SWIPLit

By: Zach Schroeder

The U.S. Supreme Court held the Copyright Act’s three-year statute of limitations does not equate to a three-year limit on damages when plaintiffs bring claims under the Act using the discovery rule doctrine.  In doing so, the Court resolves a circuit split while leaving unanswered whether the discovery rule doctrine applies to claims under the Act, an issue focused on in the dissent.  We previously addressed this issue when the Supreme Court first granted cert in Warner Chappell Music, Inc., et al. v. Nealy, et al.

Sherman Nealy and Tony Butler formed Music Specialists, Inc. in 1983.  The company recorded and released one album and multiple singles.  The company subsequently dissolved and, in 1989, Nealy went to prison on drug-related charges.  Nealy spent 1989–2008 and 2012–2015 in prison.  Upon his release in 2016, Nealy discovered that Butler (unbeknownst to Nealy) had entered into licensing agreements with Warner Chappell Music, Inc. for the works from Music Specialists, Inc.’s catalog.  Nealy filed suit in 2018 for copyright infringement and sought damages back to 2008.

Under the Copyright Act, a plaintiff must file suit within three years “after the claim accrued.”  17 U.S.C. § 507(b).  However, the Supreme Court assumed (without deciding) that a claim could accrue “when the plaintiff discovers, or with due diligence should have discovered, the infringing act.”  This is the discovery rule doctrine. 

In Nealy’s suit, the district court recognized the discovery rule and allowed Nealy to bring claims from 2008.  However, it also found the three-year statute of limitation in § 507(b) equated to a three-year limitation on damages, precluding Nealy from recovering damages prior to 2015.  Recognizing the importance of the issue, the district court granted an interlocutory appeal.  The Eleventh Circuit reversed, rejecting the argument that the Copyright Act’s three‑year statute of limitations is also a three-year limitation on damages.

The Supreme Court granted review to resolve a circuit split on “whether, under the discovery accrual rule applied by the circuit courts, a copyright plaintiff can recover damages for acts that allegedly occurred more than three years before the filing of a lawsuit.”  The Supreme Court held that the Act’s three-year statute of limitation does not limit the damages period.  In doing so, the Court analyzed the text of the statute of limitations (§ 507(b)) and the text of available remedies under the Act (§ 504) and found no temporal limitation in the latter.  The Court further reasoned that if a copyright plaintiff could not recover damages more than three years before filing a lawsuit, there would be no purpose behind the discovery rule doctrine because, while you could bring suit, you could not recover damages. 

Three Justices dissented (J. Gorsuch, J. Thomas, and J. Alito) arguing the Court should not have accepted the appeal because the real issue is whether the discovery rule doctrine applies under the Copyright Act. Because that issue was not before the Court, the Court should have waited for a case that presented the issue.

For circuits that previously limited copyright damages to three years, this case greatly expands the scope of potential damages.  As the potential damage award goes up, so too goes the cost of settlement.  This may embolden copyright holders to bring more lawsuits if they can use the discovery rule to expand the scope of potential damages.  However, the dissent leaves open the door to direct attacks on the discovery rule under the Copyright Act: “the Act almost certainly does not tolerate a discovery rule.”  Sooner or later, this issue will likely be back before the Supreme Court.