Legal Dispute Over Copyright Damages and Discovery Rule

How far back can a plaintiff recover damages in a copyright infringement case?  Scott Hervey and Jamie Lincenberg discuss this contested copyright law question in this installment of “The Briefing” by Weintraub Tobin.

Watch this episode on the Weintraub YouTube channel here.

Show Notes:

Scott:
Just how far back can a plaintiff in a copyright infringement case go in recovering damages? I’m Scott Hervey of Weintraub Tobin, and today, I’m joined by my colleague Jamie Lincenberg. We will take a look at an important and contested question in copyright law, which is headed to the Supreme Court this spring, on today’s episode of “The Briefing” by Weintraub Tobin.

Jamie, welcome back, and thank you for joining us today.

Jamie:
Thanks, Scott. Happy to be here.

Scott:
Jamie, can you tell us more about the topic that we’re diving into here?

Jamie:
Of course. In the case of Nealy versus Warner Chappell Music, the Supreme Court will be discussing the question of when the clock starts ticking in the Copyright Act’s three-year statute of limitations and whether a copyright claim plaintiff can recover damages beyond the three years from when the claim was filed. The justice’s decision to hear this case highlights a circuit split on the matter. The case began in 2018 when music producer Sherman Nealy filed a lawsuit against Warner Chappell Music and Artists Publishing Group. It was a run-of-the-mill copyright infringement case in which Nealy claimed that Flo Rida’s 2008 song “In The Sir” featured an unlicensed sample of a 1984 track that Nealy had owned. And now, almost six years later, Nealy’s lawsuit is headed to the Supreme Court to answer the unresolved questions of whether damages in a copyright case are limited to just the last three years before the case was filed or can damages go back for years, potentially dramatically increasing the amount of damages that a plaintiff can recover?

Scott:
The debate at the center of the case against Warner Chappell goes back to the case of Petrella versus MGM, when the Supreme Court ruled that the movie studio MGM could be sued for copyright infringement over the Scorsese-directed film “Raging Bull”. Great film, by the way, even though the case was filed decades after the film had first been released in 1980, MGM argued that such a long delay was unfair, but the Supreme Court decided that the Copyright act has a three-year statute of limitations that resets with every new infringement.

Jamie:
Yeah, that’s right. Under the court’s interpretation of the law in that case, as long as copies of allegedly infringing material, whether a book or a song or movie, had been sold during the three years prior to the lawsuit, it was ripe for a copyright case. Unsurprisingly, that ruling then led to a burst of infringement cases that had been long delayed, including a high-profile lawsuit against Led Zeppelin over the very popular 1971 song “Stairway to Heaven.”

Scott:
But with respect to the awarded damages in the Raging Bull case, the late Justice Ruth Bader Ginsburg stated that a successful plaintiff can gain retrospective relief only three years back from the time of the suit. No recovery may be had for infringement in the earlier years. Profits made in those years remain the defendants to keep. In the years since the rulings in the New York U. S. Court of Appeals for the Second Circuit have abided by that decision, and copyright accusers have not been awarded damages for any conduct past that three-year mark. In 2021, the judge of the Nealy case cited “Raging Bull” and ruled that Nealy was not entitled to damages from earlier than 2015. Nealy said he had only learned of the illegal sample in 2016 and wanted damages dating back to the song’s release in 2008, and the judge cited the Supreme Court’s binding precedent in “Raging Bull” that had explicitly limited damages to the three years prior.

Jamie:
That’s true, Scott, but that’s actually not the case in the US Court of Appeals for the 9th Circuit, which covers California and has held that if a plaintiff can prove they only recently discovered the fact that their copyright was infringed, they can seek damages going back all the way to the very first infringement. So we’re talking about potentially decades worth of damages. And earlier this year, the US Court of Appeals for the 11th Circuit overturned that 2021 ruling in the Nealy case. Siding with the 9th Circuit’s approach, the appeals court held that a copyright plaintiff may recover 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 rule under which a claim accrues when the plaintiff discovered or should have discovered the infringement. The 11th Circuit stated that the Supreme Court’s ruling in Petrella does not apply the statute of limitation under the discovery rule but only under the injury rule, a rule under which the claim accrues at the time of infringement, and that Nealy’s late discovery of the infringement was an entirely different situation than the one dealt with in “Raging Bull,” and any similar discovery rule cases would be able to seek damages as far back as they want.

Scott:
Warner Chappell has now appealed that decision to the Supreme Court, arguing that the discovery rule approach unfairly expands the financial exposure of a copyright defendant and could potentially lead to an onslaught of frivolous and maybe not-so-frivolous lawsuits aimed to extract settlements and that the discovery rule should actually be inapplicable to the case because the statute of limitations commences at the time of the infringement, which is the injury rule, making completion of the cause of action or marking the completion of the cause of action. Additionally, Warner asserts that applying the discovery rule would contravene Congress’s original intent, as language pertaining to the discovery rule is intentionally absent from the federal copyright laws. According to Warner Chappell, an artist publishing group, the plain language of the Copyright Act is unambiguous and says that a civil action must be commenced within three years after the claim has accrued, and the Supreme Court needs to look at what Congress had in mind when they drafted the term accrued. According to Warner Chappell and Artist Publishing Group legal dictionaries, as well as many Supreme Court decisions, support the idea that a cause of action accrues at the time of injury. They also assert that the Supreme Court has already recognized a three-year time limit for copyright plaintiffs to seek relief under the Copyright Act in the MGM “Raging Bull” decision.

Jamie:
On the other hand, Nealy argues that this challenge on the discovery rule exceeds the scope of the issue presented to the Supreme Court, as the lower courts already presume the application of the discovery rule in this case, and that introducing a separate damages bar, a cap on damages that can be awarded to a plaintiff in federal copyright cases, would undermine Congress’s purpose, as copyright law does not impose such a bar. So now here we have the two courts that really contain the majority of the country’s creative industries directly divided over how this segment of copyright law works. The case has big implications for copyright heavy industries such as music and film, and will unquestionably affect the scope of infringement cases initiated by copyright holders, as well as alter the burden of proof for each party in future cases. If the Supreme Court ruled in favor of Nealy, it would almost certainly encourage a surge of lawsuits similar to what happened after the Petrella MGM case. And as Nealy’s attorneys argued at an early stage of his case, when it comes to long-delayed copyright claims, the vast bulk of damages will typically fall outside of the three-year limit.

Scott:
This means music labels and publishers are also watching this case closely. In brief, the Recording Industry Association of America and the National Music Publishers Association didn’t advocate for either side, but they did urge the justices to take on a case that is vitally important to the music industry. In support of Warner Chappell and Artist Publishing, the Association of American Publishers argues that the discovery rule burdens publishers who face extensive discovery costs and potential exploitation by plaintiffs aiming to leverage settlements. They argue that it is generally difficult for publishers to keep track of the ownership or license relating to photos or illustrations used in the books that they published and that plaintiffs have tried to take advantage of these difficulties to obtain the amount of settlement price that is higher than the actual advantage to the defendant publishers or the lost value to the plaintiffs. On the other hand, the Authors Guild, in support of the plaintiffs, contends that the discovery rule enhances artistic development by safeguarding artist’s rights suggesting that the rule preserves an artist’s ability to sue for infringement that could not have been reasonably discovered earlier by extending the time period for legal action. They point out that the development of the Internet and technology has presented challenges for copyright holders to identify and respond promptly to infringements. About a dozen organizations have also filed amicus briefs in the case, most of them urging the court to at least analyze and provide guidance on the discovery rule and the injury rule at hand.

Jamie:
Scott, I’m curious if you have a prediction on how the justices might rule on this case. My inclination is that they will side with the 11th Circuit here in favor of Nealy.

Scott:
I don’t like to make calls because I’ve ended up being wrong on so many of them. It’s interesting, though. You look at the plain language of the Copyright Act and it uses the accrual language. It doesn’t use language relating to the discovery rule but rather the injury rule. I think that the Supreme Court’s precedent in the MGM case, the “Raging Bull” case, does set the standard. So I think that the petitioners, Nealy, I think they would have a very tough road to hoe and a tough argument to make and a tough precedent to overcome. I think that the chances are favorable that the Supreme Court may double down on its past decision and hold that the damages that are recoverable are reflective of the limitation period and that you can’t go back further than that. But I’ve been wrong before. The one thing that I will say is if they do find that the plaintiff is able to pursue damages further back than the three-year limitation period, then these cases, as they evolve, will all be about establishing that the plaintiff either knew or should have known of the infringement well prior to the three years running. And with regard to Nealy, I’m sorry, how could Nealy have not been aware of this song in the air? I mean, please. There’s no way that a person that maybe goes to social events or goes to a club or there’s no way or has children in college. There’s no way that they would have been unaware of this song up until when was it? 2015? 2015? 2014? 2015? No way. But I have no concrete proof of that. But that’s just kind of my, well.

Jamie:
I might have to stop you there because, and I don’t know all the details of this piece, but there is a portion of time, a few years when Nealy was in jail and was not part of pop culture and wasn’t going to know all the new songs coming out so

Scott:
I don’t know. Don’t they? I mean, I think people, I think you’re allowed to have a radio in jail.

Jamie:
Never been to jail. I don’t know how it works.

Scott:
I don’t know, I think you’re allowed to radio in jail.

Jamie:
I think, at the very least, Scott, the invested parties here, whether part of the case or not, are looking forward to at least having some guidance.

Scott:
Yeah, I definitely agree that there needs to be guidance. The Supreme Court does need to chime in because what you have now is a race to the courthouse between New York and California. And it depends if you’re the plaintiff or the defendant, and what that doesn’t do, it doesn’t encourage resolution of disputes. What it encourages is a side to quickly file a lawsuit, even if there’s a whiff of some type of dispute, so that they are able to obtain jurisdiction and jurisdiction over a case in a locality that is more favorable to their position. And that doesn’t do anybody any good. So we’re going to have to watch this one really carefully and either it will be status quo or it’ll be a whole new bag for copyright plaintiffs. Jamie, thanks a lot for bringing this to our attention.

Jamie:
Yeah, thanks, Scott.

Scott:
Thank you for listening to this episode of “The Briefing.” We hope you enjoyed this episode. If you did, please remember to subscribe, leave us a review, and share this episode with your friends and colleagues. And if you have any questions about the topics we covered today, please leave us a comment.