A split Supreme Court has decided that, under a plain reading of the Copyright Act, a party alleging copyright infringement may obtain damages for the entire damages period, so long as the suit itself is timely brought. Warner Chappell Music, Inc. v. Nealy, No. 22-1078, 601 U.S. __ (2024). Nothing that reaches the Supreme Court, however, is ever as simple as just reading a statute, and here there is much more to the iceberg than what is seen above the water line.

The Facts. Plaintiff Sherman Nealy recorded and released music with a partner, Tony Butler, in 1983. The collaboration, Music Specialist, Inc., dissolved, after which Mr. Nealy was imprisoned on drug charges for two separate stints, the first from 1989 to 2008, and the second from 2012 to 2015. During the intervening years, and allegedly without Mr. Nealy’s knowledge, Mr. Butler licensed works from the Music Specialist catalog to Warner Chappell Music, Inc., resulting in those works’ incorporation into several other musical works and television shows. Warner Chappell Music was listed as the administrator for those works in the public records of Broadcast Music, Inc. (BMI), a music licensing organization, starting in July of 2008. Mr. Nealy allegedly discovered Warner Chappell’s uses of the works in 2016, and sued Warner Chappell for copyright infringement in December of 2018.

The Discovery Rule. The Copyright Act states 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. At least eleven circuit courts have interpreted this language to find that a claim accrues after such time when it is, or reasonably could have been, discovered. This interpretation has not, however, been approved by the Supreme Court.

The Question Presented. As rephrased by the Court: Whether, under the discovery accrual rule applied by the circuit courts and the Copyright Act’s 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.

The Opinions. The difference between the opinions of the majority (Kagan, J, joined by Roberts, C.J., Sotomayor, Kavanaugh, Barrett, and Jackson, JJ.) and the dissent (Gorsuch, J. joined by Thomas and Alito, JJ.) turned on each side’s determination of whether the Court should address the propriety of the discovery rule in rendering the Court’s opinion.

The majority found that the appeal “incorporates an assumption[] that the discovery rule governs the timeliness of copyright claims,” determined that the propriety of the discovery rule was not before the Court, and therefore held that because the Copyright Act does not establish a damages period (only a “time-to-sue”), “[t]here is no time limit on monetary recovery. So a copyright owner possessing a timely claim for infringement is entitled to damages, no matter when the infringement occurred.” The majority’s opinion affirms that of the Eleventh Circuit, from which the case was appealed.

The dissent, in contrast, addressed the discovery rule, found that the Copyright Act “almost certainly does not tolerate a discovery rule” outside of cases of fraud or concealment, and that therefore, presumably, suit could not be brought more than three years after the infringing conduct occurs.

The Aftermath. In the short term, based on this decision, it appears that the following principles govern copyright claims and damages in jurisdictions recognizing the discovery accrual rule:

• If infringement is discovered more than three years before filing suit, the plaintiff can seek damages for only the three years prior to filing suit (see Petrella v. Metro-Goldwyn-Mayer, Inc., 572 U.S. 663 (2014)), but
• If infringement is discovered three years or less before filing suit, the plaintiff can seek damages for the entire period of infringement (Warner Chappell Music, Inc. v. Nealy, 601 U.S. ___ (2024)).

The concern that the current application raises is, of course, that this rule provides no motivation to copyright holders to police actively the use of their registered works. Unless the copyrighted work’s exclusivity is critical (e.g., a critical piece of software providing a competitive advantage to the copyright holder), a copyright holder could essentially sit back, let infringement occur, and then perform an investigation every ten years to round up infringers and charge them for ten years of infringement. A “lazy” licensing program, if you will.

While few would find this outcome too problematic in the case of a willful infringer who is purposefully stealing the copyrighted work, it might hit a little bit differently in the case of an “accidental” infringer. For example, a company that goes live with a website prepared by a third party vendor that – unbeknownst to the company – includes an image or audio for which the vendor did not obtain a license, or a songwriter who writes and licenses a song without any idea that a third party would later claim that the music was actually derived from the third party’s works would potentially be subject to decades of accumulated damages.

Following the present decision, it is likely that there may be a renewed effort to examine when a plaintiff should have discovered the infringement at issue, but that is a tough hill to climb. In the present case, Mr. Nealy was not in jail or otherwise encumbered from 2008 to 2012, was actively enforcing his rights against others, and could have accessed the publicly available BMI listing to confirm whether there were others claiming rights in his works. In 2020, Warner Chappell argued that there was “an undisputed record of [plaintiff’s] judicial admissions in June 2017 about the applicable limitations period and uncontradicted knowledge of the alleged infringement dating back to 2008.” Music Specialist Inc. v. Atlantic Recording Corp., No. 18-25474-CIV-RUIZ, Docket No. 119 (S.D. Fla. May 15, 2020). Nonetheless, the Southern District of Florida found that the record, standing alone, was insufficient to determine when plaintiff should have known that defendants were challenging his ownership rights, and therefore deferred ruling on that issue until such time as credibility determinations could be made. Id. at Docket No. 224 (S.D. Fla. Mar. 8, 2021); Docket No. 256 (S.D. Fla. June 4, 2021).

Other defenses to protect the accused infringer are limited. Petrella held that laches does not apply in cases of copyright infringement; rather, a plaintiff who brings suit more than three years after they became aware of the infringement is limited to only three years of damages. 572 U.S. 663 at 667. The Petrella decision did, however, leave open the use of estoppel to bar claims brought as a result of intentionally misleading representations regarding the copyright owner’s abstention from suit. Id. at 684.

In the long term, therefore, it is likely that Congress will act to place some limits on the relevant time period for recovery of damages, whether it be through adding statutory language similar to that in the Patent Act ([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 or counterclaim for infringement in the action) or by clarifying the existing statute of limitations to be irrespective of the date of discovery, except in cases of fraud or concealment, or providing some other formulation to define the damages period. In the meantime, however, it’s a damages boon for plaintiffs recently discovering long-term infringement.

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