Potential Impact of the Supreme Court’s Latest Ruling on Copyright Infringement Compensation

On May 9, 2024, the Supreme Court of the United States issued a 6-3 split decision in Warner Chappell Music, Inc., et al. v. Sherman Nealy, et al., holding that, provided suit is timely filed (under the discovery rule), copyright damages are recoverable for infringements that occurred prior to the Copyright Act’s three-year statute of limitations. The Supreme Court’s decision resolves a circuit split on the recoverability of retrospective copyright damages.

Timely Filing Versus Damages Limitations

The law imposes time limits, known as statutes of limitations, on when lawsuits must be filed. One of the purposes of a statute of limitations is to prevent parties from belatedly asserting claims long after the allegedly wrongful conduct occurred, when memories have faded and critical relevant evidence may be lost. The law may require that cases must be filed within a certain time period, or may limit the time period for which monetary damages may be obtained.

The Copyright Act does not limit the time period for collecting damages, but instead requires that lawsuits must be filed within three years after the claim “accrued.” 17 U.S.C. § 507(b). However, the Copyright Act does not state when a claim accrues. For many types of lawsuits, claims accrue when the defendant’s wrongful conduct occurs, or when the plaintiff experiences the resulting injury. However, in copyright disputes, most federal courts (including the Eighth Circuit, covering Missouri), apply the “discovery rule,” under which claims are deemed to accrue when the plaintiff discovers the infringement, or with due diligence should have discovered it. The practical consequence of the discovery rule is that copyright infringement lawsuits may be timely filed for infringements that allegedly occurred prior to the commencement of the three-year statute of limitations.

What Happened Here?

In the early 1980s, the plaintiff, Sherman Nealy, went into the music business with Tony Butler, and established Music Specialist, Inc. (MSI). MSI recorded and released one album and various singles from 1983 to 1986, but ceased operations shortly thereafter because Nealy was incarcerated. While Nealy was in prison, Butler founded a new company and began licensing MSI music to various companies, including defendant Warner Chappell Music, Inc. (“Warner”).

In 2018, Nealy sued various companies for copyright infringement, seeking damages for alleged infringements that occurred as far back as 2008. Nealy asserted he first discovered the alleged infringements in 2016 and, under the discovery rule, his 2018 lawsuit was timely filed.

The District Court agreed that Nealy could sue for infringements that allegedly occurred as far back as 2008, but limited his damages to infringements that occurred within the three years immediately preceding his filing of the lawsuit. This ruling was appealed to the Eleventh Circuit, which reversed the District Court’s decision on damages and held that the Copyright Act imposed no such restriction on damages, such that Nealy could recover for infringements that allegedly occurred prior to the commencement of the three-year limitations period.

However, the Second Circuit had previously ruled otherwise, finding that even under the discovery rule, damages were confined to the three years immediately preceding the filing of suit.

What Did The Supreme Court Decide?

Justice Kagan delivered the opinion of the Court, joined by Chief Justice Roberts and Justices Barrett, Jackson, Kavanaugh, and Sotomayor. The majority affirmed the Eleventh Circuit’s holding that where a lawsuit is timely filed under the discovery rule, the plaintiff is entitled under the Copyright Act to monetary damages for all actionable infringements, regardless of when they occurred. This means that damages can be collected for infringements occurring before the three-year limitations period, if those infringements can be timely asserted due to the operation of the discovery rule.

However, the majority expressly declined to decide whether the discovery rule should be used, because that question was not before the Court. The Court noted that “[w]e have never decided whether…a copyright claim accrues when a plaintiff discovers, or should have discovered, the infringement, rather than when the infringement happened.”

The dissent opined that the discovery rule ordinarily applies only in cases of fraud or concealment, which was not alleged. The dissent thus asserted that the discovery rule should not have been used, nor should it be used in typical copyright infringement cases.

What Are the Effects of this Opinion?

Because the majority of federal courts to decide this issue had already adopted the Supreme Court’s interpretation of the discovery rule, the ruling in Warner Chappell Music, Inc. does not alter in the law in most jurisdictions. Only the Second Circuit, which includes New York, is affected. Additionally, on May 20, shortly after this decision, the Supreme Court declined to decide the question of whether the lower courts should use the discovery rule at all. This means the discovery rule is here to stay for the time being, and the time period for when damages can be collected in copyright infringement cases will turn on when the plaintiff knew, or with due diligence should have known, about the allegedly infringing conduct. In most cases, this is likely to be a fact-intensive inquiry that must be very carefully considered.

The attorneys in Lewis Rice's Intellectual Property Practice Group combine technical experience with business pragmatism to achieve our client's desired objectives. If you have questions about this case and the implications for your business, please contact a Lewis Rice Intellectual Property attorney.