What You Need To Know

• Resolving a circuit split, the U.S. Supreme Court held that plaintiffs invoking the discovery rule to assert infringement claims may seek damages reaching back to the beginning of infringement.
• But the discovery rule could now come under attack, with one justice calling the majority opinion a “dead letter” if it can be shown that the Copyright Act does not tolerate the discovery rule.
• Rightsholders would be wise to monitor use of their intellectual property and timely assert their rights because of the uncertain future of the discovery rule and because the ruling does not address how to calculate damages in different situations.

In a closely watched case about damages and the statute of limitations under the Copyright Act, the U.S. Supreme Court held yesterday in a 6-3 decision that, so long as claims are timely, the “Copyright Act contains no separate time-based limit on monetary recovery.” Plaintiffs that assert infringement claims by invoking the discovery rule may therefore seek damages reaching back to the beginning of defendants’ infringement. The decision in Warner Chappell Music v. Nealy resolves a circuit split but leaves open other questions likely to arise in cases of past infringement.

The Discovery Rule and Damages

The discovery rule is a well-settled, general exception to statutes of limitations. For most claims, the clock for a plaintiff to file a legal claim starts running at the time of injury, but the discovery rule suspends that clock until a plaintiff exercising reasonable diligence knows (or should have known) of the claim. Because the statute of limitations is separately suspended for continuing acts of infringement, the discovery rule is most likely to arise where infringement has stopped before a plaintiff brings suit.

Courts have generally applied the discovery rule to copyright infringement claims, but courts have disagreed in recent years about what this means when calculating damages. On one hand, the Second Circuit held that the Copyright Act’s statute of limitations barred a plaintiff from recovering damages outside the three-year period before filing the complaint. On the other hand, the Ninth and Eleventh Circuits held that a plaintiff who relies on the discovery rule for filing a timely claim can calculate damages based on the entire course of a defendant’s infringement.

These differing standards meant that, for example, a plaintiff who discovered copyright infringement more than three years after the infringement had concluded would be entitled to all its damages—or none, depending on which court decided the claim. So, to resolve this split, the Supreme Court agreed to review the issue of how to calculate damages when the discovery rule applies.

The Warner Chappell Decision

In a brief opinion penned by Justice Elena Kagan, the Supreme Court confirmed the Ninth and Eleventh Circuits’ interpretations. Noting that the Copyright Act includes a time limitation for filing a claim but contains no such restriction in its remedies section, the Court concluded that there is no textual basis for applying a time bar to monetary recovery. In other words, “a copyright owner possessing a timely claim for infringement is entitled to damages, no matter when the infringement occurred.” To hold otherwise, the Court noted, would strip the discovery rule of its purpose by gutting timely claims of their value (i.e., damages) to a plaintiff.

The Court distinguished this case from its earlier decision, Petrella v. Metro-Goldwyn-Mayer, 572 U. S. 663 (2014), in which the plaintiff could not claim damages for separate infringements occurring outside the statute of limitations period. As such, the Court’s decision yesterday still does not help plaintiffs who have “no timely claims for infringing acts more than three years old.”

Takeaways and Remaining Questions

The Warner Chappell decision provides unambiguous assurance that parties timely litigating copyright infringements more than three years old may recover damages for the entire course of the infringement.

However, this opinion leaves open at least one glaring question: Is the discovery rule itself now open to attack? Justice Kagan’s opinion carefully noted that the Court assumed “that the discovery rule governs the timeliness of copyright claims,” but “[w]e have never decided whether that assumption is valid.” The Court deliberately avoided this question by substituting its own issue presented on certiorari, and the Court commented in a footnote that it would not consider Warner Chappell Music’s arguments on the topic. Justice Neil Gorsuch addressed the issue squarely in his dissent, arguing the Copyright Act “almost certainly does not tolerate a discovery rule,” and the majority opinion will soon be a “dead letter,” once that issue is resolved.

While copyright holders will benefit from this decision in the immediate future, the fate of the discovery rule for copyright claims remains unclear. Defendants may also assert other defenses if plaintiffs sit on their rights and do not diligently protect their intellectual property. For example, the decision does not address what damages a plaintiff may recover when the statute of limitations is tolled under a different rule (such as for a continuing infringement) when the plaintiff knows of the claim for more than three years. Rights holders would still be wise to monitor use of their intellectual property and timely assert their rights.