Skeptical of the Second Circuit: U.S. Supreme Court Hears Arguments on Copyright Damages

Seyfarth Shaw LLP

On Wednesday, the Supreme Court heard oral argument in Warner Chappell Music, Inc. v. Nealy, an appeal of the Eleventh Circuit’s determination that a copyright plaintiff can recover damages for infringement occurring more than three years prior to filing suit. The Eleventh Circuit’s decision was based on the discovery accrual rule, which begins the limitations period at the moment a plaintiff becomes aware of or should reasonably learn of the infringement upon which a claim is based.

Sherman Nealy and Music Specialist, Inc. brought the underlying lawsuit against Warner and others based upon the alleged unauthorized licensing and use of songs owned by the plaintiffs. Much of alleged infringement occurred while Nealy was incarcerated, and he alleged that he did not become aware of the infringement until 2016. Nealy filed suit in 2018, within three years of the date he allegedly discovered the infringement.  The district court held that Nealy’s claims were timely, but that he could only obtain damages for the three years prior to the filing of his lawsuit. The Eleventh Circuit overturned the finding that such a limit on damages existed, holding that Nealy could potentially recover damages outside the three-year period.

The Eleventh Circuit joined the Ninth Circuit in allowing plaintiffs to both file claims for previous, undiscovered infringements and potentially recover damages for these acts, as long as plaintiffs file within three years of discovery. The Second Circuit has reached a different result, however, holding that a plaintiff is permitted to bring claims outside of Section 507(b)’s three-year limitations period, but it cannot recover damages for anything that happened more than three years prior to the filing of the suit.

The split is based in part on the Circuit Courts’ interpretation of the Supreme Court’s decision in Petrella v. MGM. In Petrella,the Supreme Courtheld that a successful copyright plaintiff would not be barred by laches to pursue a claim for damages brought within the three-year statute of limitations established by Section 507(b) of the Copyright Act, except in extraordinary circumstances. In such situations, laches could limit damages awarded in the interests of equity. The Second Circuit broadly interpreted the Petrella ruling and applied it to all copyright infringement cases, whereas the Ninth and Eleventh Circuits have not applied Petrella to all copyright cases. The result, as of today, is that a plaintiff may successfully (and timely) file a lawsuit in the Second Circuit, but not be awarded “full” damages, whereas that same plaintiff in the Ninth or Eleventh Circuits could recover more damages that accrued over time.

In Warner, the Supreme Court granted cert on a narrow question: “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.” As quickly became clear at oral argument, however, the question directly implicates larger issues of whether a discovery rule applies to the Copyright Act’s statute of limitations and, if so, what is its proper scope.

Reading the tea leaves, a number of the Supreme Court justices seemed unenthusiastic about adopting the Second Circuit’s approach and barring a successful copyright plaintiff from recovering damages for infringing acts occurring outside the three-year statute of limitations. Justice Kavanaugh suggested that the issue would not even arise before the Court if the Second Circuit hadn’t “gone off the rails” in interpreting Petrella to institute a three-year limit on damages. 

Other justices seemed skeptical of the petitioners’ conflation of time-barred claims and the ability to recover damages, however. Justice Jackson pointedly asked the petitioners’ counsel what “accrual” had to do with damages and how the statute of limitations could be “somehow transported” into the damages provision of the Copyright Act. Interestingly, respondents’ counsel recalled that Congress amended the Copyright Act 79 times and not once barred damages, even though Congress has specifically narrowed damages exceptions in other acts. 

Several of the justices also mentioned another case, Hearst Newspapers, L.L.C., et al. v. Antonio Martinelli. A petition for certiorari is pending, seeking review of this Fifth Circuit opinion directly addressing the question of whether the discovery rule even arises in copyright claims. As such, if the Court takes on Martinelli, its decision in that case could potentially moot a decision in Warner. As Justice Alito posited, and Justice Gorsuch supported, the Court may dismiss the Warner appeal as having been improvidently granted by the Court, pending the resolution of Martinelli

Either way, it seems that the Court will decide once and for all whether there exists a discovery rule and whether it allows a successful copyright plaintiff to obtain a damage award for all infringements suffered. Such a decision would decrease instances of forum shopping, level the costs of copyright litigation across the circuits, allow for more reliable damages estimations and pros and cons of settlement.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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