Copyright Act Does Not Create A Separate Time-Based Damages Bar For Timely Claims

Client Alert

The Copyright Act provides that an action for copyright infringement must be commenced “within three years after the claim accrued.” 17 U.S.C. § 507(b). The Supreme Court has not analyzed when copyright claims accrue under the statute, but the lower federal courts have. Although some federal trial courts previously held that copyright claims accrue when an infringing act occurs (the “injury rule”), the federal trial and appellate courts now uniformly hold that such claims accrue when claimants discover or with due diligence should have discovered the infringing act (the “discovery rule”). Despite the uniformity with respect to which accrual rule governs, the Fifth, Ninth, and Eleventh Circuit Courts of Appeal allowed successful claimants to recover damages starting from whenever the infringement at issue began, but the Second Circuit limited such claimants’ recovery to the three-year period prior to suit.

On May 9, 2024, the Supreme Court held, in Warner Chappell Music, Inc. v. Nealy, that the Copyright Act does not contain a separate time-based limit on monetary recovery for otherwise timely claims, thereby allowing recovery of damages for infringements dating back longer than three years. The Court, therefore, rejected the Second Circuit’s approach to damages, and, instead, adopted the approach taken by the Fifth, Ninth, and Eleventh Circuits. In doing so, though, the Court declined to address and left unanswered the question of whether the injury rule or the discovery rule determines when copyright claims accrue.

In 2018, approximately ten years after the allegedly infringing acts at issue occurred, Sherman Nealy (“Nealy”) sued Warner Chappell Music, Inc. (“Warner Chappell”) in the U.S. District Court for the Southern District of Florida for copyright infringement, alleging that certain of the company’s licensing activities infringed his rights in songs he had recorded as part of a short-lived music venture. Despite the fact that a decade had passed since some of the alleged infringements had occurred, Nealy, who had been in prison and unaware of the infringements, contended that his claims were nonetheless timely because he filed his lawsuit within three years of when he discovered the alleged misconduct.

At the district court level, Warner Chappell acknowledged that that the discovery rule governed the accrual of Nealy’s claim. However, the company argued that the damages available were limited to the three-year period prior to suit based on the Second Circuit’s three-year lookback doctrine, which, in turn, relied on language in the Supreme Court’s decision in Petrella v. Metro-Goldwyn-Mayer, Inc., that “§ 507(b)’s limitations period . . . allows plaintiffs . . . to gain retrospective relief running only three years back from the date the complaint was filed.” The district court declined to impose any such limitation, and allowed Warner Chappell to appeal the issue to the Eleventh Circuit.

Because Warner Chappell had acknowledged that the discovery rule applied, the Eleventh Circuit assumed Nealy’s claims were timely for purposes of its review, and limited its analysis to the three-year lookback issue without discussing the propriety of the rule. The Eleventh Circuit rejected the imposition of a separate damages bar for claims that are timely under the discovery rule, siding with the Ninth Circuit, instead of the Second Circuit, and reasoning that the damages bar would eviscerate a main purpose of the discovery rule.  According to the Eleventh Circuit, “Petrella’s statements about the availability of relief are directed to the way the statute of limitations works when claims accrue under the injury rule, not the discovery rule,” and “the text of the Copyright Act does not place a time limit on remedies for an otherwise timely claim.”

The Supreme Court granted certiorari on the limited issue of “[w]hether, under the discovery accrual rule applied by the circuit courts[,] . . . a copyright plaintiff can recover damages for acts that allegedly occurred more than three years before the filing of a lawsuit.”  In answering that question in the affirmative, the Supreme Court expressly declined to address whether the injury rule or the discovery rule determines when copyright claims accrue. Warner Chappell attempted to raise the accrual issue as a logical antecedent to the damages question in its briefing to the Supreme Court, but the Court chose not to address it noting, among other things, that Warner Chappell had not raised the issue below, and that the Court had previously removed the issue from consideration when reformulating the question presented.

Ultimately, the Supreme Court agreed with the Fifth, Ninth, and Eleventh Circuits that the Copyright Act does not impose a separate damages time limitation on timely claims. According to the Court, “[t]he Second Circuit’s contrary view, on top of having no textual support, is essentially self-defeating.” The Court explained that “[w]ith one hand, that court recognizes a discovery rule, thus enabling some copyright owners to sue for infringing acts occurring more than three years earlier.  And with the other hand, the court takes away the value in what it has conferred, by preventing the recovery of damages for those older infringements.” The Court further reasoned that “the damages bar makes the discovery rule functionally equivalent to its opposite number—an accrual rule based on the timing of an infringement,” and that, while it would not resolve which accrual rule is proper, it refused to “apply . . . a judicially invented damages limit to convert one of them into the other.” The Supreme Court also rejected the Second Circuit’s reading of Petrella as acontextual to the facts of the case.

Why it Matters?

The implications of this decision are relatively narrow, especially outside the Second Circuit, because no other circuit has ever applied the damages bar, and the Court expressly declined to address the appropriate accrual rule under the Copyright Act.

The decision leaves the accrual rule issue for another day. That day may arrive soon, however, because the issue is squarely presented in the petition for certiorari review before the Court in Hearst Newspapers, L.L.C. v Martinelli. The petition is fully briefed and pending a decision by the Court with the question presented as: “Whether the ‘discovery rule’ applies to the Copyright Act’s statute of limitations for civil claims. 17 U.S.C. 507(b).”



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