by Dennis Crouch and Timothy Knight
On February 21, 2024, the Supreme Court heard oral arguments in the case of Warner Chappell Music v. Nealy, which deals with a circuit split over the availability of back-damages in copyright infringement cases. Specifically, the Court is examining whether copyright plaintiffs are barred from recovering damages for acts of infringement that occurred more than three years before filing suit, even if the claims are timely under the “discovery rule.” During the arguments, the parties and justices used metaphors of “bad wine vintages” in questioning the pedigree and value of the discovery rule and damages limitation put before them. [Oral Argument Transcript]
The copyright law has a three year statute of limitations for filing suit that begins when the copyright “claim accrued.” Although “accrual” in copyright cases ordinarily occurs with infringement, the judge-made discovery rule allows copyright claims to accrue when the plaintiff discovers, or reasonably should have discovered, the infringement rather than when the infringing act occurred. All circuit courts accept some form of the discovery rule, but they disagree over a second point — whether damages can reach back beyond the three-year statute of limitations period measured from the date of filing. Although the statute does not make any distinction between a right to file an action and a right to back damages, the distinction stems from ambiguous dicta in the Court’s 2014 Petrella v. MGM decision. Although that case focused on laches, the court suggested general allowance for the discovery rule for copyright claims more than three years from filing, but also wrote that Section 507(b) permits “retrospective relief running only three years back from the date the complaint was filed.” This statement led some courts (including the district court here) to conclude that a copyright holder can sue for wrongful actions that were more than three-years distant, but can only collect damages associated with infringing actions within the three year bubble. In this case, the Eleventh Circuit sided with the plaintiff (reversing the district court) in holding that claims for back damages also follow the discovery rule — permitting potential distant claims.
In the certiorari process, the music publishers asked two broader questions that seemed to potentially challenge the discovery rule itself, but the court granted a re-written narrower question that assumed the discovery rule is in place, but questioned whether it also allows damages beyond the three year mark.
Kannon Shanmugam, representing the music publishers who lost before the Eleventh Circuit, began the argument with a statement that the case “presents a straightforward matter of statutory interpretation” under Section 507(b)’s three-year limitations period. He stated that “a plaintiff can obtain damages for acts of infringement only within three years of filing” and that Petrella supports this position. However, the Justices quickly noted that the question presented “assumes the existence of the discovery rule” and does not revisit whether one should exist at all. This prompted pushback from Shanmugam:
I don’t think that this Court when it rephrased the question presented was accepting any particular version of the discovery rule. . . At most, the rephrased question presented assumes the existence of some version of the discovery rule. It does not take sides on the scope of that rule.
The Justices remained skeptical, with Justice Sotomayor asking “isn’t it artificial for you to raise the most important part of your argument in a footnote” rather than directly asking the Court to revisit the discovery rule. She emphasized that Shanmugam was now trying to make arguments that went beyond the scope of the question presented. Justice Gorsuch echoed this, stating “we’re being asked to decide the scope of something that may or may not exist.”
Respondent’s counsel, Joe Earnhardt, also refused to defend the discovery rule’s validity. He argued the question that was granted certiorari “assumes that there is a discovery rule” and claimed all circuits agree one exists (but disagree as to its scope). Justice Gorsuch then wondered: “Why wouldn’t we just take up that question first” regarding the existence of any discovery rule? But Earnhardt maintained doing so was inappropriate since the issue “wasn’t raised below” and has no circuit split.
Overall, the Justices appear to not be willing to rule expressly on the discovery rule question – whether it exists, even while questioning how to decide a “scope” issue if the rule itself is uncertain. Justices floated the possibility of DIGing the case, meaning dismissing it as improvidently granted (DIG). That had also been suggested by respondent. Justice Alito noted, it makes little sense to “talk about the second [question of scope] without resolving the first [its existence].”
Turning to the core question regarding retrospective damages, Shanmugam argued the time-bar stems directly from the statute of limitations provision that a claim must be brought within three years of accrual. “Our submission is simple. As this Court has said, the standard rule is that ‘accrues’ means at the point when you have a complete and present cause of action.” Plaintiff’s attorney Earnhardt contested this reading. He claimed other parts of the Copyright Act authorize full recovery of damages without any “lookback” restriction, such that imposing one would contradict Congress’s intent. It appears that nothing in the Copyright statute provides any hook for separately treating the damages timing from the general accrual limitation. Justice Sotomayor explained her perspective that “The damages section speaks about damages. The statute of limitations speaks about a time period to file a complaint. You’re automatically tying the two. Tell me how you’re doing it.” Shanmugam argued both that the text demands a three year rule and that the particular damages limitation is derived from the Court’s own prior statements in Petrella. On the other side Earnhardt agreed with the Justices that there is no such connection between the two statutes. This core issue may also help explain the court’s difficulty in sifting through whether they must first answer a question about the discovery rule before analyzing how it applies to damages. Under Shanmugam’s theory, the two are inextricably linked, whereas for Earnheart the statute of limitations is entirely separate and distinct from the copyright damages statute.
Earnhardt insisted Petrella was distinguishable dicta because the plaintiff there “only brought claims for the three-year period” preceding her lawsuit, whereas broader relief would be appropriate if earlier acts were successfully tied to timely claims under the discovery rule. However, Justice Gorsuch noted that Petrella’s language about damages going back “only three years” was seemingly not so limited. Shanmugam argued this was a necessary implication of the prior laches decision — the crux of the decision that laches does not apply to back-damages was the existence of a statute that cuts-off back damages at the three year mark. Shanmugam cautioned that failing limit damages could entrench an overbroad discovery rule that lets plaintiffs reach back indefinitely. During oral arguments, the Court gave little indication of how it might interpret Petrella‘s meaning or perhaps walk-back its language, although Justice Gorsuch sees the case as clearly stating that “you look back three years and no more.”
In the end, the Justices asked few questions about the government’s position that Petrella should not bar damages for timely claims and that the Second Circuit “erred” in Sohm v. Scholastic by holding otherwise based on the Petrella dicta. How the Court maneuvers around Petrella to answer the question remains to be seen when a decision is issued.
The key recurring metaphor during oral arguments was that of “bad wine” in reference to the discovery rule for copyright claims. Justice Gorsuch stated, “we also have a lot of cases in this Court casting doubt on the existence of a discovery rule. We’ve called it wine from a bad vintage or something like that.” See, for example, TRW Inc. v. Andrews, 534 U.S. 19, 37 (2001) (Scalia, J. in dissent writing “The injury-discovery rule applied by the Court of Appeals is bad wine of recent vintage.”); and Rotkiske v. Klemm, 140 S. Ct. 355, 360 (2019) (an “expansive approach to the discovery rule is a bad wine of recent vintage”). Later, Respondent’s counsel argued that the copyright discovery rule is not “bad vintage” because it is inherent to the “accrual” language of the Copyright Act. Of course, the discovery rule is not explicit in the language of the Act, and Gorsuch responded that it “may or may not” be there “some people say that the wine is there.” Sticking to the metaphor, Gorsuch later seemingly referenced the Petrella precedent and subsequent appellate decisions as “not even the old bad wine. It’s something else. It’s a new bad wine.” The “bad wine” metaphor has generally captured skepticism amongst the Justices about a broad discovery rule. After all this back and forth over the vintage, both sides likely needed a smooth evening recovery Merlot. We expect the nine sommeliers to release their opinion by the middle of June 2024.