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Design Basics, LLC v. Roersma & Wurn Builders, Inc.

District court grants partial summary judgment to plaintiff and strikes defendants’ affirmative defense based on statute of limitations, holding that Copyright Act’s three-year statute of limitations applies from time that plaintiff discovers alleged infringing acts.

Plaintiff, Design Basics, LLC, brought suit against defendants alleging copyright infringement based on defendants’ alleged use of plaintiff’s home building designs. On cross-motions for partial summary judgment on the issue of whether plaintiff had timely filed its action within the Copyright Act’s three-year statute of limitations, the magistrate judge concluded that plaintiff’s claims accrued at the time it first knew of the alleged infringement or was chargeable with knowledge of the infringement (the so-called “discovery rule”). Because plaintiff filed suit within three years of discovering the defendants’ alleged use of its designs, the magistrate judge granted plaintiff’s motion for partial summary judgment, denied defendants’ motion, and struck defendants’ affirmative statute of limitations defense. On defendants’ objections the district court approved and adopted the magistrate’s report, finding it “factually sound and legally correct.”

The Copyright Act’s statute of limitations provision states 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.” At the heart of the issue, according to the court, is the word “accrued.” Defendants objected to the magistrate judge’s recommendation, arguing that the Sixth Circuit had not explicitly adopted the discovery rule and that plaintiff’s claim accrued, not when it discovered the alleged infringement, but rather when the alleged injury occurred (the “injury rule”), even if plaintiff were unaware of the alleged infringement.

The district court disagreed, finding that “the overwhelming weight of authority applies the discovery rule of accrual in copyright actions such as this,” and that even if the Sixth Circuit had not previously adopted the discovery rule, it had, without question, previously endorsed the concept in Roger Miller Music, Inc. v. Sony/ATV Publishing LLC. In a footnote, the court both disagreed with and distinguished the district court’s 2008 decision in Goldman v. Healthcare Management Systems, noting that Goldman involved a different issue (an expert report on damages calculations, not summary judgment) and was ultimately decided on other grounds.

The court also noted that nearly all the U.S. circuit courts had adopted the discovery rule, and that the rule made for better public policy. It was more likely to protect copyright owners, while the three-year statute of limitations and the duty to use due diligence would protect against the filing of stale claims. In contrast, the use a rule of accrual that did not depend on actual or constructive discovery “would have the perverse effect of rewarding infringers who were cunning enough to conceal their infringement as long as possible.”
The district court also rejected defendants’ argument that the magistrate judge should have found a question of fact concerning when plaintiff should reasonably have known of the alleged infringement. It noted that defendants failed to present any argument, much less evidence, establishing that plaintiff should have discovered the alleged infringements sooner than it did.