Court Rejects Three-Year Time Bar for Damages Awarded under the Copyright Act

In Nealy v. Warner Chappell Music, Inc., 2023 WL 2230267 (11th Cir. Feb. 27, 2023), the Eleventh Circuit rejected the application of a three-year “lookback” period for the purposes of awarding damages under the Copyright Act. In answering a certified question of law presented by the district court, the appellate panel declined to time-bar damages for acts of copyright infringement that occurred more than three years prior to the plaintiff’s filing suit.

As background, it is important to understand the application of the statute of limitations to claims of copyright infringement. Under the Copyright Act, a plaintiff must bring suit within three years of a claim of copyright infringement accruing. 17 U.S.C. § 507(b). In order to determine when a claim begins to accrue, federal courts have adopted one of two tests: the injury rule or the discovery rule. Under the injury rule, each act of infringement accrues separately, beginning at the time the infringement occurs, regardless of whether or not the plaintiff has any knowledge of such acts. When applying the statute of limitations under this doctrine, each act of infringement occurring more than three years prior to filing suit is time-barred, and all acts occurring within the three-year statute of limitations period are timely. On the other hand, under the discovery rule, the statute of limitations only begins once a plaintiff knows or reasonably should have known that his or her copyright has been infringed. Under this rule, all acts of a defendant’s infringement accrue simultaneously, beginning when the plaintiff is aware or should be aware of the violation of his or her copyright. In the Eleventh Circuit, courts utilize the discovery rule for determining the timeliness of filing a copyright infringement suit.

In Nealy, the Eleventh Circuit was confronted with an issue of first impression as to whether the statute of limitations bars recovery for acts of infringement occurring more than three years before the suit’s filing. Plaintiff Sherman Nealy wrote and recorded a series of songs in the 1980s through his company Music Specialist, Inc. (“MSI”). After serving several prison sentences, Mr. Nealy discovered that a previous business partner was granting unauthorized licenses to use his musical works. Plaintiffs Nealy and MSI brought suit against Defendants Warner Chappell Music, Inc. and Artist Publishing Group, L.L.C. for copyright infringement, based on their use of Plaintiffs’ copyright-protected musical works under invalid third-party licenses. Plaintiffs sought damages for infringements dating back over ten years before the suit was filed.

Defendants filed a motion for summary judgment, arguing that the Plaintiffs’ claims were barred under the statute of limitations, which the district court denied. However, Defendants also argued that regardless of the timeliness of Plaintiffs’ claims, damages could not be awarded for acts of infringement occurring more than three years before the commencement of the suit. Defendants relied upon Petrella v. Metro-Goldwyn-Mayer, Inc., in which the Supreme Court rejected the application of the equitable doctrine of laches to copyright infringement claims. 572 U.S. 663 (2014). In Petrella, the Supreme Court found that the doctrine of laches was unnecessary as defendants were adequately protected from unreasonable delay because the Copyright Act “bars relief of any kind for conduct occurring prior to the three-year limitations period.” Id. at 667. The district court declined to rule on the motion for summary judgment and instead certified for interlocutory appeal to the Eleventh Circuit the purely legal question of the application of the statute of limitations to the award of damages. The Eleventh Circuit granted the petition for interlocutory review.

In an opinion written by Judge Brasher, the court began its analysis by noting the circuit split that has emerged following the Supreme Court’s decision in Petrella. In Sohm v. Scholastic Inc., the Second Circuit held that the statute of limitations bars recovery for all acts of infringement occurring three years before filing suit, regardless of whether suit was timely filed under the discovery rule. 959 F.3d 39, 49-50 (2d Cir. 2020). Conversely, the Ninth Circuit rejected the Sohm holding and found that damages are still available for acts of infringement occurring outside the three-year lookback period if the suit is timely filed. Starz Entm’t, LLC v. MGM Domestic Television Distrib., LLC, 39 F.4th 1236, 1242-44 (9th Cir. 2022).

The Eleventh Circuit sided with the Starz Entertainment court and determined that damages are not limited to a strict three-year time period under the Copyright Act. The court’s reasoning was twofold. First, the Eleventh Circuit interpreted the Petrella decision to apply only to cases applying the injury rule. The application of the Petrella holding to claims brought under the discovery rule would result in timely claims with no available remedy, an outcome that would in effect eliminate the discovery rule completely. The Eleventh Circuit noted that the Supreme Court in Petrella specifically reserved the question of the propriety of the discovery rule. The panel rejected an interpretation of Petrella that would reserve the question of the discovery rule and yet by implication undermine its operation. Second, the Eleventh Circuit found no grounds for a damages cap in the express language of the Copyright Act. The court determined that the statute of limitations merely governs the timeliness of maintaining a civil suit and does not address the issue of damages.

The Eleventh Circuit’s holding deepens a circuit divide regarding the interpretation of Petrella and the availability of damages to copyright claimants for violations of their intellectual property rights. However, it also clarifies the operation of the discovery rule and ensures a remedy for all infringement claims that are deemed timely and with merit. But the significance of the court’s holding is tempered by the requirements of the discovery rule: plaintiffs still must establish good cause for their failure to uncover infringements of their copyrights. While damages may be broadly available for timely claims, proving timeliness will still stand as a significant hurdle for plaintiffs that delay in filing suit.

Posted by Jennifer Sandlin.

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