Ninth Circuit affirms denial of defendant studio’s motion to dismiss plaintiff television network’s copyright infringement claims regarding exclusive licensing agreements, finding that claims were not barred by Copyright Act’s statute of limitations and plaintiff was not barred from seeking damages for all acts of infringement because plaintiff promptly filed suit once it discovered infringing activity.
Plaintiff Starz Entertainment LLC sued MGM Domestic Television Distribution LLC (a division of MGM) for copyright infringement and breach of contract, alleging that MGM breached the parties’ exclusive licensing agreements. The district court denied MGM’s motion to dismiss the copyright infringement claims (read our summary of the court’s decision here), and the Ninth Circuit affirmed, finding that the claims were not barred by the three-year limitations period under Section 507(b) of the Copyright Act and Starz was not barred from seeking damages for all acts of infringement.
In 2013 and 2015, Starz and MGM entered into exclusive licensing agreements that provided Starz with the exclusive right to exhibit MGM-owned movies and television series episodes on Starz’s suite of services. In 2019, a Starz employee discovered that one of the films covered by the agreements, Bill & Ted’s Excellent Adventure, was available to stream on Amazon Prime Video during Starz’s exclusivity period. Subsequently, Starz’s further investigative efforts found more movies and television series that were licensed to third parties during Starz’s exclusivity period. Starz then sued MGM in May 2020. The Ninth Circuit held that Starz was not too late in bringing its claims and could recover damages for all infringing acts that occurred before it knew or reasonably should have known of the infringing acts.
The court first set out the general rule that a copyright infringement claim is timely so long as it is commenced within three years after the claim accrued, and a claim generally accrues when infringement occurs. However, the court recognized a long-standing exception to the rule—known as the discovery rule—that was established in the 1994 Ninth Circuit decision Roley v. New World Pictures Ltd. Under the discovery rule, a claim can alternatively accrue when the copyright holder knows or reasonably should know that an infringement occurred, thereby allowing copyright holders to recover damages for infringing acts that happened before they discovered the infringement. Specifically, Roley held that Section 507(b) does not prohibit the recovery of damages for infringing acts that occurred outside the three-year window so long as “the copyright plaintiff was unaware of the infringement, and that lack of knowledge was reasonable under the circumstances.”
The appellate court found that the discovery rule applied in this case, noting that “the overwhelming majority of courts” use the discovery rule for determining accrual in copyright cases. The panel agreed with Starz that the 2014 U.S. Supreme Court decision in Petrella v. Metro-Goldwyn-Mayer Inc. (holding that infringers cannot invoke the laches defense against copyright suits when the claims were brought within three years) said nothing about the continued viability of the discovery rule. The Petrella court was solely focused on laches—a doctrine that addresses the issue of delayed lawsuits where plaintiffs know of their claims but “sleep on their legal rights” and the resulting delay causes evidentiary and/or economic prejudice to defendant. The Ninth Circuit opined that the Petrella court could not have intended its language to address the scenario where, as here, a copyright holder did not know about the infringing acts.
The main question in the case was whether the Petrella decision imposed a “damages bar” separate from the statute of limitations, an issue that the panel acknowledged has not been addressed by the Ninth Circuit. MGM cited the Second Circuit decision in Sohm v. Scholastic Inc., which answered the question in the affirmative. The Second Circuit concluded that “a plaintiff’s recovery is limited to damages incurred during the three years prior to filing suit,” even where the copyright holder was unaware of the infringing acts.
The Ninth Circuit disagreed with the Second Circuit, however, holding that there would be “no reason for a discovery rule if damages for infringing acts of which the copyright owner reasonably becomes aware years later are unavailable” and that this case “provides a textbook example of the absurdity of such a rule.” The court reasoned that imposing such a bar would be harsh because a plaintiff would be unable to be compensated even if a plaintiff discovered the infringement more than three years after the infringement occurred and timely filed a complaint within three years of that discovery.
The appellate court also noted that imposing a damages bar does not make sense where an infringer controls the infringing acts and a plaintiff has little means of discovering those acts, recognizing that the evolution of technology has made copyright infringement easier to commit and harder to detect. The court anticipated that imposing a damages bar would incentivize violation of the copyright holder’s exclusive rights instead of protecting those rights, which is the main purpose of the Copyright Act.
Summary prepared by David Grossman and Alex Loh