In Warner Chappel Music, Inc. v. Nealy, the Supreme Court found that a timely filed claim for copyright infringement is not subject to an additional time limitation on monetary recovery. Rather, the Copyright Act entitles a “copyright owner possessing a timely claim for infringement…to damages, no matter when the infringement occurred.” The court acting on a split between circuit courts, rejected the view of the Second Circuit, which had established a rule that damages were limited to those incurred during the three years preceding the filing of the case. Here, the Eleventh Circuit had rejected the view that the Supreme Court’s prior decision in Petrella v. Metro Goldwyn Mayer, Inc. (2014) imposed a three-year limitation on damages, finding that such a rule effectively gutted the discovery rule.
The case was brought by Sherman Nealy, who started Music Specialist, Inc. in 1983 with Tony Butler. The company was short lived, and in 1989 Nealy was sent to prison. While he was incarcerated, Butler, without Nealy’s knowledge, “entered into an agreement with Warner Chappell Music, Inc. to license works from the Music Specialist catalog.” After his release from prison, Nealy sued Warner Chappell for copyright infringement claiming that he held the rights to the Music Specialist catalog and seeking damages and profits for actions. Relying on the discovery rule, Nealy filed suit, and Warner Chappell sought to limit damages to only the three years prior to the litigation.
In finding for Nealy, the court left as an open question the elephant in the room: the ongoing validity of the discovery rule under the Copyright Act. Claims under the Copyright Act must be brought within three years of when they accrue. All eleven circuit courts who have opined on when a claim accrues have adopted a discovery rule under which the statute of limitations begins to run when the plaintiff discovers, or with due diligence should have discovered, the infringing act. Warner Chappell did not challenge the Eleventh Circuit’s use of the discovery rule in copyright cases, so the court did not rule on whether the discovery rule governs copyright claims. The majority simply assumed that the discovery rule applied and analyzed the case accordingly.
However, the dissent, written by Justice Gorsuch, disagreed with the approach of the majority. The three dissenting justices would have addressed the discovery rule itself and strongly suggested that they would reject its application under the Copyright Act. Under the analysis of the dissent, the discovery “rule is not applicable across all contexts,” and there is “little reason to suppose the Copyright Act's provisions at issue in this case contemplate any departure from the usual rules.”
The bottom line is that for now copyright plaintiffs can pursue full damages in connection with timely claims, but the discovery rule itself will find its way to the Supreme Court eventually, and it may be on thin ice.
Article by Tony Dunlap, Jr. and James Griffith