Warner Chappell Music, Inc. v. Nealy

Issues

Under federal copyright law, can a plaintiff recover damages for infringements over three years before the filing of a lawsuit when the plaintiff discovered or should have discovered the infringement within three years of the lawsuit?

Oral argument:

February 21, 2024

Court below:

United States Court of Appeals for the Eleventh Circuit

This case asks the Supreme Court to decide whether a copyright plaintiff can recover damages for infringements over three years before the filing of a lawsuit if the plaintiff discovered or should have discovered the infringement within three years of the filing of the lawsuit. Petitioners Warner Chappell Music, Inc., and Artist Publishing Group, LLC, contend that the discovery rule, which provides that a claim accrues when plaintiff discovered or should have discovered the infringement, is inapplicable because the statute of limitations commences at the time of infringement, marking the completion of the cause of action. Additionally, Petitioners assert that applying the discovery rule would contravene Congress’s intent, as the language pertaining to the discovery rule is intentionally absent from the copyright provision. On the other hand, Respondents Nealy and Music Specialist, Inc. argue that Petitioners’ challenge on the discovery rule exceeds the scope of the issue presented to the Supreme Court, as the lower courts already presumed the application of the discovery rule in this case. Respondents also posit 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. This case will affect the scope of infringement cases initiated by copyright holders and alter the burden of proof for each party in future copyright cases.

Questions as Framed for the Court by the Parties

Whether, under the discovery accrual rule applied by the circuit courts and the Copyright Act’s statute of limitations for civil actions, 17 U.S.C. § 507(b), a copyright plaintiff can recover damages for acts that allegedly occurred more than three years before the filing of a lawsuit.

Facts

In 1983, Sherman Nealy and Tony Butler founded Music Specialist, Inc. (“MSI”), a record company, with Nealy and Butler as co-presidents. Nealy v. Warner Chappell Music, Inc. at 4. Between 1983–1986, Butler wrote music that MSI released, including the five singles at issue in this case. Id. MSI dissolved in 1986. Id. From 1989 to 2008, Nealy served a prison sentence for cocaine distribution. Id. at 4–5.

In 2007, Butler established 321 Music, LLC (“321”). Brief for Petitioner, Warner Chappell Music, Inc., et al. at 7. In February 2008, Atlantic obtained a license from Butler and 321 to use “Jam the Box,” one of the singles at issue, in Flo Rida’s hit song “In the Ayer,” although Nealy never authorized anyone to use any music owned by MSI while he was in prison. Nealy at 5. After Nealy was released from prison in March 2008, he learned that another third party named Robert Crane was using MSI’s music. Id. In June 2008, Nealy’s legal consultant and Crane met but reached no consensus regarding Crane’s unauthorized use of MSI’s music. Brief for Petitioner at 8.

In July 2008, 321 unilaterally agreed with Petitioner Artist Publishing Group (“APG”) to exclusively administer Butler’s and 321’s catalog, including the disputed recordings, and Petitioner Warner Chappell Music, Inc. (“WCM”) began licensing the recordings at issue on behalf of APG. Id. In 2009, Crane’s companies initiated a copyright infringement case against Atlantic, APG, WCM, Butler, and 321 in the United States District Court in the Southern District of Florida. Music Specialist, Inc. v. Atl. Recording Co. at 19. Nealy was not a party, and he alleges that he learned about the trial only after leaving prison again in 2015, having served for another conviction since 2012. Nealy at 5-6. Nealy alleges that he discovered the infringement by Petitioners WCM and APG only in January 2016 when a former MSI associate informed him about the 2008 litigation and Butler’s purported transfers of rights based on the agreement between APG and 321. Id. at 6.

In December 2018, Respondents Nealy and MSI filed a lawsuit against Atlantic and Petitioners WCM and APG, in the United States District Court in the Southern District of Florida, seeking relief for the alleged infringement as early as 2008. Id. The Southern District of Florida certified, for interlocutory appeal, the question of whether a copyright-claim plaintiff can only recover for the damages that occurred within three years from when the claim has been filed, under the Copyright Act and Petrella v. Metro-Goldwyn-Mayer, Inc. Id. at 7. The United States Court of Appeals for the Eleventh Circuit 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 plaintiff discovered or should have discovered the infringement. Nealy at 6. The Eleventh 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 a claim accrues at time of infringement. Id. at 6. The Eleventh Circuit also held that the text of the Copyright Act does not place a time limit on remedies for an otherwise timely claim. Id. at 6. The United States Supreme Court granted certiorari on September 29, 2023.

Analysis

SCOPE OF THE QUESTION PRESENTED

Petitioner Warner Chappell Music, Inc., and Artist Publishing Group, LLC (“WCM and APG”) argue that the statute of limitations for a copyright claim runs from the time of infringement because that is when the plaintiff has a complete and present cause of action. Brief for Petitioners, Warner Chappell Music, Inc. and Artist Publishing Group, LLC at 15. WCM and APG assert that, while the Supreme Court assumes that the discovery accrual rule (also called the “discovery rule”) “applied by the circuit courts” applies in this case, some courts of appeals do not consistently apply the discovery rule to disputes over ownership. Id. at 31. According to WCM and APG, the plain language of the Copyright Act is unambiguous and says that a civil action must be commenced “within three years after the claim accrued” under 17 U.S.C. § 507(b) (“§ 507(b)”), the civil statute of limitations in the Copyright Act. Id. at 15. WCM and APG contend that the Supreme Court has to look at what Congress had in mind when they drafted the term “accrued.” Id. at 16. According to WCM and APG, legal dictionaries as well as many Supreme Court decisions support the idea that a cause of action accrues at the time of injury. Id. at 18–20. WCM and APG 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 its decision in Petrella v. Metro-Goldwyn-Mayer, Inc. Id. at 24. WCM and APG note that in Petrella, the Supreme Court held that laches could not be used as a defense because a plaintiff can only recover for actions that happened within three years before the commencement of the lawsuit. Id. at 25. WCM and APG assert that the Supreme Court consistently referenced a three-year lookback period and that, therefore, there is no recovery for claims earlier than that. Id.

WCM and APG further argue that there are no legal grounds for the circuit court’s holdings that a plaintiff can seek damages for infringements that occurred more than three years before the filing of a lawsuit. Brief for Petitioners at 27. WCM and APG first explain that the circuits find a broad discovery rule in § 507(b) based on an assumption that all federal statutes of limitations apply the discovery rule unless Congress says otherwise. Id. at 29. WCM and APG assert that, contrary to this assumption, the Supreme Court has refused to adopt this approach and ruled that courts cannot interpret the Copyright Act as providing for the discovery rule if the statute does not explicitly contain that rule. Id. WCM and APG also argue that, even among the circuits adopting a broader discovery rule, only the Third Circuit offers a textual argument. Id. According to WCM and APG, the Third Circuit chose the broader discovery rule because, under § 507(b), the civil statute of limitations used “claim accrued” whereas its criminal counterpart used “cause of action arose.” Id. at 30. However, WCM and APG contend that the two terms convey the same meaning and that, as the committee notes affirm, there is no reason to have different statutes of limitations for civil and criminal copyright actions. Id.

Respondents MSI and Nealy counter that WCM and APG are arguing an issue that is outside the bounds of the Question Presented as rephrased by the Supreme Court. Brief for Respondents, Sherman Nealy, et al. at 25. MSI and Nealy first explain that the Supreme Court does not usually reach issues that the lower courts have not decided. Id. at 21. In this case, MSI and Nealy assert, the lower court already assumed that the discovery rule applied to the copyright claims at issue, and WCM and APG did not challenge that assumption. Id. at 23. Furthermore, MSI and Nealy contend that, in the Question Presented, the Supreme Court has already assumed that “the discovery rule as applied by the circuit courts” applies to this case. Id. at 25. MSI and Nealy also assert that all of the eleven circuits that ruled on the discovery rule are unanimous in ruling that a claim under § 507(b) is timely if a plaintiff files a claim within three years of discovering the infringement. Id. at 30. As a result, MSI and Nealy argue that the Court should dismiss the writ of certiorari because WCM and APG have focused their arguments on issues outside the bounds of the Question Presented, directly circumventing the procedures of the Supreme Court. Id. at 25.

Alternatively, MSI and Nealy assert that the Supreme Court should only decide the issue that they granted certiorari to—a circuit split over whether there should be a separate damages bar. Brief for Respondents at 7, 25, 30. MSI and Nealy first contend that the Second Circuit is the only circuit among the abovementioned eleven to implement a separate damages bar, which limits the ability to recover damages for claims that are timely under the discovery rule. Id. at 30–31. MSI and Nealy explain that the Second Circuit in Sohm v. Scholastic, Inc. held that the discovery rule determines when a claim accrues whereas a separate damages bar limits recovery to three years before the lawsuit was filed, even if the claims were timely under the discovery rule. Id. at 7, 30. According to MSI and Nealy, the Second Circuit in Sohm misread the Supreme Court’s statements in Petrella which apply to an analysis of a completely different rule and do not create a separate damages bar. Id at 43. MSI and Nealy also contend that Petrella expressly passed on the question of the discovery rule. Id. at 42. Lastly, MSI and Nealy argue that even Warner and MGM concede that the ruling in Sohm is incorrect because they do not argue the merits of Sohm in their briefs. Id. at 54.

THE PURPOSES AND INTENTIONS OF CONGRESS

WCM and APG contend that following the discovery rule would undermine Congress’s purposes. Brief for Petitioners at 23. WCM and APG explain that the discovery rule does not apply here because, unlike other federal statutes where Congress enacts a broad discovery rule, § 507(b) does not contain specific language about a statute of limitations starting upon the discovery of a violation. Id. at 20–21. In addition, WCM and APG assert that the purpose and history of § 507(b) was to ensure that the statutes of limitations for copyright claims were uniform. Id. at 21. WCM and APG also argue that the purpose of statutes of limitations is to prevent injustice because there is a high likelihood that untimely claims can lead to lost evidence and missing witnesses. Id. According to WCM and APG, Congress specifically chose three years as the copyright claims limitation because it struck the best balance between the rights of the parties. Id. at 22. WCM and APG ultimately argue that the discovery rule will go against Congress’s intent because the rule will cause defendants to argue against expensive and time-consuming litigation with evidence that is potentially old or missing. Id. at 23.

In contrast, MSI and Nealy counter that adopting the discovery rule with a separate damages bar would undermine Congress’s intent. Brief for Respondents at 46. MSI and Nealy first argue that a separate damages bar is incompatible with the Copyright Act because the Copyright Act has one default provision for relief that allows an owner to recover damages from all infringements, as opposed to a separate provision that limits damages for timely claims. Id. at 32–33. In addition, MSI and Nealy assert that other provisions in Title 17 enacted later, such as 17 U.S.C. § 1323(c) and 17 U.S.C. § 504(d), specifically mention that damages are limited to three years after the date of the infringement. Id. at 33–34, 37–38. MSI and Nealy contend that the default rule for Title 17 is the discovery rule without a damages limit because Congress would not enact a redundant statute and repeat specific time limits for only certain statutes.

Id. at 35. Instead, MSI and Nealy argue, Congress has never added a separate damages bar despite numerous revisions or clarified that the courts of appeals have incorrectly applied the discovery rule. Id. at 38, 45. MSI and Nealy also assert that a separate damages bar undermines the Copyright Act’s careful balance. Id. at 48. MSI and Nealy first explain that the purpose of the Copyright Act is to promote the progress of science and useful arts by allowing artists to secure some profits in return for their labor. Id. at 46. MSI and Nealy note that, by preventing copyright holders from enforcing their timely claims, the profit motive is disrupted, and the goals of Congress are upended. Id. at 47–48.

Discussion

THE IMPACT OF OWNERSHIP UNCERTAINTY ON THE ART COMMUNITY

Chamber of Commerce of the United States of America (“Chamber”), in support of WCM and APG, argues that certainty and reliability for property rights are crucial in copyright law. See Brief of Amicus Curiae Chamber of Commerce of United States of America, in Support of Petitioners at 20. According to Chamber, copyright law aims to benefit the general public by providing access to creative works, but it will undermine its purpose unless clearly defining the bounds of ownership. Id. For Chamber, the discovery rule further complicates copyright ownership delineation, holding those confused about ownership liable for infringement and diminishing the efficiency of the intellectual property system. Id. In contrast, Chamber argues that the statute of limitations helps to clarify copyright ownership by clearly defining ownership after a specific period. Id.

Furthermore, Association of American Publishers (“AAP”), in support of WCM and APG, argues that the discovery rule burdens publishers who face extensive discovery costs and potential exploitation by plaintiffs aiming to leverage settlements. Brief of Amicus Curiae Association of American Publishers, in Support of Petitioners at 7. AAP highlights that it is generally difficult for publishers to keep track of the ownership or license relating to photos or illustrations used in the books they publish. Id. AAP asserts that the 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 of the licenses. Id.

On the other hand, the Authors Guild, Inc., et al. (“Authors Guild”), in support of Respondents, contends that the discovery rule enhances artistic development by safeguarding artists’ rights. Brief of Amici Curiae The Authors Guild, Inc., et al., in Support of Respondents at 18. Authors Guild suggests 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. Id. They point out that the development of the internet and automation technology presented challenges for copyright holders to identify and respond promptly to infringements. Id. at 24–25. Authors Guild asserts that, by encouraging private enforcement of infringements, the discovery rule ensures access to valuable cultural works and thus benefits the society. Id. at 17.

Furthermore, Authors Guild counters Petitioners’ proposal, arguing that the three-year bar would destabilize the copyright system by removing a substantial part of established law. Brief of Amici Curiae The Authors Guild, Inc., et al., at 33. Authors Guild emphasizes the unanimous adoption of the discovery rule and warns that removing it, as proposed by the Petitioner, would be disrupting the stability and enforceability of copyright law relied upon by creators, users, and the courts. Id. Additionally, American Intellectual Property Law Association (“AIPLA”), in support of neither party, contends that a three-year damage bar in discovery accrual cases unfairly affects small businesses and individual rightsholders. Brief of Amicus Curiae American Intellectual Property Law Association, in Support of Neither Party at 17. AIPLA emphasizes that small businesses, as opposed to large enterprises, struggle to identify potential infringement cases because they lack comprehensive monitoring resources. Id. Moreover, AIPLA highlights that the three-year bar hampers copyright law’s efficacy by discouraging voluntary compliance, especially when most infringements occur before the limitation period. Id. at 18. According to AIPLA, extending the lookback period will overall provide fair compensation for small businesses by allowing damages for all infringing acts. Id.

INFORMATION INEQUALITY AND BURDEN OF PROOF

Electronic Frontier Foundation, et al. (“EFF”) further contends that information inequalities between plaintiffs and defendants foster the potential for plaintiffs to abuse the system. See Brief Amici Curiae Electronic Frontier Foundation, Authors Alliance, American Library Association and Association of Research Libraries, in Support of Petitioners at 16. According to EFF, the federal copyright law allows plaintiffs to claim a specific amount of damages without the need to prove their claims, while defendants are still required to gather evidence to mitigate damages. Id. at 16. EFF points out that the discovery rule creates an even larger asymmetry between the parties by allowing plaintiffs to sue over infringements which defendants did not keep track of. Id. at 16–17.

In response, Authors Guild counters this by asserting that the discovery rule is already able to address potential abuses. Brief of Amici Curiae The Authors Guild, Inc., et al., in Support of Respondents at 27–28. Authors Guild highlights that the rule requires constructive discovery and plaintiff’s due diligence in uncovering crucial facts, thereby preventing the indefinite expansion of potential infringement claims. Id. at 28. Additionally, Authors Guild claims that the unavailability of evidence equally hampers both parties because the burden of proof still rests with the plaintiff under the discovery rule. Id. Therefore, Authors Guild concludes that plaintiffs are equally incentivized to act promptly under the discovery rule. Id.