The Supreme Court and Copyright Damages: Will Accrual Be Kind?

circuit-split_copyright_dburton-300x225The Supreme Court is scheduled to hear oral argument in Warner Chappell Music, Inc. v. Nealy on February 21, the issue being whether the three-year statute of limitations for damages under the Copyright Act begins to run when the copyright infringement is discovered or whether the Act imposes an absolute bar, limiting damages to those caused by infringements occurring within three years of the filing of the complaint.  The Court's decision will affect businesses' assessment of the risks of possible copyright infringement and, more generally, may provide insight on the criteria for determining when a limitations period includes a discovery rule.

The statute of limitations at issue in Warner Chappell provides that "[n]o 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).  Like most statutes of limitations, § 507(b) leaves the term "accrued" undefined.  Nearly all of the federal Circuit Courts of Appeals, though, have read a "discovery rule" into the statute for determining when a claim "accrues."  William A. Graham Co. v. Haughey, 568 F.3d 425, 433, 437 (3d Cir. 2009).

Under the discovery rule, "[a] cause of action accrues when a plaintiff knows of the infringement or is chargeable with such knowledge."  Bridgeport Music, Inc. v. Rhyme Syndicate Music, 376 F.3d 615, 621 (6th Cir. 2004).  In Warner Chappell, the plaintiff, Nealy, filed suit in 2018, but sought damages for acts of copyright infringement of musical works going back to 2008, claiming that he was not aware of the infringement until 2016.  Nealy v. Warner Chappell Music, Inc., 60 F.4th 1325, 1329 (11th Cir. 2023).  The Eleventh Circuit held that, if a claim is timely under the discovery rule, i.e., if the infringement was discovered less than three years before the filing of the complaint, then the plaintiff can "obtain retrospective relief for that infringement" prior to that three-year period.  Id. at 1335.

The defendant argues that the Eleventh Circuit's ruling is contrary to the Supreme Court's ruling in Petrella v. Metro-Goldwyn-Mayer, Inc., 572 U.S. 663 (2014).  In Petrella, the plaintiff filed suit in 2009, alleging that distribution of the 1980 film "Raging Bull" infringed a copyrighted screenplay, with infringement beginning in 1991 when the copyright on the screenplay was renewed.  Plaintiff limited her claim for damages, though, to acts of copyright infringement occurring no more than three years before the complaint was filed.  Since each act of infringement separately accrues, with "the statute of limitations run[ning] separately from each violation," id. at 671, the claim as to those acts of infringement was timely under § 507(b).  Nevertheless, based on the suit being filed eighteen years after infringement began, the defendant raised the defense of laches.  Id. at 675 (laches is "unreasonable, prejudicial delay in commencing suit," id. at 667).

The Court in Petrella held that laches "cannot be invoked to preclude adjudication of a claim for damages brought within the three-year window" of § 507(b).  Id. at 667.  In so ruling, the Court made several statements about § 507(b) that are arguably conclusive on whether damages can be recovered for acts of infringement occurring more than three years before the complaint is filed.  The Court referred to the statute of limitations as setting a three-year "look-back period."  Id. at 677.  Further, "[u]nder the Act's three-year provision, an infringement is actionable within three years, and only three years, of its occurrence."  Id. at 671 (emphasis added).  The Court also contrasted the term of a copyright, "which endures for decades," with § 507(b), "which allows plaintiffs during that lengthy term to gain retrospective relief running only three years back from the date the complaint was filed."  Id. at 672.  (Emphasis added.)  "No recovery may be had for infringement in earlier years. Profits made in those years remain the defendant's to keep."  Id. at 677.

"No recovery may be had for infringement in earlier years" seems definitive.  Yet, the plaintiff in Warner Chappell asserts that quotes like the ones above are "isolated statements" that are "divorced from their context" (Respondent's Brief, p. 40), and the Eleventh Circuit agrees.  The discovery rule was not at issue in Petrella because the claim for relief was expressly limited to acts that occurred in the three-year period.  Nealy v. Warner Chappell Music, Inc., 60 F.4th 1325, 1332 (11th Cir. 2023).  Further, "[w]e cannot read a court's opinion like we would read words in a statute."  Id.  In disposing of the issue at hand -- the laches argument -- the Court in Petrella arguably chose its words to emphasize Congress' decision to set forth a relatively short limitations period.

Undoubtedly, Plaintiff's strongest card in distinguishing Petrella is the fact that Petrella mentioned the discovery rule without expressly disapproving it. Petrella, 572 U.S. 670 n. 4 ("Although we have not passed on the question, nine Courts of Appeals have adopted, as an alternative to the incident of injury rule, a 'discovery rule' . . .").  "It would be inconsistent with Petrella's preservation of the discovery rule to read Petrella to bar damages for claims that are timely under the discovery rule."  Nealy, 60 F.4th at 1333.

Indeed, Plaintiff argues that the discovery rule's validity is not even properly before the Court, in that the question presented for the Court's review expressly refers to the rule, and, according to Plaintiff, assumes its validity -- the question presented being:  "Whether, under the discovery rule applied by the circuit courts and the Copyright Act's statute of limitations for civil actions … a copyright plaintiff can recover damages for acts that allegedly occurred more than three years before the filing of a lawsuit."  Respondent's brief, p. i. (Emphasis added.)

The Court therefore may issue what I call a "clean-up in Aisle 4"-type opinion: one that simply clarifies any misimpressions from the language used in an early opinion. In this case, that would mean an opinion confirming that, despite seemingly clear statements in Petrella about a three-year "look-back" period, a claim can accrue under § 507(b) via the discovery rule.

The Court of course could instead say Petrella means exactly what it says, and that it is up to Congress to overturn the ruling by amending § 507(b) if it disagrees.  See, e.g., Kimble v. Marvel Entm't, L.L.C., 576 U.S. 446, 456 (2015) (in which the Court re-affirmed the much-maligned rule in Brulotte v. Thys Co., 379 U.S. 29 (1964), that a license for a patent cannot require payment of royalties after the patent's expiration date, noting that Congress could overturn Brulotte statutorily if so inclined).

The latter approach would be similar to that of the Second Circuit in Sohm v. Scholastic Inc., 959 F.3d 39 (2d Cir. 2020).  In Sohm, the court claimed it was adhering to the discovery rule as adopted by the Second Circuit in previous cases, id. at 50, yet also, as required by Petrella's "plain language," enforcing "a three-year lookback period from the time a suit is filed to determine the extent of the relief available."  Id. at 52.  Under that approach, though, where the statute is interpreted to absolutely bar damages for infringements that occur more than three years before the filing date of the complaint, query what role is left for the supposedly still-extant discovery rule.

Another conundrum for the Court is that, despite the statements in Petrella, there is nothing in the statute's wording to support a conclusion that § 507(b) sets forth a "look-back" type of limitation that precludes a discovery rule. In sharp contrast, 35 U.S.C. § 286, as to patent infringement, clearly defines an absolute six-year look-back period for recovery of damages from the date the complaint is filed: "[e]xcept as otherwise provided by law, no recovery shall be had for any infringement committed more than six years prior to the filing of the complaint . . ."

However, neither is there a textual basis in § 507(b) for a "discovery" interpretation of the word "accrued." Legislatures also know how to write a statute with an express discovery standard for accrual. E.g., Ohio Revised Code § 2305.09 (an action for fraud does not accrue "until the fraud is discovered").  Warner Chappell argues that, in the absence of a statutory definition of accrual, the default rule is that "[a] claim ordinarily accrues when [a] plaintiff has a complete and present cause of action," SCA Hygiene Prods. v. First Quality Baby Prods., 580 U.S. 328, 337 (2017), which, it contends, implies that a claim accrues at the time of injury, i.e., infringement.

Due to this lack of clarity in the text, both sides can urge policy reasons for their positions. Defendant points to the advantages of certainty and finality from a strict three-year look-back period.  Petitioner's Brief, p. 30.  *If* there is to be a discovery rule, Defendant argues, it should be confined to its traditional realm of creating an exception for instances of "fraud, latent disease, or medical malpractice."  Id. at 33.  Plaintiff can argue that a statute of limitations that starts running from the date of injury is unfair to copyright owners of modest means, who lack the ability to monitor media and the internet for infringements.  See Amicus Brief of American Intellectual Property Lawyers' Association, p. 17.

In sum, the upcoming decision is of interest due to the anticipated clarification of § 507(b) and the possibility that the Court sheds light generally on the propriety of recognizing a discovery rule where a statute leaves the term "accrued" undefined.

About The Author

Don Burton | Faruki Attorney