What You Need to Know
- Key takeaway #1
- This outcome has significant implications on the damages available to copyright plaintiffs, expanding the time frame for damages recovery beyond three years across the country.
- Key takeaway #2
- Copyright holders must still remain diligent on monitoring unauthorized use of their IP, as the ruling does not alter the three-year statute of limitations deadline for filing a claim.
On May 9, 2024, the U.S. Supreme Court issued a ruling in Warner Chappell Music Inc. et al. v. Sherman Nealy et al., Case No. 22-1078, resolving a circuit split in federal courts as to whether it is possible to recover copyright damages beyond the three-year filing statute of limitations. The court held in a 6-3 ruling that there is no time limit on monetary recovery, while leaving the three-year filing deadline intact.
The majority opinion, authored by Justice Kagan, provides that a copyright owner who diligently pursues a timely claim for copyright infringement within the statue of limitations under the discovery rule is entitled to damages for infringement regardless of when the infringement occurred. The holding resolved a circuit split where some federal courts, like the Second Circuit, instead followed a rule that imposed a three-year cap on damages in addition to the three-year filing statute of limitations, while other circuits like the Eleventh Circuit followed the Supreme Court's reasoning.
Under the facts of the case, Nealy invoked the discovery rule to sue Warner Chappell Music for copyright infringement, arguing that his claims were timely because he first learned of the infringing conduct less than three years before he sued. The District Court held that even if Nealy could sue under that rule for older infringements, he could recover damages or profits for only the three years prior to filing his complaint. The Eleventh Circuit reversed, holding that damages are separate from and not barred by the three-year statute of limitations.
The majority agreed with the Eleventh Circuit, holding that the Copyright Act itself contains no provisions that impose a time limit on monetary recovery. So a copyright owner possessing a timely claim is entitled to damages for infringement, no matter when the infringement occurred. The Court also added that their previous seminal ruling in Petrella v. Metro-Goldwyn-Mayer, Inc., 572 U. S. 663, 670 (2014), does not support a three-year damages cap, as under the facts in the Petrella case, the plaintiff had "long known of the defendant's infringing conduct" and so could not rely on the discovery rule to sue for infringing acts more than three years old. The plaintiff in Petrella could get damages "running only three years back" from filing because "she could sue for infringements occurring only within that timeframe." Nealy invoked the discovery rule to bring claims for infringing acts occurring more than three years before he filed suit, which the court said allows him to obtain damages for them as the claims were timely brought under the Copyright Act.
The brief dissent, by Justices Gorsuch, Thomas, and Alito, opined that "unless the statute at hand directs otherwise, we proceed consistent with traditional equitable practice and ordinarily apply the discovery rule only 'in cases of fraud or concealment'", which they believed did not apply since Nealy did not allege any fraud that would entitle him to "equitable tolling". Justice Gorsuch wrote that he "would have dismissed [the case] as improvidently granted and awaited another squarely presenting the question whether the Copyright Act authorizes the discovery rule." In fact, such a case is currently under writ of certiorari review by the Court - Hearst Newspapers, L.L.C. v. Antonio Martinelli, an appeal from the 5thCircuit. If the petition in that case is granted, further clarification regarding the application and scope of the discovery rule in copyright cases may be provided during the Court's next term.
The outcome in Nealy has significant implications on the damages available to copyright plaintiffs, expanding the time frame for damages recovery beyond three years across the country. Copyright holders must still remain diligent and monitor unauthorized use of their IP, as the ruling does not alter the three-year statute of limitations deadline for filing a claim. The majority opinion did not address "whether a copyright claim accrues when a plaintiff discovers or should have discovered an infringement, rather than when the infringement happened," so best practices dictate that copyright owners must continue to monitor for infringements and file claims in appropriate courts as soon as they are able.
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