IP Law Daily, COPYRIGHT—S.D. Ohio: Bare allegations against company executives are enough to make out a secondary infringement claim, (Jul 27, 2022)

By Matthew Hersh, J.D.

Because it was plausible that the senior executives were personally involved in the infringement, the lack of details would not require dismissal.

A complaint alleging that two senior executives of a home building company were secondarily liable for the builder’s copyright infringement was sufficient to withstand a motion to dismiss even though the complaint did not identify the specific actions the executives took or the precise nature of their financial interest in the infringement, the federal district court for Cincinnati has held. The court, in finding the “light” factual allegations sufficient, observed that it was plausible that the executives, the president and vice president of a small company, supervised and profited from the infringement (Artisan Estate Homes, LLC v. Hensley Custom Building Group, LLC, July 25, 2022, Black, T.).

The complex background of the case may be summarized as follows: A married couple lived in a home that was designed by Studer Residential Designs, Inc. and built by Hensley Custom Building Group. The couple later wanted to design and build a new home, so they turned to a different homebuilder, Artisan Estate Homes, LLC, to handle the job. The new builder created several designs for the couple, each ostensibly based in part on earlier designs by the original home designer, but the neighborhood’s architectural review board rejected them. So the company returned to its original designer and builder and had them collaborate on the new home.

At this point, everybody sued everybody. The jilted designers struck first, contending that the builder and designer team that eventually built the new house infringed its early—but board-rejected—designs for the house. The designer of the new house counterclaimed, pointing out that it had designed the couple’s original home, and that the jilted designers had copied those designs in making its proposals to the board. The jilted designers sought to dismiss the counterclaims on its theory that the other designer (the designer of the old and new home, the reader will recall), had no valid copyright on the designs for the old home.

Things now went from procedurally bad to worse. The jilted designers filed an amended complaint. The other builder and designer answered, but this time the designer neglected to add its counterclaims to its answer. The jilted designers moved to dismiss them anyway. Meanwhile, just about everybody moved to dismiss the affirmative defenses of the other parties, and for good measure the jilted defendants added as defendants a number of individuals associated with the other companies—who promptly moved to dismiss as well.

Allegations against the new builder’s executives. The court found that the jilted designers’ allegations against the eventual homebuilder’s president and vice president were sufficient—at least at the lenient standard applicable on a motion to dismiss—for the claims to stay in the case. Under traditional secondary liability principles, the court noted, corporate officers can be held jointly and severally liable with the corporation in a copyright case where (1) the officer has the right and ability to supervise the infringing activity, and (2) the officer has a direct financial interest in such activities.

Here, the court noted, the factual allegations, “light as they may be,” met that test. The complaint alleged, for instance, that the executives participated in the construction, “had the right and ability to supervise and control” construction of the home, and had a direct financial interest in that construction. To be sure, the court noted, the allegations did not go much beyond that. But the company’s “positions as executives,” the court noted, “make it more plausible that they supervised building the [home], and that they stood to profit from it.”

Other findings. The rest of the court’s findings can be summarized briefly here:

·The court found, deciding a matter that had apparently remained open in the Sixth Circuit, that the heightened pleading standards under the familiar cases of Bell Atl. Corp. v. Twombly, 550 U.S. 544 (2007) and Ashcroft v. Iqbal, 556 U.S. 662 (2009), do not apply to affirmative defenses. Thus, to the extent that the various affirmative defenses stated only in a conclusory fashion that the complaint was, for instance, “barred due to the statute of limitations” and the “doctrine of laches,” respectively, that was sufficient.

·However, the court noted, the Twombly and Iqbal standard did apply to affirmative defenses that allege fraud. Thus, to the extent that the builder alleged a defense of fraud on the copyright office, it would have to meet that standard. Here, however, the builder alleged that the jilted designers misrepresented the originality of “the drawings and plans” it submitted to the Copyright Office. “In other words,” the court noted, the designer “made a specific misrepresentation at a specific point in time to a specific entity. That was sufficient.

·However, to the extent the builder asserted as an affirmative defense that “[t]he claims are barred for want of consideration” and that “[t]he claims are barred for failure of consideration,” these affirmative defenses would be struck, as consideration is a feature of contract law and not copyright law.

· Finally, the court found that the counterclaims by the original designer of the house had been waived, because they weren’t reasserted in the designer’s answer to the amended complaint. But the individual defendants associated with that designer had managed to raise the counterclaim—or at least purported to. The problem? Although those individuals alleged a series of facts that sounded like a copyright complaint, the court noted “[their] answer stops short, however, of asserting any claim for relief.” So that counterclaim, too, would be dismissed.

The Case is No. 1:19-cv-00566-TSB.

Attorneys: Charles Kramer Verhoeven (Quinn Emanuel Urquhart & Sullivan, LLP) and Floyd S. Yarnell (Yarnell & Peterson, P.A.) for Artisan Estate Homes, LLC. Jennifer Kirkpatrick Nordstrom (Garvey Shearer Nordstrom, P.S.C.) for Hensley Custom Building Group, LLC. Steven C. Martin (Ziegler & Schneider, P.S.C.) for Studer Residential Designs, Inc.

Companies: Artisan Estate Homes, LLC; Hensley Custom Building Group, LLC; Studer Residential Designs, Inc.

Cases: Copyright OhioNews