Recently, the U.S. Supreme Court resolved a split between the circuit courts over whether the Copyright Act’s three-year statute of limitations limits the damages a plaintiff may recover to a three-year period. The Court ended the dispute in Warner Chappell Music, Inc v. Nealy and held a copyright plaintiff may recover all damages flowing from a timely filed infringement claim, even if the infringement occurred more than three years before suit.

The case stems from a music publishing company founded by the plaintiff, Sherman Nealy, and a former business partner, Tony Butler, in 1983. The company recorded and released one album and multiple singles but subsequently dissolved. In 1989, Nealy went to prison and, upon his release in 2016, discovered that his former business partner had entered into licensing agreements with Warner Chappell Music, Inc. for the works their music publishing company had released in the 1980s. Nealy filed suit in 2018 for copyright infringement, seeking damages back to 2008. The district court found that the Copyright Act’s three-year statute of limitations barred damages occurring more than three years prior to filing suit and limited Nealy’s damages from 2015 to 2018. On appeal, the Eleventh Circuit reversed, finding the statutory language created no such limitation on damages. In a 6-3 decision, the Supreme Court sided with the Eleventh Circuit.

In issuing its decision, the Supreme Court did not resolve what constitutes a timely filed claim, however. Instead, it assumed without deciding that a claim could accrue “when the plaintiff discovers, or with due diligence should have discovered, the infringing act.” This is known as the discovery rule doctrine, which some circuits have found inapplicable or limited to specific factual situations, such as fraud. While currently pending appeals may end the uncertainty surrounding the discovery rule, Nealy has several immediate implications for business.

Potential of Increased Liability: By allowing plaintiffs to seek all past damages, the decision increases financial exposure of alleged infringers and increases potential upside for copyright owners.

Compounding Confusion with Copyright Claims. While copyright owners now have greater incentive to pursue older infringements, the law is still unclear as to what constitutes a timely filed claim. Is the time to bring a claim three years from when a potential plaintiff discovers the infringement (the discovery rule), or three years from the date on which the infringement occurred (the injury rule)? By leaving that question unresolved, the Nealy decision may lead to increased litigation of previously-believed-to-be-stale claims that may require more extensive discovery and fact-finding regarding discovery of the claim and potential infringements.

Due Diligence: Businesses should consider enhancing copyright monitoring and management processes to ensure they are not unknowingly infringing a copyright. This may include implementing formal internal processes designed to prevent unintentional infringement as well as digital content management systems equipped with copyright detection capability.

Important Do’s and Don’ts: In light of the potential for increased risk, some key considerations concerning copyright should be kept in mind.

• First, be judicious in using works from the Internet. Works are not in the public domain merely because they are online. So, businesses should be especially wary of using internet-based content without first vetting whether it is subject to a license, specific fees, or other restrictions.
• Second, do not assume that using a “small percentage” of a work is allowed. One defense to copyright infringement is fair use, which must be proven by the alleged infringer. “I only used a little” is not, by itself, a fair use defense. Fair use has no bright-line rules and is a complicated assessment of statutory factors that may require expensive discovery to prove. So, businesses should be cautious when relying on fair use.
• Third, periodically audit software agreements. Software is now a ubiquitous form of copyright that every business uses; however, many software platforms now lack traditional agreements and are subject to online terms and licenses that may go unreviewed. Software agreements should be thoroughly vetted to ensure that the license terms provide the level of rights your business needs for its intended use and to ensure current use does not exceed what is allowed under the agreement.

Mark Twain believed there was only one thing that was impossible for God: “to find any sense in any copyright law on the planet.” While Nealy provides some insight, it leaves unanswered questions about copyright claims, perhaps proving Mr. Twain right (at least for now). Unfortunately for business, this uncertainty only compounds risk associated with copyright litigation. So, act now to mitigate the risk of that litigation by implementing internal measures and training for your staff to properly vet these legal issues before using copyrighted material. Otherwise, you may find yourself defending against copyright claims and spending valuable resources trying to make sense of copyright’s complex legal landscape.