075, 1084 (5th Cir.1988) (extending the right to petition to dismiss a common law tort claim on the basis that the claim threatened to "abridge or chill the constitutional right of petition"). It is thus not surprising that Home Design fails to cite a single case for the curious proposition that an affirmative defense implicates the First Amendment right to petition.

Having dispensed with Home Design's reliance on the right to petition, it is further determined that material issues of fact remain on the issue of whether Home Design committed wrongs which would preclude it from recovering on its claims. Accordingly, Home Design's motion for summary judgment on Defendants' unclean hands defense must be denied.

Fair Use was the next affirmative defense posed by the defense:

The Copyright Act provides that "the fair use of a copyrighted work ... is not an infringement of copyright." 17 U.S.C. § 107 (2005). The factors to consider in determining whether the use of a copyrighted work is a "fair use" include but are not limited to:

(1) the purpose and character of the use, including whether such use is of a commercial nature or is for nonprofit educational purposes;

(2) the nature of the copyrighted work;

(3) the amount and substantiality of the portion used in relation to the copyrighted work as a whole; and

(4) the effect of the use upon the potential market for or value of the copyrighted work.

Id. The codification of the fair use doctrine reflects, among other things, Congress' concern "that access to the source of all ideas, the public domain, remain unrestricted." Cable News Network, Inc. v. Video Monitoring Servs., Inc., 940 F.2d 1471, 1484 (11th Cir.1991). The fair use provisions supplement "the admonition under 17 U.S.C. § 102(b) that: 'In no case does copyright protection for an original work of authorship extend to any idea, procedure, process, system, method of operation, concept, principle, or discovery, regardless of the form in which it is described, explained, illustrated, or embodied in such work." ' Id.

In moving for summary judgment on Defendants' fair use defense, Home Design focuses on the four factors listed in § 107. In response, Defendants do not discuss, nor even so much as mention, the fair use factors. Instead, while presumably conceding that they cannot make out a fair use defense under the factors set forth in § 107, the sum total of Defendants' treatment of their fair use defense is contained in a single sentence: "While [Defendants do] not believe [the] elements are copyrightable, if they are, they were in the public domain long before [Home Design] ever sought copyright protection and, therefore, any use is fair use." (Doc. 172 at 14).

Rather than supporting a fair use defense, Defendants' argument seems to merely deny, once again, that they copied original elements in the HDS-2089 and HDS-2680 designs. The issue of whether Defendants' fair use defense is simply a denial, rather than truly an affirmative defense, however, has not been properly briefed by either side in this dispute. Thus, while it appears that Defendants have not adequately raised a fair use defense, an award of summary judgment in this instance would not be appropriate. [FN9]

FN9. If Defendants' so-called fair use defense does, indeed, prove to be no more than a regurgitated denial of the originality of Home Design's plans, there will be no prejudice from the present denial of summary judgment. Should Defendants' originality argument succeed, Home Design's claim will fail and there will be no cause to consider Defendants' affirmative defenses. On the other hand, if Defendants' denial of originality argument fails, the argument would not, of course, fare any better if it were restated as an affirmative defense.

An interesting affirmative defense is "copyright misuse." The court examined this doctrine:

The doctrine of copyright misuse prohibits a copyright holder from using a copyright " 'to secure an exclusive right or limited monopoly not granted by the [Copyright] Office and which it is contrary to public policy to grant." ' Alcatel USA, Inc. v. DGI Techs., Inc., 166 F.3d 772, 792 (5th Cir.1999) (quoting Lasercomb Am., Inc. v. Reynolds, 911 F.2d 970, 979 (4th Cir.1990) (quoting Morton Salt Co. v. G.S. Suppiger, 314 U.S. 488, 492 (1942))). The defense functions as an absolute bar on recovery for copyright plaintiffs who have attempted to extend their limited rights to "property not covered by the ... copyright." Lasercomb, 911 F.2d at 972. Defendants claim that Home Design has misused its copyrights by threatening "millions of dollars in damages through disgorgement of profits ... to force settlement[s]" on the basis of claims which allege infringement of "common layouts, room placements and other ... [non-original] elements." (Doc. 172 at 16). Home Design argues, first, that Defendants' misuse defense fails as a matter of law because the doctrine of copyright misuse has not been recognized in the Eleventh Circuit. Alternatively, Home Design contends that Defendants have failed to support their defense with any evidence in the record.

Home Design's argument that the copyright misuse defense fails as a matter of law is clearly at odds with the weight of authority favoring recognition of the defense as well as the basic objectives of copyright law. Since 1990, all five circuit courts which have addressed the issue have recognized the viability of the copyright misuse defense. See, e.g., Video Pipeline, Inc. v. Buena Vista Home Entm't, Inc., 342 F.3d 191 (3d Cir.2003); Alcatel USA, Inc. v. DGI Techs., Inc., 166 F.3d 772 (5th Cir.1999); Practice Mgmt. Info. Corp. v. AMA, 121 F.3d 516 (9th Cir.), cert. denied, 522 U.S. 933 (1997), amended, 133 F.3d 1140 (9th Cir.1998); Reed-Union Corp. v. Turtle Wax, 77 F.3d 909, 913 (7th Cir.1996); Lasercomb, 911 F.2d 970; see also 4 Nimmer on Copyright § 13.09[A][2][a][2][b] (noting the recent trend to recognize the copyright misuse defense following the Supreme Court's "tacit approval of an analogy between patents and copyrights" in United States v. Loew's, Inc., 371 U.S. 38 (1962)); Mark Lemley, Beyond Preemption: The Law and Policy of Intellectual Property Licensing, 87 Calif. L.Rev. 111, 152 n. 184 ("[T]he cases expressing skepticism about the copyright misuse defense 'should be taken with a grain of salt' because they are generally older cases, and the recent trend seems to be to recognize the defense.") (quoting 2 Paul Goldstein, Copyright § 9:35-40 (1998)). Even the Eleventh Circuit, while it has not yet recognized the defense, has intimated that it may one day do so in order "to discipline those who abuse their copyrights." Bellsouth Adver. & Publ'g Corp. v. Donnelly Info. Publ'g, Inc., 933 F.2d 952 (11th Cir.1991) (declining to apply to the copyright misuse defense but indicating that the defense might be available in future cases), vacated on other grounds, 977 F.2d 1435 (11th Cir.1992).

The trend toward recognizing the copyright misuse defense, moreover, is well-grounded in the basic objectives of copyright. At its core, copyright law seeks "to promote the dissemination of creative expression, and provide incentives for copyright owners to produce ... original works." CBS Broad., Inc. v. EchoStar Communications Corp., 265 F.3d 1193, 1211 (11th Cir.2001). While these goals are furthered by granting copyright holders limited monopolies over the original elements of their creative works, the very same goals may be severely undermined when copyright holders leverage their monopolies to control "areas outside of the monopol[ies]." A & M Records, Inc. v. Napster, Inc., 239 F.3d 1004, 1026 (9th Cir.2001). More to the point, where a copyright holder asserts rights in non-copyrightable materials, other individuals may be discouraged from integrating those non-copyrightable materials into their own original creative works. See generally William F. Patry & Richard A. Posner, Fair Use and Statutory Reform in the Wake of Eldred, 92 Calif. L.Rev. 1639, 1654-59 (2004). The reward for the copyright holder is unduly inflated while the creativity of other individuals is potentially stifled. In short, the basic goals of copyright are undermined.

Against this background, it is clear that the function of the copyright misuse defense amounts to more than merely penalizing "overclaiming" by copyright holders. Id. at 1658. Rather, the defense also encourages (or at least diminishes a deterrent for) other members of the public to engage in creative expression. For this reason, and in accordance with nearly all of the courts which have had occasion to address the issue, the Court recognizes copyright misuse as a viable defense to copyright infringement.

The only question that remains is whether Defendants' allegations fall within the ambit of copyright misuse. Home Design attempts to characterize Defendants' misuse defense as an improper attack on its right to file a "good faith" lawsuit. However, Home Design's "good faith," or lack thereof, is an issue which remains to be resolved. In the event that the HDS-2089 and HDS-2680 designs are found to be largely generic in nature, the only logical next step would be to determine whether Home Design has used its limited rights to "obtain property protection ... that copyright law clearly does not confer" in an effort "to force a settlement or ... even achieve an outright victory over" Defendants. Assessment Techs. of Wi, LLC v. Wire Data, Inc., 350 F.3d 640, 647 (7th Cir.2003); see also Assessment Techs, of Wi, LLC v. Wire Data, Inc ., 361 F.3d 434, 437 (7th Cir.2004) (subsequent proceeding). [FN10] Given the gravity of this issue, there can be no doubt that Home Design's motion for summary judgment on Defendants' copyright misuse defense must be denied.

FN10. Facing facts very similar to those alleged by Defendants in this case, the Seventh Circuit in Assessment Technologies did not "reach the question [of] whether the plaintiff's conduct rose to the level of actual copyright misuse" but "made clear that it came close" and sanctioned the plaintiff for what the court deemed to be, at the very least, a clear abuse of process. 361 F.3d at 437.

The defendant presented two counterclaims addressed by the court. The first was for slander of title:

Slander of title, as distinguished from defamation of personal reputation, "involves the defamation of property." Sailboat Key, Inc. v. Gardner, 378 So.2d 47, 47 (Fla. 3d DCA 1979). To establish a claim of slander of title in Florida, the claimant must show that the allegedly offending party "communicated to a third party a false statement disparaging title which has caused the plaintiff actual damage." Residential Communities of Am. v. Escondido Cmty. Ass'n, 645 So.2d 149, 150 (Fla. 5th DCA 1994).

The crux of Park Square's slander of title claim is that Home Design made false representations which cast unwarranted doubts on Park Square's ownership of the "Orchid Island," "Belaggio," "Seabreeze Island," and "Juniper Springs" architectural designs. [FN11] According to Park Square, Home Design raised such doubts by registering copyrights for largely generic designs which it then used as a basis for telling representatives of Beazer Homes that Park Square's designs were infringing works.

FN11. Home Design originally alleged that the "Juniper Springs" design infringed upon its HDS-1934 plan. As earlier noted, the Court severed Home Design's HDS-1934 claim from its two other claims. (Doc. 209).

Relying on its First Amendment right to petition, Home Design submits that the only basis for Park Square's slander of title counterclaim is the filing of its lawsuit against Defendants, which alone cannot be the basis for a counterclaim. In this instance, Home Design is at least on much firmer legal ground in invoking the First Amendment.

The petition clause of the First Amendment is a valid basis for defending against counterclaims which are "based on the filing of an objectively reasonable lawsuit under a state or federal statute." See, e.g., Porsche Cars N. Am., Inc. v. Lloyd Design Corp., No. 1:99-cv-1560A, 2002 U.S. Dist. LEXIS 9612, at *128 (N.D.Ga.2002) (citing Cardtoons, L.C. v. Major League Baseball Players Ass'n, 208 F.3d 885, 889-90 (10th Cir.2000)). Thus, were the infringement claims filed by Home Design the only basis for Park Square's counterclaim, Home Design's First Amendment right to petition would be implicated. Where Home Design's argument falters, however, is in assuming that its infringement claims are the basis for Park Square's counterclaim.

It is not Home Design's lawsuit but instead its alleged registration of generic copyrights and false statements to Beazer Homes which form the basis for Park Square's counterclaim. Critically, neither of these alleged acts involves petitioning the government. Moreover, with regard to Home Design's alleged statements to Beazer Homes, the First Amendment affords no protection to statements made to private persons or entities. See id. ("[P]urely private threats of litigation are not protected because there is no petition addressed to the government.") (quoting Cardtoons, 208 F.3d at 889). For these reasons, Home Design's motion for summary judgment on Defendants' slander of title counterclaim must be denied.

The second affirmative defense was for unfair competition:

Florida's law of unfair competition requires proof of "deceptive or fraudulent conduct of a competitor and likelihood of customer confusion." Donald Frederick Evans & Assocs. v. Cont'l Homes, Inc ., 785 F.2d 897, 914 (11th Cir.1986). Park Square claims that Home Design has engaged in unfair competition by asserting rights over common, non-copyrightable architectural features, thereby precluding other designers, including Park Square's in-house design staff, from utilizing common features in creating their own architectural plans. The design and effect of this practice, Park Square contends, is to exclude Home Design's competitors from the architectural design market.

Home Design's principal argument is that it could not have engaged in unfair competition against Park Square because it is not a competitor of Park Square. [FN12] This argument points to a critical problem with Park Square's counterclaim. Although Park Square might reasonably be seen as both a homebuilder and home designer, there is no indication in the record that it competes with Home Design for a common pool of customers. While Home Design is exclusively an architectural design firm which develops house plans for homebuilders, Park Square designs architectural plans for its own purposes as a homebuilder. Thus, any customers confused by Home Design's allegedly fraudulent practices could have been neither real nor potential customers of Park Square. As such, Park Square has no basis for bringing an unfair competition claim against Home Design. Summary judgment is, therefore, awarded to Home Design on Park Square's counterclaim of unfair competition.

FN12. The premise of Home Design's argument is that Park Square is a homebuilder, not a architectural design firm. This premise is not entirely accurate. While Park Square is primarily a homebuilder, the record is replete with evidence that it also maintains its own architectural design staff. See, e.g., Doc. 156, Ex. 9, at 8. In this way, Park Square may be reasonably seen as both a homebuilder and home designer.

This case is instructive on a number of issues that are commonly (and uncommonly) found in copyright cases involving architects. Attorneys who litigate these cases should take this case into consideration.