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March 29, 2024 | CopyrightLitigation

Unraveling Copyright’s Discovery Rule: A Supreme Court Saga

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Author(s)
Carlianna Dengel

Associate Attorney

Jari Wilson

Associate Attorney

In February 2024, the Supreme Court heard oral arguments on a case that could have far-reaching implications for individuals and entities that own or use copyrighted works. The case of Warner Chappell Music, Inc. v. Nealy, addresses the important, unresolved issue of whether the copyright discovery rule places a time limitation on the recovery of damages.

Depending on the outcome, the decision in that case could empower copyright owners to recover damages tracing back decades from unsuspecting defendants, or it could leave little recourse for copyright owners who are unable to quickly discover their work has been infringed.

The consequences for copyright owners may be even broader if the Supreme Court decides to pick up another looming case. Hearst Newspapers LLC v. Martinelli could lead to an outright rejection of the discovery rule in the copyright context.

What is the Copyright Discovery Rule?

The Copyright Act of 1976 sets a statute of limitations of three years that begins when the infringement claim “accrued.” Once the statute of limitations period has passed, the copyright owner can no longer bring a claim for that infringing activity.

In the context of copyright infringement, courts have adopted a flexible approach to the statute of limitations. Known as the discovery rule, this approach provides that the statute of limitations period does not begin—and that three-year clock does not start ticking—until the plaintiff actually discovers or reasonably should have discovered the infringing activity.

Consider the following example: a work was infringed in 2012, but the copyright owner, despite acting with due diligence, did not discover that infringing activity until January 1, 2020. Applying the discovery rule, the statute of limitations would not begin until that date of discovery. This means the plaintiff could bring a timely claim at any point before January 2, 2023.

Circuit Split on Damages Under the Discovery Rule

While the courts have been generally consistent in applying the discovery rule, a major split between the circuits exists on the issue of how far back in time plaintiffs are entitled to collect damages under the discovery rule. The split arises from differing interpretations of language from the 2014 Supreme Court decision in Petrella v. MGM. Importantly, this split involves the Second Circuit (where New York is located) and the Ninth Circuit (where California is located), where most copyright cases are litigated.

The Second Circuit’s Approach to Damages: “Look-Back Period”

In the wake of Petrella, the Second Circuit adopted a more limited conception of the timeframe for damages under the discovery rule. Under this formulation, plaintiffs are unable to recover monetary damages for any infringing act occurring more than three years prior to their filing suit. That three-year period is commonly referred to as the “look-back period.”

This limitation is likely to encourage many plaintiffs to bring their copyright infringement cases in a different circuit in the hopes of collecting damages from infringements that occurred before the “look-back period.”

The Ninth Circuit’s Approach to Damages: No Time Limit

The Ninth Circuit reached the opposite conclusion with regards to the timeframe for damages under the discovery rule. Under the Ninth Circuit approach, so long as the claim is timely under the discovery rule, there is no time limitation on recovering damages. Plaintiffs are thus able to seek damages for infringing activity that occurred decades ago so long as they first discovered those infringing activities within the past three years.

This approach, which is far more beneficial to the copyright owner, was subsequently adopted by the Eleventh Circuit in Nealy.

Background on Warner Music v. Nealy

This case arose from an infringement claim brought by music producer Sherman Nealy. Nealy was active in recording and releasing music during the 1980s. Some of Nealy’s songs were later incorporated in other musical works, including an interpolation in Flo Rida’s 2008 hit “In the Ayer.” Nealy did not discover these alleged infringements until 2016. In 2018, Nealy sued Warner Chappell Music and other defendants, alleging that Warner had infringed on his songs.

The trial court followed the Second Circuit approach and foreclosed Nealy from recovering damages for infringing activities occurring prior to the three-year “look-back period.” Nealy appealed and the Eleventh Circuit reversed. In doing so, the Eleventh Circuit adopted the Ninth Circuit approach that damages predating the “look-back period” are recoverable so long as the claim is timely.

The Supreme Court agreed to hear the case to resolve the circuit split. The opposing parties made their oral arguments to the Supreme Court on February 21, 2024. Counsel for Nealy argued that the flexible Ninth Circuit approach to damages was in line with the statutory provisions of the Copyright Act.

Counsel for Warner argued that the Court should reject the discovery rule entirely and instead adopt the injury rule in copyright infringement cases. Under the injury rule, the statute of limitations period would begin at the moment the infringing activity occurred. Therefore, a copyright infringement claim would have to be brought within three years of the date on which that particular infringing activity occurred, even if the copyright owner did not discover the infringement until much later. However, when the Supreme Court agreed to hear the case, the Court presumed that the discovery rule applies and expressly limited their review to resolving the circuit split on damages under the discovery rule.

Potential Outcomes & Implications

The Supreme Court is currently considering taking on another case, Martinelli v Hearst Newspapers, LLC, that could substantially impact the resolution of Nealy. Martinelli is a Fifth Circuit case that could allow the Court to address the broader question raised by Warner’s counsel in Nealy: whether the discovery rule should apply at all in copyright cases.

With Martinelli waiting in the wings, the range of possible outcomes is broad. The first possibility is that the Court decides not to take on the Martinelli case and merely resolves the circuit split at issue in Nealy. In this scenario, the Court would presumably adopt either the Second Circuit approach, which limits damages to the “look-back period,” or the Ninth Circuit approach, which does not place a time limitation on damages as long as the statute of limitations has not elapsed.

If the Court were to adopt the Second Circuit approach, this would be a major blow to copyright owners, particularly emerging creatives who are less likely to quickly catch and respond to infringing activity. These creatives often do not discover infringements until several years later, at which point their opportunity to recover damages would be foreclosed.

If the Court were to adopt the Ninth Circuit approach, this would significantly bolster copyright owners’ ability to recover for infringement of their works. However, it would also arguably disregard an important purpose of the statute of limitations and put some defendants in unfair positions. Statutes of limitations are intended to protect parties against surprise claims raised many years later when relevant evidence may be less accessible. If one can be held liable for damages stemming from infringing activity from decades ago, the statute of limitations would be a significantly weaker protection.

Alternatively, the Supreme Court may instead decide to resolve the broader question raised by Martinelli before deciding Nealy. The Court could do this by taking on Martinelli and then either temporarily holding off on deciding Nealy or dismissing Nealy.

If the Court takes up Martinelli and decides that there is no discovery rule under the Copyright Act, the implications would be even broader. First, it would overrule the recognition of the copyright discovery rule in every circuit that has addressed its existence. Second, that ruling would presumably designate the injury rule as the applicable rule in copyright infringement cases. Copyright owners could no longer bring timely claims more than three years after the infringing act and would thus be significantly limited in their ability to sue and recover for copyright infringement.

Conclusion

Regardless of how the Supreme Court decides to resolve these questions, copyright owners must remain proactive in protecting their works from infringement. Even if the Supreme Court upholds the discovery rule and the Ninth Circuit approach to damages, a copyright owner could still be barred from recovering for older infringements if they fail to exercise reasonable diligence to discover those infringements. An experienced copyright attorney can help navigate the many complex issues, claims, and statutes of limitations concerns that may arise when you believe your work has been infringed upon.

Contributions made by Ryan Whyte.

 

 

Photo by Markus Winkler on Unsplash
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