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Ruling in favor of a Miami music producer, Sherman Nealy, over a song by rapper Flo Rida, the Supreme Court held on May&nbsp;9 that there is no time limit for recovering monetary damages in copyright cases that are otherwise timely filed; therefore, a copyright owner possessing a timely claim for infringement is entitled to past damages, no matter when the infringement occurred.

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Weighing in on the circuit split as to whether the Supreme Court’s Petrella v. Metro-Goldwyn-Mayer, Inc. decision bars damages for copyright infringements occurring more than three years before a plaintiff files suit, the Eleventh Circuit had joined the Ninth Circuit in holding the three-year period set forth in Section 507(b) of the Copyright Act is a limitations period for filing a claim and rejected the Second Circuit’s position that it is a damages “look back” provision similar to the six-year damages look-back period provided in the Patent Act. In affirming the Eleventh Circuit’s ruling, the Supreme Court confirmed that a plaintiff that timely files a copyright claim under the discovery rule can recover damages for infringement that occurred more than three years prior to filing the lawsuit.

In 1983, Sherman Nealy and Tony Butler formed a music label, Music Specialist Inc. (Music Specialist), that recorded and released several singles, but their collaboration dissolved in 1986. Nealy was incarcerated for drug-related offenses from 1989 to 2008 and from 2012 to 2015. In 2008, unbeknownst to Nealy, Butler entered into an agreement with Warner Chappell Music Inc. (Warner) to license certain works from the Music Specialist catalog, including “Jam the Box,” which was interpolated into Flo Rida’s hit song “In the Ayer,” which went on to sell millions of copies.

In 2018, after Nealy finished serving his second prison sentence, he sued Warner and others in the Southern District of Florida for copyright infringement, claiming he held copyrights to Music Specialist’s songs and that Warner’s licensing activities infringed his rights. Nealy sought damages for alleged copyright infringement dating back to 2008 – 10 years before he filed suit.

In order to proceed, Nealy had to show that his copyright infringement claims were timely. The Copyright Act’s statute of limitations provides that a copyright owner must bring an infringement claim within three years of the date the claim “accrues.”<a href="#_ftn1" id="_ftnref1">[1]</a> The U.S. Courts of Appeal have recognized two rules for determining that date: the incident of injury rule and the discovery rule. Under the incident of injury rule, “[a] copyright claim . . . ‘accrues’ when an infringing act occurs[,]” regardless of when the plaintiff learns of it.<a href="#_ftn2" id="_ftnref2">[2]</a> If this rule governed, many of Nealy’s claims would be untimely because they are based on alleged infringements occurring as much as 10 years prior to his lawsuit. However, under the judicially created discovery rule, “a [copyright] claim accrues when ‘the plaintiff discovers, or with due diligence should have discovered,’ the infringing act.”<a href="#_ftn3" id="_ftnref3">[3]</a> It is largely viewed as equitable in nature, arising in cases where the acts giving rise to liability involve fraud, concealment, medical malpractice or latent disease.<a href="#_ftn4" id="_ftnref4">[4]</a> As applied in copyright infringement cases, the discovery rule allows a diligent plaintiff to raise claims about older infringements if the plaintiff discovered the infringing act within three years of filing suit.

The Eleventh Circuit applies the discovery rule to determine the timeliness of a plaintiff’s copyright claim where ownership of the copyright is the only disputed issue.<a href="#_ftn5" id="_ftnref5">[5]</a> At the district court, Nealy and Warner entered a joint-pretrial stipulation agreeing the case presents an “ownership dispute” within the meaning of the statute of limitations for copyright claims. While the defendants contended they were not liable because a third party owns the copyrights and licensed them to the defendants, they conceded the only remaining issue would be damages, if Nealy proved he owned the copyrights to the works.<a href="#_ftn6" id="_ftnref6">[6]</a> Accordingly, Warner accepted that the discovery rule governed the timeliness of Nealy’s copyright claims.

Relying on a decision from the Second Circuit,<a href="#_ftn7" id="_ftnref7">[7]</a> the district court found that even where the discovery rule dictates the accrual of a copyright infringement claim, Nealy’s damages were limited to a three-year look-back period from the time he filed suit. Recognizing the impact of that ruling, the district court certified it for interlocutory appeal to the Eleventh Circuit.

The Eleventh Circuit reversed and, agreeing with the Ninth Circuit,<a href="#_ftn8" id="_ftnref8">[8]</a> held that a copyright plaintiff may recover retrospective relief for infringement occurring more than three years before the lawsuit’s filing so long as the plaintiff’s claim is timely under the discovery rule.<a href="#_ftn9" id="_ftnref9">[9]</a> The Supreme Court granted certiorari to resolve the circuit split. The Court substituted its own question for Warner’s – “[w]hether, under the discovery accrual rule applied by the circuit courts,” a copyright plaintiff “can recover damages for acts that allegedly occurred more than three years before the filing of a lawsuit.”<a href="#_ftn10" id="_ftnref10">[10]</a>

After Justices Samuel Alito and Neil Gorsuch signaled during oral argument that the threshold question is whether the discovery rule even applies in copyright cases, the 6-3 majority opinion authored by Justice Elena Kagan<a href="#_ftn11" id="_ftnref11">[11]</a> assumed without deciding that the discovery rule governs the timeliness of copyright claims. The majority acknowledged the Court has never decided whether that assumption is valid but stated the issue was not properly presented because Warner did not challenge the Eleventh Circuit’s use of the discovery rule. Further, the circuit split at issue was whether to superimpose a three-year limit on damages among the courts applying the discovery rule. Therefore, the Court confined its review to whether a plaintiff with a timely claim under the discovery rule can get damages going back more than three years.

The Supreme Court found the text of the Copyright Act’s statute of limitations establishes a three-year period for filing suit, beginning to run when the claim accrues (in this case, the Court assumed, upon its discovery), but it does not establish a separate three-year period for recovering damages running from the date of filing suit. The Court reasoned that if there was a time limit on damages, it must come from the Copyright Act’s remedial sections; however, those sections merely state that an infringer is liable either for statutory damages or for the owner’s actual damages and the infringer’s profits.<a href="#_ftn12" id="_ftnref12">[12]</a> Since Nealy invoked the discovery rule to bring claims for infringing acts occurring more than three years before he filed suit, the Court ruled that he may obtain damages for them if his claims are timely – “[t]he Copyright Act contains no separate time-based limit on monetary recovery.”<a href="#_ftn13" id="_ftnref13">[13]</a>

Justice Neil Gorsuch penned the dissent,<a href="#_ftn14" id="_ftnref14">[14]</a> criticizing the majority opinion for sidestepping the logically antecedent question of whether the discovery rule exists under the Copyright Act, arguing that “[t]he trouble is, the Act almost certainly does not tolerate a discovery rule.”<a href="#_ftn15" id="_ftnref15">[15]</a> He stated the Court ordinarily applies the discovery rule only “in cases of fraud or concealment.” Because Nealy did not allege any fraud or concealment that would entitle him to equitable tolling, the discovery rule does not apply in this case. Therefore, Justice Gorsuch would have dismissed the case as “improvidently granted” and waited for a case that “squarely presented the question of whether the Copyright Act authorizes the discovery rule.”<a href="#_ftn16" id="_ftnref16">[16]</a>

Justice Gorsuch may have a long wait. On May 20, the Supreme Court denied certiorari in the case of Martinelli v. Hearst Newspapers, L.L.C.<a href="#_ftn17" id="_ftnref17">[17]</a> Hearst’s cert petition “squarely presented” the question: “Whether the ‘discovery rule’ applies to the Copyright Act’s statute of limitations for civil claims.”<a href="#_ftn18" id="_ftnref18">[18]</a> Unlike Warner, Hearst challenged the lower court’s use of the discovery rule in finding Martinelli’s copyright suit was timely. Hearst used seven of Martinelli’s photographs of “Guinness Castle” without his permission in a March 2017 online-only article associated with websites for Hearst’s newspapers. Martinelli sued Hearst for copyright infringement in October 2021, contending he first discovered the online article in November 2018. Hearst stipulated that Martinelli could not have discovered the uses of his photographs with reasonable diligence at an earlier time, but argued that his claim was time-barred because it accrued when Hearst infringed Martinelli’s copyrights – more than four years before he filed suit.<a href="#_ftn19" id="_ftnref19">[19]</a> The Fifth Circuit affirmed a lower court ruling that Martinelli’s copyright suit was timely because he filed it within three years of the date he first discovered the infringement.<a href="#_ftn20" id="_ftnref20">[20]</a>

The takeaway from the Warner Opinion and denial of Hearst’s petition is that, for now, the discovery rule remains viable for accrual of copyright claims. The application of an equity-based rule in copyright cases is significant, given the frequency with which plaintiffs file cases using the discovery rule to rescue claims that would be time-barred under the incident of injury rule. The Warner Court’s reasoning was driven in part by a recognition that a three-year damages bar “silently eliminates” the benefits of the discovery rule. A rejection of the discovery rule in a future case would render the unlimited damages look-back period announced in Warner a nullity – by definition, incident of injury damages only reach back for three years. Related fallout could include debate over what constitutes the accrual of a claim in a world where online infringements can be readily republished. In the meantime, practitioners should take care to preserve all defenses, as the Supreme Court has not formally decided that the discovery rule governs the timeliness of copyright claims.

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<a href="#_ftnref1" id="_ftn1">[1]</a> See 17 U.S.C. § 507(b) (“No civil action shall be maintained under the provisions of this title unless it is commenced within three years after the claim accrued.”).

<a href="#_ftnref2" id="_ftn2">[2]</a> Petrella v. Metro-Goldwyn-Mayer, Inc., 572 U.S. 663, 670 (2014).

<a href="#_ftnref3" id="_ftn3">[3]</a> Warner Chappell Music, Inc. v. Nealy, 601 U.S. ___, Slip Op. at 2 (2024) (quoting Petrella, 572 U.S. at 670 n.4).

<a href="#_ftnref4" id="_ftn4">[4]</a> See TRW Inc. v. Andrews, 534 U.S. 19, 27 (2001) (“[E]quity tolls the statute of limitations in cases of fraud or concealment.”); Rotella v. Wood, 528 U.S. 549, 555 (2000) (holding discovery of the injury is what “starts the clock” for the statute of limitations in a medical malpractice claim); United States v. Kubrick, 444 U.S. 111, 121 n.7 (1979) (holding a claim under the Federal Employers’ Liability Act did not accrue until the plaintiff’s injury manifested itself, because a latent disease is “unknown and inherently unknowable”).

<a href="#_ftnref5" id="_ftn5">[5]</a> Nealy v. Warner Chappell Music, Inc., 60 F.4th 1325, 1330 (11th Cir. 2023) (citing Webster v. Dean Guitars, 955 F.3d 1270, 1276 (11th Cir. 2020)).

<a href="#_ftnref6" id="_ftn6">[6]</a> Id. at 1330-31.

<a href="#_ftnref7" id="_ftn7">[7]</a> See Sohm v. Scholastic, Inc., 959 F.3d 39, 52 (2d Cir. 2020) (applying Petrella and holding that, even under the discovery accrual rule, a copyright plaintiff’s recovery is limited to damages incurred during the three years prior to filing suit).

<a href="#_ftnref8" id="_ftn8">[8]</a> See Starz Ent., LLC v. MGM Domestic Television Distrib., LLC, 39 F.4th 1236, 1242-44 (9th Cir. 2022) (holding Petrella does not impose an absolute three-year bar on damages for a timely suit under the discovery rule).

<a href="#_ftnref9" id="_ftn9">[9]</a> Nealy, 60 F.4that 1331.

<a href="#_ftnref10" id="_ftn10">[10]</a> Warner Chappell Music, 601 U.S. ___, Slip Op. at 4.

<a href="#_ftnref11" id="_ftn11">[11]</a> Chief Justice John Roberts and Justices Sonia Sotomayor, Brett Kavanaugh, Amy Coney Barrett and Ketanji Brown Jackson joined the majority opinion.

<a href="#_ftnref12" id="_ftn12">[12]</a> Warner Chappell Music, 601 U.S. ___, Slip Op. at 5.

<a href="#_ftnref13" id="_ftn13">[13]</a> Id., 601 U.S. ___, Slip Op. at 7.

<a href="#_ftnref14" id="_ftn14">[14]</a> Justices Clarence Thomas and Samuel Alito joined the dissent.

<a href="#_ftnref15" id="_ftn15">[15]</a> Warner Chappell Music, 601 U.S. ___, Dissent Op. at 1.

<a href="#_ftnref16" id="_ftn16">[16]</a> Id., 601 U.S. ___, Dissent Op. at 3.

<a href="#_ftnref17" id="_ftn17">[17]</a> 65 F.4th 231 (5th Cir. 2023).

<a href="#_ftnref18" id="_ftn18">[18]</a> Hearst Newspapers, LLC, et al. v. Martinelli, No. 23-474 (U.S.) (Nov. 6, 2023).

<a href="#_ftnref19" id="_ftn19">[19]</a> Martinelli, 65 F.4th at 233-34.

<a href="#_ftnref20" id="_ftn20">[20]</a> Id., 65 F.4th at 245.

Warner Chappell Music, Inc. v. Nealy: Supreme Court Allows Retrospective Copyright Damages Beyond 3 Years Based on Discovery Rule