Supreme Court Leaves Questions About Time Limits on Copyright Claims
Can a business be sued today for having used copyrighted material many years ago? On May 9, the Supreme Court issued an opinion in Warner Chappell Music, Inc. v. Nealy that leaves uncertainty about such stale claims. The Supreme Court’s ruling addressed how the discovery rule affects damages in copyright infringement cases. What the Court did not decide is whether the discovery rule should apply at all to copyright infringement claims. That means copyright infringement defendants should continue to raise a statute of limitations defense in cases involving conduct that is more than three years old.
A copyright infringement claim has a three-year statute of limitations. That means that if a copyright owner believes a person has infringed their copyright, they only have three years to bring a lawsuit. Under the discovery rule, however, that three-year limitation can be extended. Currently, virtually every federal court applies the discovery rule to determine when the statute of limitations begins to run. Under the discovery rule, a plaintiff can sue within three years of when it discovers, or with due diligence should have discovered, a copyright infringement claim.
Until the Supreme Court’s decision, different jurisdictions applied the discovery rule differently in the way it affected damages. Generally, courts have found that if a photographer, for example, discovered, or with diligence should have discovered, a claim less than three years before filing suit, the photographer could recover damages from the moment of infringement. In practical terms, that means a plaintiff can potentially get decades of damages from an infringement if the plaintiff had not discovered the infringement until within three years of filing a complaint.
The federal appeals court in New York applied a different rule. It applied the discovery rule to determine if a lawsuit could be brought, but it limited the damages to the three years before the plaintiff filed suit. This can be a big deal. Imagine a plaintiff who learns their work was sampled in a song five years ago. Almost all the profits from that song typically would be made in the first few months after its release. That means the Second Circuit’s rule could significantly limit the amount of plaintiff’s damages.
In Warner Chappell Music, Inc. v. Nealy, the lower court applied the discovery rule to allow the plaintiff to claim damages from the first date of infringement. Warner Chappell appealed, arguing that damages should be limited to the three years before the filing of the lawsuit.
Writing for the majority, Justice Elena Kagan “assumed” the discovery rule applies to copyright infringement claims. Her opinion described the approach taken in the New York federal appellate court as “self-defeating” because its reading of the discovery rule did not compensate plaintiffs for infringements for the period of time before they knew, or with diligence should have known, about the infringement. In short, the Court’s opinion affirmed that the majority of courts were correct that the discovery rule allowed a plaintiff to seek damages dating back to the first infringement.
Justices Gorsuch, Thomas and Alito dissented, writing that the majority answered a question based on an “assumption” that the law itself did not support. Noting that the majority reserved the question of whether the discovery rule applied to copyright infringement cases, the dissent argued that the Court should have held the discovery rule does not apply in copyright cases at all. It may well be that at least some of the justices in the majority agree that the discovery rule should not apply to copyright infringement cases.
Currently, there is a petition pending at the Supreme Court that argues the discovery rule should not apply to copyright infringement claims. In a lawsuit against Hearst Newspapers, the plaintiff alleges Hearst is liable for a long-ago copyright infringement. The federal court of appeals in New Orleans did not have a good answer as to why the discovery rule applied. However, the panel found it was bound by previous cases applying the discovery rule. In asking the Supreme Court to grant certiorari, Hearst argued “the circuit split at issue in Warner Chappell Music is the symptom — not the problem.” That is the point the dissent makes and is the reason the majority opinion is careful to state it is simply assuming the discovery rule applies.
It is not clear whether the Supreme Court will take up Hearst’s case and determine whether the discovery rule applies to copyright infringement claims. In the interim, companies that receive threats of copyright lawsuits or are sued should usually raise the statute of limitations as a defense and dispute the discovery rule applies to those claims. Raising such a defense will preserve it if the Supreme Court rejects applying the discovery rule to copyright claims in the future.
Contact Andrew Coffman, Ashley Heilprin, Mary Ellen Roy or any member of Phelps’ Intellectual Property team if you have questions or need advice and guidance.