Our Intellectual Property Litigation Group breaks down the U.S. Supreme Court’s Copyright Act ruling that allows plaintiffs to recover damages for infringements that occurred far in the past.

• The Court found there is no time-based damages limitation in the Copyright Act
• The decision does not address the question of when copyright infringement claims accrue – when they happen, or when they are discovered
• The decision is a win for copyright plaintiffs while raising significant concerns for defendants who may be faced with liability for old infringements

On May 9, 2024, the U.S. Supreme Court held in its Warner Chappell Music Inc. v. Nealy decision that the Copyright Act’s three-year statute of limitations does not limit the damages recoverable on a timely claim for copyright infringement. Affirming the Eleventh Circuit, the Supreme Court’s 6–3 decision ruled that the “Copyright Act entitles a copyright owner to recover damages for any timely claim.” This holding will potentially allow prevailing plaintiffs to recover damages for infringements that occurred far in the past.

However, the Court made it clear that it was not deciding the critical question of when a copyright infringement claim accrues. Instead, the Court chose to assume that the Copyright Act’s three-year statute of limitations begins to run when the plaintiff discovers the infringement (or should have discovered it) – not when the infringement happened. This approach to claim accrual is called the “discovery rule,” and it has been adopted by a majority of the circuit courts. Notably, the discovery rule was not challenged at the district or circuit level, and its application was not a question properly before the Court.

Background

In 1983, Sherman Nealy and Tony Butler founded Music Specialist Inc. Music Specialist recorded and released one album and several singles. Shortly after they parted ways, Nealy was sentenced to prison for drug-related offenses. He served almost 20 years and was briefly incarcerated again a few years later for about three years. While Nealy was incarcerated, his former partner, Butler, entered into an agreement with Warner Chappell Music Inc., a defendant in this case. Under this agreement, Warner Chappell secured licenses for some of Music Specialist’s copyrighted works.

When Nealy was released from prison for the second time, he became aware of these unauthorized licenses and filed a lawsuit. The district court applied the discovery rule but, relying on Second Circuit precedent, limited the recoverable damages to the three-year statutory limitations period. The district court then certified the damages-limitation question for interlocutory appeal, and Nealy appealed to the Eleventh Circuit. The Eleventh Circuit held that there is no bar to the damages recoverable on a timely claim for copyright infringement. Warner Chappell appealed to the Supreme Court.

Majority Opinion

The Supreme Court affirmed the Eleventh Circuit. Justice Elena Kagan’s majority opinion held that the “Copyright Act contains no separate time-based limit on monetary recovery.”

The question before the Supreme Court was whether a copyright plaintiff can recover damages for acts that occurred more than three years before a lawsuit is filed. Finding no textual support for such a limitation, the majority refused to read a time-based damages limitation into the statute and rejected the Second Circuit decision on which the district court had based its opinion limiting Nealy’s claim for damages to three years.

Dissent

Writing for the three-Justice dissent, Justice Neil Gorsuch criticized the Court’s decision to address whether the statute of limitations bars the recovery of damages suffered outside the statutory period. The dissenting Justices would have preferred to decide the antecedent question: whether a copyright infringement claim accrues (and the statute of limitations begins to run) at the time of occurrence or when the infringement is, or should have been, discovered.

The dissenting Justices strongly indicated that they would reject the discovery rule, referring to it as a “rule of law that … very likely does not exist,” and hold that claims accrue when the infringement occurs. Under this formulation, the question of whether damages are limited by the statute of limitations would be irrelevant because the older claims themselves would be time-barred.

Significance

This decision is a win for copyright plaintiffs. On the other hand, the ruling will likely increase the costs, complexity, and damages exposure for defendants in infringement cases involving old, but recently discovered, infringement claims. The immediate impact of this decision, however, will be felt most meaningfully in the Second Circuit, which has limited the recovery of copyright infringement damages to the three years before the filing of the suit. Nearly all other courts have taken a different view, holding, as the Court held in this case, that there is no time limit for the damages recoverable on a timely copyright infringement claim. Nevertheless, until the Supreme Court addresses the question of when a copyright infringement claim accrues, there will remain significant uncertainty in this area.

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