By Dennis Crouch and Timothy Knight*
The Supreme Court is set to hear oral arguments on February 21 in an important copyright case – Warner Chappell Music v. Nealy. The central issue is whether copyright plaintiffs can recover damages for infringing acts that occurred more than three years before filing suit, under the “discovery accrual rule.”
Copyright’s statute of limitations bars claims not “commenced within three years after the claim accrued.” 17 U.S.C. § 507(b). But the Eleventh Circuit permitted Nealy to seek damages beyond three years — going back to three years from when he knew or reasonably should have known of the infringement. This is known as the “discovery accrual rule” — since the claim is seen to accrue only upon reasonable discovery; and is contrasted with another interpretation of the law that would create an “wrongful act accrual rule” or “injury rule” — where the clock starts ticking upon the act constituting infringement, even if wrongful act was effectively unknowable by the rights holder. A majority of Courts use the discovery accrual rule but they are also split on whether the discovery rule allows damages recovery for older acts, absent situations involving fraud. Some courts, most notably the Second Circuit, have concluded plaintiffs can sue for past undiscovered infringement, but cannot recover damages for anything that occurred more than three years from the lawsuit filing. See Sohm v. Scholastic, Inc., 959 F.3d 39, 49-50 (2d Cir. 2020)
This split arises from how to interpret Supreme Court’s statement in Petrella v. MGM: “A successful plaintiff can gain retrospective relief only three years back from the time of suit.” While a laches issue was at the heart of this ruling, the Second Circuit adopted this rule for all copyright infringement cases. The unsatisfying conclusion here is when combined with the discovery accrual rule a copyright holder could have a timely infringement claim but not be eligible for relief. The Ninth Circuit, now joined by the Eleventh Circuit, instead maintained that Petrella did not extend beyond laches, thus rejecting the three-year damages bar.
The case now before the Supreme Court arose when Sherman Nealy’s collaborator licensed their co-created songs without Nealy’s permission (while Nealy was incarcerated). Nealy sued many years later in 2018 upon learning of the unauthorized licenses in 2016. The district court concluded that he could pursue claims under the discovery accrual rule but limited damages to the three years before his lawsuit. The Eleventh Circuit rejected that damages limit.
When the Supreme Court granted certiorari, it refined the question to focus on whether the discovery rule permits damages for acts outside the three-year window. Publishers want repose and warn of copyright trolling, while artists and authors argue three years is insufficient to police infringement.
The parties particularly dispute how to interpret ambiguous statements in Petrella v. MGM and SCA Hygiene Products stating that the statute of limitations “ordinarily” begins with the wrongful act. Although some lower courts have dealt with this statement as non-controlling dicta, the better approach is to reconcile this language with a discovery rule that allows for the timeline to begin only upon reasonable discovery. We suggest a burden shifting: begin with an assumption of a wrongful act rule but permit a discovery rule approach if the copyright holder can show a reasonable lack of knowledge. Although this does not go as far as publishers would like to cut off claims, it does provide some protection by requiring authors to affirmatively provide evidence to support a discovery accrual claim.
The US solicitor general and law professor amici support Nealy, arguing the statute of limitations under § 507(b) does not limit remedies and Congress imposed damages caps elsewhere when intended. The Chamber of Commerce filed against extending federal claim timelines. The business-owner focused group appears to be concerned about expansions of the discovery rule to other areas of federal and state law.
If the discovery rule is upheld, the Court may also delineate its contours around due diligence and the copyright holder’s duty to search for infringement — providing guidance on when the copyright owner “should have known” about the infringement.
The outcome of the case will directly shape licensing markets and the viability of old copyright claims. An affirmance keeps undiscovered claims alive, potentially indefinitely, favoring artists and their oversight struggles. A reversal would help resolve publisher accounts, but could also reward infringers who successfully hide their actions. The decision could also further influence discovery rules in other federal law areas. This term, for instance, the Supreme Court is also considering the meaning of “accrues” in the context of suing the United States government in a case known as Corner Post, Inc. v. Bd. of Governors, FRS. In Corner Post, the question is whether the six-year statute of limitation running from when “the right of action first accrues” is triggered by issuance of an agency rule or instead when the plaintiff suffers the legal wrong. See 38 U.S. § 2401.***
Unlike copyright law, patent law has an unambiguous six-year statute of limitations on damages in infringement cases. Under 35 U.S.C. § 286, “no recovery shall be had for any infringement committed more than six years prior to the filing of the complaint or counterclaim for infringement.” This strict cutoff from the date of infringing acts provides certainty for alleged infringers. But, it is possible language from this case could allow for further back damages in the patent context — it would be most likely as an equitable rule for situations where an infringer has intentionally hidden the infringement.
Oral arguments are set for February 21 and the Court’s opinion is expected by the end of June.
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* Timothy Knight is a graduate of Grinnell College and a second-year student at the University of Missouri School of Law. Knight has a forthcoming article in the Missouri Law Review focusing on the discovery accrual rule.
** This essay is partially based on a prior article that we wrote for the ABA Preview. Dennis Crouch and Timothy Knight, Under What Circumstances Can Damages Be Obtained for Copyright Violations That Took Place More Than Three Years Before Filing of the Lawsuit?, 51 ABA Preview of US Supreme Court Cases February 2024, at 12.
*** Oral arguments in Corner Post are being held on Tuesday, February 20, 2024.
Most of the justices appeared to have no taste for this case at argument. It’s probably going to be dismissed as improvidently granted because they can’t get away from the question of a discovery rule in the first place before deciding if damages are appropriate if in fact there is a discovery rule, which they don’t want to decide on the record of this case. That’s my prediction anyway.
How damaged are you from infringement that you didn’t even notice? The discovery accrual rule as formulated here is too wide open. It creates a case within a case, where plaintiffs will always have excuses about why they reasonably didn’t notice the infringement. You’ll have to do document discovery, depositions, the whole nine yards, every time. It’s wasteful and frustrates the purpose of the SOL in the Copyright Act.
But from my brief listen of the arguments, the Justices seem likely to either DIG the case or side with a broader discovery accrual rule here. Copyright litigation will get even more indeterminate, which is quite a feat.
Kyle – you are aware of how widespread copyright infringement may be and how difficult it could be even to detect, right?
As to damages – it is easy to see what one does not know when one does not know – and that does not mean — in the least — that these types of damages would be de minimus.
I thought that you had indicated that you were a litigator?
OT,
But “in the club”
link to instagram.com
I would think the present conservative Sup. Ct. would be more inclined to rely on basic principles of statutory interpretation of the copyright statute language itself, rather than inconsistent lower court opinion arguments.
It’s hard to think of fact patterns where infringement can be substantial, but intentionally hidden (without conspiracy) because commerce requires unrelated parties to pay for the infringed material.
A guy sitting in a jail cell is an outlier….but the court can’t add to the statue and just make up an outside number where no recovery is possible…but the long life of copyrights also makes half-century old damages claims possible…that’s not great either.
Not an easy case.
IDK. I guess it depends on how you define “substantial.”
For example, there is the famous American Geophysical Union v. Texaco case, where the defendant bought one copy of a expensive journals, made dozens of additional copies, then passed those copies around internally.
Or Basic Books. v. Kinko’s, where one local copy store would copy specific journal articles for one particular class/section at one particular college (of which there are thousands in the US alone). Worse, title the infringments something like “Biology 311 (Jones) course materials.”
OC – would you roll in the State’s ability to tell copyright holders to ‘pound salt’ in view of “particular colleges?”
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