Thursday, January 10, 2008

Architects, Profits, and Hearsay Objections

Cases involving damages for infringement of architectural plans and works raise some interesting questions, ones that have been discussed on this blog before. A recent Fifth Circuit per curiam opinion, Powell v. Penhollow, 2007 WL 4513119 (5th Cir Dec. 21, 2007), also brings in the perils of proof. The facts are fairly routine: architect hired to create plans, client without permission gives them to other architect who finishes job. First architect sues. There are a few twists, though: the first architect initially sued in state small claims court for unpaid fees and obtained a default judgment which was satisfied (thereby precluding an award of actual damages), and the defendant in the infringement case did not appeal an infringement finding. The appeal was by the successful plaintiff who complained about the amount of the award of defendant's profits by the magistrate judge and the judge's admission of a summary of defendant's profits without the originals being made available. The Fifth Circuit vacated a portion of the award and remanded for a new trial, which may or may not increase the damages, which were: $546.

The evidence point is a common one: defendant was trying to prove the amount of its overhead, in order to deduct it from any award. It had a summary document created which it offered into evidence; plaintiff objected, but the judge let it in, remarking as judges are wont to do: "The court will give it such credit as it deserves in the way of accuracy and so forth." Very reassuring; and also in conflict with Federal Rule of Evidence 1006 which requires that where there are voluminous writings etc. that cannot be conveniently examined by the court, a summary is fine, so long as the underlying originals are made available for examination or copying," which wasn't done. As a result, the court of appeals tossed that part of the award that relied on the summary.

The court of appeals then went on to the apportionment of damages issues; the magistrate had awarded only 1% of defendant's profits to plaintiff. The infringing house (or more accurately, a house built by using infringing plans), was sold for $950,660.42. Defendant claimed its direct costs were $837,672.15, with additional direct overhead costs of $41,280.76 and what were called "allocated overhead costs" of $56,810.25, leaving net profits of $14,696.65 . The magistrate never explained how he or she go to the $564.40 figure, but the court of appeals believed it represented 1% . Plaintiff disagreed with all but the amount the house sold for. But even if plaintiff is successful in upping the amount, one imagines the case is a net loss: two trial and one appeal, and (I think but don't know for sure) no attorney's fees due to failure to register until after infringement.

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