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Warner Chappell Music v. Nealy

Are damages for copyright infringement always limited to the three-year period before suit is filed? The Supreme Court says no.

The Limitations Period for Copyright Infringement

The Copyright Act imposes a three-year statute of limitations for copyright infringement claims: “No civil action shall be maintained under the provisions of this title unless it is commenced within three years after the claim accrued.” 17 U.S.C. 507(b). It turns out the rule was easier for legislators to write than for courts to apply.

Sherman Nealy’s Infringement Claims

In the 1980s, Sherman Nealy and Tony Butler formed Music Specialist, Inc. The company released several recordings before the venture was dissolved. Nealy subsequently served two terms in prison, one from 1989 to 2008, and the other from 2012 to 2015.

Meanwhile, Butler licensed songs from the Music Specialist catalog to Warner Chappell Music, without Nealy’s knowledge. Warner Chappell, in turn, licensed them to popular recording artists and television shows.

In 2018, Nealy sued Warner Chappell for copyright infringement. He sought damages and profits for infringement occurring between 2008 and 2018. A significant portion of this claim would have been time-barred if “accrual,” as used in Section 107(b), referred only to the date on which an infringing act occurred. Some courts have held, however, that the rule does not apply if the copyright owner neither knew nor should have known that infringement was occurring. In that situation, a claim accrues when a “plaintiff discovers, or with due diligence should have discovered,” the infringing act. Petrella v. Metro-Goldwyn-Mayer, Inc., 572 U. S. 663, 670 (2014). Once a copyright claimant learns that infringement has occurred, he or she then has three years from that time to file suit. Nealy alleged that he did not learn of the infringement until 2016, which was within the three-year limitations under the discovery rule.

The district court ruled that although his claims were timely filed, he could recover damages only for infringement occurring during the three-year period preceding his commencement of the lawsuit.

The Circuit Split

The district court’s ruling was consistent with the Second Circuit’s decision in Sohn v. Scholastic, Inc. 959 F.3d 39, 51-52 (2nd. Cir. 2020). The Ninth Circuit, however, allows recovery for all infringing acts, even beyond the three-year period, when a claim is timely filed under the discovery rule. Starz Entertainment v. MGM, 39 F. 4th 1236, 1244 (CA9 2022)). The Eleventh Circuit Court of Appeals adopted the Ninth Circuit’s view. It therefore reversed the district court.

The United States Supreme Court granted certiorari to resolve the circuit split.

The Supreme Court Decision

The Court has never ruled on the validity of the discovery rule. That question, however, was not before it in this case. Warner Chappell had not challenged the rule in the lower court, so the Court limited its review to the scope of recovery under the discovery rule.

Its ruling on that question was simple. The Act prescribes a three-year limitation for filing suit. It imposes no limit on the time for recovering damages. The Act says only that an infringer is liable for damages and profits made from the infringing act. “The Copyright Act contains no separate time-based limit on monetary recovery.” Id.

Justices Gorsuch, Thomas and Alito dissented. In their view, the discovery rule is not valid. Accordingly, they would have dismissed the petition as improvidently granted. They would have preferred for the Court to wait for a case that squarely raises the validity of the discovery rule instead of deciding an issue that requires them to assume, arguendo, that it is.

The Take-Away

The decision obviously is a victory for copyright owners and claimants. As long as they file an infringement claim within three years of learning they have one, it does not matter how long ago the infringement occurred. Recovery is not limited to the three years prior to the commencement of the action. It is important, however, to be aware of two limitations on the Court’s decision.

Known infringement

First, the three-year limitation period still exists.

Example: Chuck learns in 2019 that Robert has been infringing his copyright for years. The infringement is ongoing. He waits until 2023, however, to file a claim. Because he did not file a claim within three years of learning of the pre-2019 infringing acts, he will not be able to recover damages or profits for them. In this situation, his recovery will be limited to the three-year period prior to commencing an action.
The validity of the discovery rule

As the dissenters observed, the Court has never directly ruled on the validity of the discovery rule. It is possible that if a litigant were to raise that issue, the question could make its way to the Supreme Court. It is also possible that the Court could decide against its validity at that time.

It does seem to be a just and fair rule. After all, why should infringers be permitted to benefit from their victims’ lack of knowledge? The Court, however, could decide against adopting a per se rule of validity, instead leaving it to trial courts to balance the equities in each individual case. We simply have no way of knowing, at this point, what approach the Court would take if the validity of the discovery rule were to come squarely before it.

Subject to these caveats, the decision is cause for celebration in the creative community.

Continuing education

Interested in learning how to do a trademark search? On June 10, 11 and 12, I will be presenting a series of 1-hour webinars covering: basic trademark law and “likelihood of confusion” analysis; searching the USPTO database; and advanced searching with RegEx. For more information, visit the Echion CLE course page.

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