Theft by Design

Theft by Design

By David R. Corder

Associate Editor

Last year a customer confronted Bradenton homebuilder Pete McNabb and demanded an explanation. He had discovered nearby a new home under construction that resembled an exclusive design McNabb promised to him.

That couldn't be, McNabb replied. A copyright that belonged to Clearwater's Arthur Rutenberg Homes Inc. protected the design of the home he was building for the customer in North Port. The Clearwater homebuilder grants McNabb, an independently owned franchisee, use of its architectural design copyrights through profit-sharing agreements.

McNabb's stepson, Derek Nelson, president of the builder's Sarasota operations, inspected the site and spoke to the owner, North Port resident Aleksandr Kovtunovich. The visit confirmed McNabb's suspicions that Kovtunovich infringed on a Rutenberg design copyright. The discovery also has raised concerns for builders such as McNabb about a new trend.

Throughout his 21-year affiliation with Rutenberg, McNabb has vigorously sued competitors who violate the franchiser's design copyrights. It's a policy that Rutenberg advocates. In recent years, however, the problem became less of an issue for McNabb in his franchise areas as competitors realized he readily would take them to federal court to recoup any lost profits.

Only now, McNabb senses a resurgence of this illegal practice during a time of unprecedented home building throughout the Gulf Coast, the state and elsewhere. Only now, it's builder-owners who appear to be the primary violators.

McNabb fears the problem is much larger than his experience with Kovtunovich, who has been ordered by the Tampa federal court to pay McNabb and Rutenberg $160,000 in lost profits and $5,300 in attorneys fees.

"It's prevalent enough if we're only just out and stumble upon it," he says. "We're busy working, but if we really got out and started looking for it we might be surprised."

Frank Jakes harbors the same fears. Over nearly two decades, Jakes has earned a reputation as a legal expert in the area of architectural design copyright infringement. He and Zachary Messa, attorneys in the Tampa office of Johnson Pope Bokor Ruppel & Burns LLP, represented Rutenberg and McNabb in the federal civil action against Kovtunovich.

"We've seen an increase in clients with cases," Jakes acknowledges. "I'd chalk it up to increases in the homebuilding industry."

Early on in the evolution of his corporate namesake, Rutenberg adopted this unforgiving policy that zealously guards the company's design copyrights as essentially works of art. It was during the 1980s when Rutenberg introduced the concept of a split-bedroom home with a centralized kitchen. Soon builders everywhere promoted the same concept.

"They're investing six to seven figures each in new plans," Jakes says. "It's one of the values for the many franchisees who operate throughout the United States. It's what gives them a huge part of their corporate edge.

"So realizing the importance of the designs in the business model, Art from the early days has effected his plans with copyrights," Jakes adds. "He's always protected them. And he thought it was important to get the word on the street."

In those early days, Jakes says, Rutenberg took a leadership role in the homebuilding industry when it came to design copyright infringements.

"When Art started this there was very little law on the books for protecting architectural plans with copyrights," Jakes says. "We went out to create some law for him. It's no different than for novels and music. The law has developed significantly over the last 20 years."

In fact, Jakes argued two cases cited often in copyright infringement actions and appeals: Arthur Rutenberg Homes Inc. v. Drew Homes Inc., F.3d 1529 (U.S. 11th Circuit Court of Appeals, 1994) and Arthur Rutenberg Homes Inc. v. Maloney, 891 F. Supp. 1560 (Middle District of Florida, 1995)

"In the area of architectural design, Frank is definitely one of the best," says Doug McDonald, a Carlton Fields PA attorney who also works in the area of copyright infringement. "Frank is an outstanding commercial litigator. I love working with him as co-counsel and working against him on the other side. He's one of the most creative guys I've come across and has probably done more house plan copyright infringement cases than anyone else in the Tampa Bay area."

Besides Kovtunovich, Rutenberg and McNabb also sued Robert Snyder, who drafted the design plans for the North Port homeowner. Snyder has denied he infringed on the Rutenberg copyrights and has claimed affirmative defenses against the allegations.

Although he doesn't deny the allegations, Kovtunovich claims he only used the Rutenberg model as a concept for his home. He says the house is the first home he has ever built and intended it solely for his family's use.

"It's not like I try to compete with somebody," says the native of the Ukraine.

Kovtunovich seemed genuinely confused about the actions taken against him. For one, he claimed he didn't know anything about the final default judgment the court issued against him.

To compound the problem, his attorney died only days after Rutenberg and McNabb filed the federal action. Sarasota lawyer John Halak and his wife, Hope, died in early November when their single-engine plane crashed in Key West waters. Kovtunovich didn't even know Halak had died until Messa advised him in January via a FedEx notice.

"Two or three weeks ago I made them an offer to go away," Kovtunovich says. "I got nothing in the mail. I was waiting. I'm just hoping and waiting that they agree on something. I just wanted to be fair. I want them to be fair to me."

The FedEx notice advised Kovtunovich he needed to replace Halak, Messa says. Instead, he says, Kovtunovich responded with the second of two settlement offers. "They were incredibly nominal settlement offers," Messa adds.

Those offers certainly won't appease McNabb, who explains just how much he and Rutenberg lose when someone infringes on a design copyright. He cites the Bellagio home model as an example. It sells for about $2 million.

"One copyright on (the Bellagio) could be worth $250,000 in lost profits," he says.

Then factor in that McNabb's companies' have built more than 500 homes valued at more than $300 million since just 1987.

"I have to pay a franchise to use my design plans," McNabb says. "So if someone wants to take a set of plans from a job site and build a home then I'm going to go after them aggressively. So is Arthur Rutenberg."