In a landmark decision, the U.S. Supreme Court confirmed that “[t]he Copyright Act entitles a copyright owner to obtain monetary relief for any timely infringement claim, no matter when the infringement occurred.” See Warner Chappell Music Inc. et al. v. Sherman Nealy et al., Case No. 22-1078 (May 9, 2024). The three-year statute of limitations in the Copyright Act does not bar copyright owners from recovering damages for infringement occurring more than three years ago if the lawsuit is filed within three years of discovering the infringement.
Background
In the 1980s, Sherman Nealy and Tony Butler formed Music Specialist, Inc. (MSI), a Florida corporation involved in the music industry. MSI released an album and multiple singles from 1983 to 1986 and dissolved in 1989, when Nealy went to prison for drug-related offenses.
While Nealy was incarcerated, Butler formed a new company, and began licensing rights to MSI’s musical works. At the heart of the lawsuit was a 2008 license with Atlantic to use the MSI work “Jam the Box” in Flo Rida’s hit song “In the Ayer,” which sold millions of copies, reached No. 9 on the Billboard chart, and appeared on popular television shows such as So You Think You Can Dance.
Nealy discovered the unauthorized use of MSI’s catalog in 2016, after serving a second prison sentence from 2012 to 2015. In December 2018, he sued Warner Chappell Music, Inc., Artist Publishing Group, LLC, and Atlantic Recording Corporation (together “Warner Chappell”) for their activities dating back to 2008, including with respect to Flo Rida’s “In the Ayer.”
The Statue of Limitations for Copyright Claims
17 U.S.C. § 507(b) establishes a three-year statute of limitations for copyright infringement claims, stating: “No civil action shall be maintained under the provisions of this title unless it is commenced within three years after the claim accrued.” The key term here is the word “accrued.”
One interpretation of Section 507(b) is that a copyright claim “accrue[s]” when “an infringing act occurs.” Petrella v. Metro-Goldwyn-Mayer, Inc., 572 U. S. 663, 670 (2014). Known as the “incident of injury rule,” this rule provides that a plaintiff can sue only for infringement that occurs within the three years prior to the filing of the lawsuit.
Another interpretation of Section 507(b) is that a claim accrues when “the plaintiff discovers, or with due diligence should have discovered” the infringing act. The so-called “discovery rule” enables diligent plaintiffs to raise claims that were discovered within the past three years, regardless of their age. The difference in interpretation is significant, and in this case, dictated whether Nealy had the right to assert an infringement claim at all.
Lower Court Rulings
Given the timing of Nealy’s lawsuit and the language of Section 507(b), two questions were central to the case:
- Did the copyright infringement claims accrue in 2008, when the infringement occurred (the “incident of injury rule”), or in 2015, when Nealy discovered the infringement (the “discovery rule”)?
- If the discovery rule applied and Nealy’s claims were not time-barred, would his monetary recovery be limited to damages occurring in the three-year period leading up to the filing of the lawsuit?
Warner Chappell conceded the first issue, accepting that the discovery rule governs the timeliness of Nealy’s claims. Nonetheless, it argued that even if Nealy could still sue for infringement dating back to 2008, he could only recover damages for infringement from 2015 to 2018—the three years leading up to the lawsuit.
The District Court agreed. Nealy v. Atl. Recording Corp., 2020 U.S. Dist. LEXIS 222470, 2020 WL 6870877 (S.D. Fla., Aug. 24, 2020). Citing Sohm v. Scholastic Inc., 959 F. 3d 39, 51–52 (2nd Cir. 2020), it held that even when claims for old infringement are timely, monetary relief is “limited” to “the three years prior to the filing” of the action.
The Court of Appeals for the Eleventh Circuit reversed, rejecting the notion of a three-year damages bar on a timely claim. 60 F. 4th 1325, 1331 (11th Cir. 2023). Citing Starz Entertainment v. MGM, 39 F. 4th 1236, 1244 (9th Cir. 2022), it held that a plaintiff with a timely claim under the discovery rule may obtain “retrospective relief for [an] infringement” even if it “occur[red] more than three years before the lawsuit’s filing.”
“[T]he plain text of the Copyright Act,” the Eleventh Circuit explained, “does not support the existence of a separate damages bar for an otherwise timely copyright claim.” 60 F. 4th at 1334. Imposing such a bar, it reasoned, “would gut the discovery rule by eliminating any meaningful relief ” for the claims it is designed to preserve. Thus, under the discovery rule, when copyright plaintiffs have timely claims for infringement occurring more than three years in the past, they may recover damages for that infringement.
The Supreme Court Ruling
Because Warner Chappell did not dispute that the discovery rule applied, the Court did not address when the claim “accrued” for purposes of Section 507(b). Rather, it assumed that Nealy’s claim was timely filed and confined its ruling to the question of whether a plaintiff with a timely claim can recover damages going back more than three years. Justice Kagan, writing for the majority, concluded that “[t]he text of the Copyright Act answers that question in favor of copyright plaintiffs.”
The majority opinion emphasizes that the language of Section 507(b) establishes a three-year period for filing suit but does not impose a separate time limit on the recovery of damages. The Court criticized cases from the Second Circuit applying the discovery rule but limiting plaintiffs to the damages sustained within the past three years, describing that position as “having no textual support” and “essentially self-defeating.” According to the majority opinion, the imposed damages bar made the discovery rule functionally equivalent to the incident of injury rule. By allowing plaintiffs to sue for infringement that occurred more than three years earlier, while at the same time limiting their recovery to damages sustained in the past three years, the Second Circuit “gut[ted]” or “silently eliminated” the discovery rule.
The Court distinguished an earlier ruling in Petrella v. Metro-Goldwyn-Mayer, Inc., which noted that Section 507(b) allows plaintiffs “to gain retrospective relief running only three years back from” the filing of an action. 572 U.S. 663, 672 (2014). In making that statement, the Court “merely described how the limitations provision works when a plaintiff has no timely claims for infringing acts more than three years old.” In particular, the plaintiff in Petrella had known of the defendant’s infringing conduct for some time and could not avail herself of the discovery rule. In other words, the plaintiff could get damages “running only three years back” from filing because she could only sue for infringement occurring within that timeframe.
Nealy’s case is different. He invoked the discovery rule to bring claims for infringing acts occurring 10 years prior, and Warner Chappell agreed that his claims were timely under the discovery rule. As a result, unlike the plaintiff in Petrella, the Court found that Nealy may obtain damages for the infringement, as the Copyright Act contains no separate time-based limit on monetary recovery.
Dissenting Viewpoints
The dissent, led by Justice Gorsuch, voiced concerns about the risk of introducing significant retrospective financial liabilities on businesses. The opinion argues that the ruling could lead to a surge of litigation based on long-past actions, creating uncertainty and unfair financial burdens on those who use copyrighted material. It also criticizes the majority for sidestepping what some may argue is the main question: whether the discovery rule applies at all. Had the dissent prevailed, the Court would have dismissed the appeal and waited for another case that presented the core question of whether the Copyright Act authorizes the application of the discovery rule to the statute of limitations for infringement claims.
Implications for Legal Strategy and Business Operations
- Reassessment of Copyright Management. Businesses should reassess how they manage and monitor the use of copyrighted material. This ruling necessitates a proactive approach, ensuring that all uses of copyrighted content, whether current or historical, are fully documented and legally compliant.
- Legal Compliance and Due Diligence. Companies are advised to enhance their compliance programs and conduct regular audits to prevent potential infringements and to prepare for possible claims that may arise from past content usage.
- Strategic Litigation Posture. The expanded recovery window means that businesses not only need to prepare to defend against older infringement claims but should also consider the viability of pursuing infringement claims that were previously considered time-barred.
- Long-Term Considerations. The ruling suggests a paradigm shift in copyright law, one that requires heightened vigilance and strategic foresight from both copyright owners and users. Businesses need to consider copyright compliance as part of their ongoing risk management strategies, anticipating and mitigating the impacts of this decision in their operational and legal strategies.
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