Design Basics LLC v. Petros Homes, Inc.

Filing 89

Memorandum Opinion and Order. The court DENIES Plaintiff's 71 Motion for partial summary judgment on the issue of overhead expenses. Magistrate Judge Thomas M. Parker on 3/7/2017. (O,K)

IN THE UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF OHIO
EASTERN DIVISION
DESIGN BASICS, LLC,
Plaintiff,
v.
PETROS HOMES, INC., et al.,
Defendants.

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Case No. 1:14-CV-01966

MAGISTRATE JUDGE
THOMAS M. PARKER

MEMORANDUM OPINION &
ORDER

This matter is before the court on a motion for partial summary judgment (ECF Doc. No.
71) filed by plaintiff, Design Basics, LLC, on November 11, 2016. Plaintiff contends that it is
entitled to judgment as a matter of law on the issue of whether defendants can prove that their
overhead expenses contributed to or were incurred in connection with the construction and sale
of the homes that were constructed based on allegedly infringing design plans. The parties have
consented to my jurisdiction. 1
Plaintiff’s motion for partial summary judgment is not well taken and will be DENIED.
I.

Factual Background
Plaintiff, Design Basics, Inc., is a building design firm that creates, markets, publishes,

and sells licenses for the use of architectural designs. Plaintiff holds certificates of copyright
registration issued by the United States Copyright Office for most of its designs. Plaintiff’s

1

ECF Doc. No. 57, Page ID# 280.

designs at issue in this action are: (1) Plan No. 2408 – Crawford; (2) Plan No. 2326 –
Greensboro; (3) Plan No. 2355 – Waverly; (4) Plan No. 4998 – Holden; (5) Plan No. 7614 –
Southwick; (6) Plan No. 8108 – Rose Hollow; and (7) Plain No. 2377 – Leighton.
Plaintiff filed this lawsuit on September 4, 2014, claiming that defendant, Petros Homes,
Inc., had infringed on plaintiff’s copyrighted plans. 2 Plaintiff filed an amended complaint on
February 24, 2016 to add Gary Naim and Sam Petros as defendants. 3 Plaintiff’s amended
complaint asserts a single cause of action: copyright infringement. Plaintiff alleges that several
of the drawings, plans and/or houses constructed by defendants were derived from the
copyrighted works of plaintiff. Defendants have completely denied liability.
II.

Standard of Review
Under Fed. R. Civ. P. 56, summary judgment is warranted if “the movant shows that

there is no genuine dispute as to any material fact and that the movant is entitled to judgment as a
matter of law.” Fed. R. Civ. P. 56(a). A dispute of fact is “genuine” if “the [record] evidence is
such that a reasonable jury could return a verdict for the nonmoving party.” Anderson v. Liberty
Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct.2505, 91 L.Ed. 2d 202 (1986). As a result,
“[c]onclusory allegations, conjecture and speculation . . . are insufficient to create a genuine
issue of fact.” Kerzer v. Kingly Mfg., 156 F.3d 396, 400 (2d Cir. 1998) (citation omitted); see
also Fed. R. Civ. P. 56 (e)(2). As the Supreme Court has explained, “[the non-moving party]
must do more than simply show that there is metaphysical doubt as to the material facts.”
Matsushita Elec., Indus. Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574, 585-86, 106 S.Ct. 1348,
89 L.Ed.2d 538 (1986). As for the materiality requirement, a dispute of fact is “material” if it

2
3

ECF Doc. No. 1, Page ID# 1.
ECF Doc. No. 48, Page ID# 244.

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“might affect the outcome of the suit under the governing law.” Anderson, 477 U.S. at 248.
“Factual disputes that are irrelevant or unnecessary will not be counted.” Id.
In determining whether genuine issues of material fact exist, the court must resolve all
ambiguities and draw all reasonable inferences against the moving party. Anderson, 477 U.S. at
255. In addition, “[the moving party] bears the initial responsibility of informing the district
court of the basis for its motion, and identifying those portions of the [record] which it believes
demonstrate the absence of any genuine issue of material fact.” Celotex v. Catrett, 477 U.S. 317,
323-24, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986); see also Fed. R. Civ. P. 56(c), (e). However,
when the moving party has met this initial burden of establishing the absence of any genuine
issue of material fact, the nonmoving party must come forward with specific facts showing a
genuine dispute of material fact for trial. Fed R. Civ. P. 56(c), (e).
III.

Arguments Presented
In this second motion for partial summary judgment, 4 plaintiff seeks to restrict

defendants’ ability to offer evidence to offset plaintiff’s prima facie damage proof. Plaintiff
argues that it has produced evidence of defendant’s gross profits from the sale of homes using
the allegedly infringing design plans. It contends that defendants have failed to produce
sufficient evidence to permit them to deduct overhead expenses from the profits on these homes.
Defendants argue in opposition 5 that plaintiff is not entitled to summary judgment on this
issue. Defendants contend that they have produced evidence establishing that they incurred
overhead expenses in constructing the homes at issue and which are able to be allocated to those
home construction projects using accounting records created in the ordinary course of business.

4

Plaintiff also filed a motion for partial summary judgment on the first element of its copyright infringement claim.
See ECF Doc. No. 61.
5
ECF Doc. No. 81, Page ID# 2888.

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They argue that they are not required to prepare a detailed analysis of this evidence for plaintiff’s
benefit. They also point out that plaintiff chose not to depose defendants’ accountant, a person
with knowledge of how Petros Homes allocates its costs and expenses. Defendants maintain that
the disputes over how these expenses are allocated are questions that must be decided by a jury.
Plaintiff’s reply memorandum cites several cases involving infringing defendants who
were not permitted to deduct their overhead expenses because they did not produce evidence
tying said expenses directly to the infringing items from which they profited. Plaintiff repeats its
argument that defendants have failed to produce evidence that would permit the allocation of
overhead to the home projects at issue. Plaintiff further contends that it is irrelevant that it chose
not to depose defendants’ accountant because defendants, not plaintiff, bear the burden of
producing evidence related to overhead expenses.
IV.

Law & Analysis
17 U.S.C. § 504 provides:
Remedies for infringement: Damages and profits
(a) In general. Except as otherwise provided by this title, an infringer of copyright is
liable for either—
(1) the copyright owner's actual damages and any additional profits of the
infringer, as provided by subsection (b); or
(2) statutory damages, as provided by subsection (c).
(b) Actual damages and profits. The copyright owner is entitled to recover the actual
damages suffered by him or her as a result of the infringement, and 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 infringer's profits, the copyright owner
is required to present proof only of the infringer's gross revenue, and the infringer is
required to prove his or her deductible expenses and the elements of profit attributable to
factors other than the copyrighted work.
(c) Statutory damages.

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(1)

Except as provided by clause (2) of this subsection, the copyright owner may
elect, at any time before final judgment is rendered, to recover, instead of actual
damages and profits, an award of statutory damages for all infringements involved
in the action, with respect to any one work, for which any one infringer is liable
individually, or for which any two or more infringers are liable jointly and
severally, in a sum of not less than $ 750 or more than $ 30,000 as the court
considers just. For the purposes of this subsection, all the parts of a compilation or
derivative work constitute one work.

(2)

In a case where the copyright owner sustains the burden of proving, and the court
finds, that infringement was committed willfully, the court in its discretion may
increase the award of statutory damages to a sum of not more than $ 150,000. In a
case where the infringer sustains the burden of proving, and the court finds, that
such infringer was not aware and had no reason to believe that his or her acts
constituted an infringement of copyright, the court in its discretion may reduce the
award of statutory damages to a sum of not less than $ 200. The court shall remit
statutory damages in any case where an infringer believed and had reasonable
grounds for believing that his or her use of the copyrighted work was a fair use
under section 107 [17 USCS § 107], if the infringer was: (i) an employee or agent
of a nonprofit educational institution, library, or archives acting within the scope
of his or her employment who, or such institution, library, or archives itself,
which infringed by reproducing the work in copies or phonorecords; or (ii) a
public broadcasting entity which or a person who, as a regular part of the
nonprofit activities of a public broadcasting entity (as defined in section 118(f)
[17 USCS § 118(f)]) infringed by performing a published nondramatic literary
work or by reproducing a transmission program embodying a performance of
such a work.

(3) (A) In a case of infringement, it shall be a rebuttable presumption that the
infringement was committed willfully for purposes of determining relief if the
violator, or a person acting in concert with the violator, knowingly provided or
knowingly caused to be provided materially false contact information to a domain
name registrar, domain name registry, or other domain name registration authority
in registering, maintaining, or renewing a domain name used in connection with
the infringement.
(B) Nothing in this paragraph limits what may be considered willful infringement
under this subsection.
(C) For purposes of this paragraph, the term "domain name" has the meaning given
that term in section 45 of the Act entitled "An Act to provide for the registration and
protection of trademarks used in commerce, to carry out the provisions of certain
international conventions, and for other purposes" approved July 5, 1946 (commonly
referred to as the "Trademark Act of 1946"; 15 U.S.C. 1127).
(d) Additional damages in certain cases. In any case in which the court finds that a
defendant proprietor of an establishment who claims as a defense that its activities were
exempt under section 110(5) [17 USCS § 110(5)] did not have reasonable grounds to
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believe that its use of a copyrighted work was exempt under such section, the plaintiff
shall be entitled to, in addition to any award of damages under this section, an additional
award of two times the amount of the license fee that the proprietor of the establishment
concerned should have paid the plaintiff for such use during the preceding period of up to
3 years.
Plaintiff’s second motion for partial summary judgment relates to how defendants’ profits
are determined under paragraph (b) of 17 U.S.C. § 504. Plaintiff contends that it has presented
proof of defendants’ gross profits but defendants have failed adequately to provide evidence of
what overhead or fixed expenses Petros Homes incurred that were allocable to the home projects
at issue. The court disagrees. Defendants have represented and the court has no reason to dispute
that they produced evidence related to the costs of constructing homes and their overhead
expenses for the years in question in this lawsuit.
Plaintiff contends that defendants have failed to sufficiently explain how the evidence
they produced is allocable to specific construction projects. This argument actually confirms that
defendants produced evidence of overhead and fixed expenses. And the argument illustrates the
prematurity of plaintiff’s contention.
Paragraph (b) of 17 U.S.C. § 504 provides that a copyright owner whose rights have been
infringed is entitled to actual damages and any profits that are “attributable to the infringement.”
At this point in the litigation, there are genuine disputes of material fact related to whether
defendants copied protected elements of plaintiff’s design plans or whether, if copied, those
elements are substantially similar to plaintiff’s designs. 6 Plaintiff has established that it is the
owner of valid copyrights but it has not yet established that defendant violated the copyright
law. 7 The calculation of damages is dependent on what, if any, elements of plaintiff’s designs

6
7

See Memorandum Opinion & Order on plaintiff’s first motion for partial summary judgment. (ECF Doc. # 61)
Id.

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were unlawfully infringed and on the profits attributable to that conduct. Plaintiff’s motion for
summary judgment on the damages portion of its claim is premature.
In Sheldon v. Metro-Goldwyn Pictures Corp., 309 U.S. 390, 60 S.Ct. 681, 84 L.Ed 825
(1940), the U.S. Supreme Court held that a copyright holder was not entitled to all of the profits
made by an infringing defendant. Sheldon¸309 U.S. at 399. In considering the language of the
statute, similar to the relevant language here, the Court determined that the recovery of “all
profits” was qualified by the words “which the infringer may have made from such
infringement.” Id. The Court determined that profits should be apportioned when “it was clear
that all the profits are not due to the use of the copyright material, and the evidence is sufficient
to provide a fair basis of division so as to give to the copyright proprietor all the profits that can
be deemed to have resulted from the use of what belonged to him.” Id. at 402. The Court also
noted that the purpose of awarding damages in copyright infringement cases was to provide just
compensation for the wrong, “not to impose a penalty by giving to the copyright proprietor
profits which are not attributable to the infringement.” Id. at 399.
In the case at hand, it has not yet been determined whether defendants copied protected
elements of plaintiff’s design plans and whether any common elements, if copied, are
substantially similar. If defendants engaged in unlawful conduct, they will be permitted to
introduce relevant admissible evidence showing that a portion of their overhead expenses were
attributable to the infringing conduct. Plaintiff is certainly entitled to use Rule 56 proceedings
to narrow the issues to be decided at trial. And it is not unreasonable to expect an opposing party
to produce the evidence needed for a claim or defense or face the potential to have that issue
removed from an upcoming trial. Here, plaintiff, while accusing defendants of not producing
any evidence of Petros Homes’ overhead expenses and of failing to disclose the method by

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which those expenses are allocated to the home projects at issue, has also chosen not to take
testimony from one of defendants’ two Rule 30(b)(6) witnesses who were indicated to have
knowledge of that exact topic.
From the court’s point of view, there seems to be no dispute that defendant has produced
its business records from which the overhead expense may be derived. And the method of
allocating those expenses is something within the knowledge of the witness not deposed. It is
true, as plaintiff contends, that defendants will bear the burden proving what the overhead
expenses are and how they are allocable to the individual construction projects. But defendant is
not obligated to create records now that detail such methodology. There is no reason why
plaintiff cannot depose the remaining witness to find out whether defendants’ accounting
methods hold water. But it is premature and inappropriate under the common law of Rule 56 to
declare at this point in the case that defendant’s proof falls short based upon the record before the
court.
The Sixth Circuit Court of Appeals considered Sheldon when it determined whether fixed
expenses should be permitted to offset profits in a patent infringement case. See Schnadig Corp.
v. Gaines Mfg. Co., 620 F.2d 1166, 1174 (1980). The Sixth Circuit wrote:
The common thread running through the cases which have addressed this issue is
a grant of considerable discretion to the trial court. Although the proper
treatment of fixed expenses can be viewed as a question of law, most courts have
perceived the real question to be the relationship between the particular fixed
costs and the infringing production in each case, and this has been treated as a
question of fact. This was the view expressed by the Supreme Court in Sheldon
[citation omitted.] The plaintiffs in Sheldon argued that overhead expenses
should not have been considered in computing the profits to be awarded for
copyright infringement. The Supreme Court wrote simply:
Petitioners also complain of deductions allowed in the computation of the
net profits. These contentions involve questions of fact which have been
determined below upon the evidence and we find no ground for disturbing
the court’s conclusions.
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Schnadig, 620 F.2d at 1174.
Plaintiff’s attempt to distinguish Schnadig is not well taken. 8 Plaintiff argues that the
decision in Schnadig is limited because it was a patent case involving a different statutory
scheme. However, the Sixth Circuit’s reference to Sheldon, a case involving a copyright
infringement case belies plaintiff’s argument. Plaintiff also states that Schnadig has never been
cited in a subsequent Sixth Court opinion or by a federal district court in Ohio. This argument is
of no consequence. Schnadig has now been cited and, because it was decided by a court whose
decisions bind this court, it must be considered.
Plaintiff’s second motion for partial summary judgment is premature and lacks merit.
Whether defendants will be able to deduct overhead expenses from their profits is dependent on
several unresolved questions of fact – such as: 1) whether defendants copied protected elements
of plaintiff’s design plans; 2) whether such copying, if proven, resulted in substantially similar
designs; 3) whether any gross or net profits resulted from the alleged infringement; and 4)
whether defendants’ method of allocating overhead expenses to specific home construction
projects is supported by sufficient evidence and an appropriate methodology so that they can be
used in calculating defendants’ net profits.

8

ECF Doc. No. 71-1, Page ID# 2038.

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V.

Conclusion
The court DENIES Plaintiff’s motion for partial summary judgment (ECF Doc. No. 71)

on the issue of overhead expenses.
IT IS SO ORDERED.
Dated: March 7, 2017
Thomas M. Parker
United States Magistrate Judge

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