Supreme Court to Weigh In on Damages Period For Copyright Cases

Supreme Court to Weigh In on Damages Period For Copyright Cases

September 29, 2023, Covington Alert

This morning, the Supreme Court agreed to resolve a circuit split over “[w]hether, under the discovery accrual rule applied by the circuit courts and the Copyright Act's [three-year] statute of limitations for civil actions, 17 U. S. C. §507(b), a copyright plaintiff can recover damages for acts that allegedly occurred more than three years before the filing of a lawsuit.” Regardless of how the Court resolves the issue, the Court’s grant of certiorari in Nealy v. Warner Chappell Music, Inc.[1] means that a uniform rule will apply nationwide, eliminating the current sharp difference in available damages in the Second and Ninth Circuits, respectively. Below, we discuss the background leading to this circuit split, the circuit split itself, and the importance of the resolution of this issue to content owners.

The Copyright Act 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.”[2] Though claims normally “accrue” when the alleged infringement occurs, every federal court of appeals to consider the issue has also adopted the “discovery rule”: that is, a copyright claim accrues when the plaintiff discovers, or reasonably should have discovered, the infringement, regardless of when it occurred. 

In Petrella v. Metro-Goldwyn-Mayer, Inc.,[3] the Supreme Court addressed whether the laches defense could bar copyright claims brought within the three-year limitations period. Petrella was not a “discovery rule” case: the plaintiff concededly discovered the bases for her claims decades before she brought suit, but limited her claims to the specific acts of infringement occurring in the three years prior to filing. The Court held that laches could not bar Petrella’s claims, reasoning, in part, that the Copyright Act’s three-year statute of limitations “itself takes account of delay.”[4] 

In the course of its decision, the Court observed that “a successful plaintiff can gain retrospective relief only three years back from the time of suit. No recovery may be had for infringement in earlier years. Profits made in those years remain the defendant’s to keep.”[5]

The Second Circuit on the one hand, and the Ninth and Eleventh Circuits on the other, are split over whether the above-quoted language creates a time limit on damages in discovery-rule cases—a three-year “look-back period” from the time of filing—separate from the statute of limitations.

In Sohm v. Scholastic Inc., the Second Circuit found that Petrella indeed created such a limited look-back period.[6] In the Second Circuit’s view, the language quoted above from Petrella “explicitly delimited damages to the three years prior to the commencement of a copyright infringement action,” and “explicitly dissociated the Copyright Act’s statute of limitations from its time limit on damages.”[7] The Second Circuit therefore “appl[ies[] the discovery rule to determine when a copyright action accrues, but a three-year lookback period from the time a suit is filed to determine the extent of the relief available.”[8] The result is that a copyright plaintiff who files a lawsuit just within three years of discovery of the infringement is barred from recovering damages for infringements dating back more than three years, despite timely bringing its claim.

The Ninth Circuit reached the opposite conclusion two years later in Starz Entertainment, LLC v. MGM Domestic Television Distribution, LLC.[9] There, the court concluded that the Petrella language quoted above is relevant only to cases that accrue upon the occurrence of infringement, “not to cases where we apply the discovery rule,” noting Petrella stated the Court had “not passed on the question” of the applicability of the discovery rule.[10] The Starz court observed that Petrella was concerned with laches—knowingly sleeping on one’s rights—and so the Supreme Court could not have intended its language to prohibit relief for claims a copyright owner could not reasonably discover. Moreover, according to Starz, the Second Circuit’s rule would “eviscerate the discovery rule” by barring relief for otherwise-timely claims.[11] Finally, Starz asserted the plain language of the Copyright Act supports its interpretation: Congress provided for only “two controlling time prescriptions: the copyright term . . . and § 507(b)’s limitations period.”[12] Section 504, covering damages, does not include a time limit, and the Petrella Court could not have created one.

In February 2023, in Nealy, the Eleventh Circuit joined the Ninth Circuit in holding that a copyright plaintiff may recover for infringements regardless of when they occur, as long as the plaintiff files suit within three years of discovering those infringements.[13]

As a result of this circuit split, the two biggest centers of copyright litigation—the Ninth and Second Circuits—take divergent approaches to the availability of damages in discovery-rule infringement cases. Starz illustrates this divergence well. In that case, Starz held an exclusive license to exhibit MGM-owned movies and TV shows for specified time periods. In 2019, Starz discovered that MGM had licensed certain of these works to other programmers during Starz’s exclusivity periods, and brought suit shortly thereafter. Because some of these exclusivity periods ended more than three years before Starz’s complaint was filed, the Second Circuit’s rule would have barred any recovery for 126 of the 340 works that were at issue in the case—but no such bar applies in the Ninth Circuit.[14] 

This divergence affects not only the availability of damages, but also the size and cost of copyright litigation, as the time period for damages could affect the number of works in suit, as well as related discovery and expert costs. Especially in cases where the defendant “resides or may be found”[15] in New York or California, this disparity can encourage the very forum shopping that Congress intended to prevent in establishing a federal statute of limitations in the first place. For instance, copyright holders seeking to enforce their copyrights may prefer to litigate in the Ninth or Eleventh Circuit, in order to maximize the number of works and time period for which they can obtain damages. By contrast, defendants on the receiving end of copyright claims may prefer to litigate in the Second Circuit, and benefit from the natural cap on damages afforded by the Sohm rule. And litigants located outside the Second, Ninth, and Eleventh Circuits face uncertainty as to which rule the lower courts will adopt and thus cannot reliably estimate their potential recovery for infringement or the extent of their potential liability, which, in turn, makes it hard to weigh the benefits of an early settlement or other pre-suit alternatives. The likely result of this morning’s grant is nationwide uniformity on this issue of fundamental importance in copyright cases.

If you have any questions concerning the material discussed in this client alert, please contact the members of our Commercial Litigation practice.