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Nealy v. Warner Chappell Music, Inc.

Weighing in on circuit split as to whether U.S. Supreme Court’s Petrella decision categorically bars damages for copyright infringements occurring more than three years before suit, Eleventh Circuit joins Ninth Circuit and rejects Second Circuit, holding that there is no such bar, and that plaintiff who timely files copyright action under discovery rule may recover damages from infringement occurring more than three years before suit was filed.

In a panel decision on an interlocutory appeal regarding how far back in time a plaintiff may recover damages in a copyright infringement action—a question that has split other circuit courts—the Eleventh Circuit held that, provided the plaintiff has timely filed a copyright claim under the Eleventh Circuit’s discovery rule, the plaintiff may recover damages that occurred more than three years prior to the filing of the lawsuit.

The appeal arose from a copyright infringement suit filed in the Southern District of Florida by Miami-based independent record label Music Specialist Inc. (MSI) and its owner, Sherman Nealy, against Warner Chappell Music Inc., Artist Publishing Group LLC and Atlantic Recording Corporation. MSI released an album and several singles in the mid-1980s with the help of Tony Butler, a DJ and the author or co-author of the musical works at issue in the lawsuit. In 1989, MSI ceased operations when Nealy began serving a 20-year prison sentence for cocaine distribution. Plaintiffs alleged that, as early as 2008, Butler and other third parties licensed works from the MSI catalog to the defendants without Nealy’s authorization and that defendants had infringed plaintiffs’ copyrights. Nealy claimed that he did not learn of the alleged violations of his copyrights until 2016. Less than three years later, in December 2018, he and MSI filed suit, seeking relief for the infringements dating back to 2008.

Defendants moved for summary judgment on all claims, including as to whether plaintiffs had timely filed their claims in light of the Copyright Act’s statute of limitations, which bars claims asserted more than three years from when they accrued. The Eleventh Circuit employs the “discovery rule” to determine when claims accrue for statute of limitations purposes under the Copyright Act, meaning that a claim accrues “when the plaintiff learns, or should as a reasonable person have learned, that the defendant was violating” the plaintiff’s rights. The discovery rule stands in contrast to the “injury rule,” which dictates that a claim accrues when the infringement occurs, regardless of plaintiff’s knowledge of the infringement. 

The district court denied summary judgment to defendants on the statute of limitations issue, finding a genuine dispute of material fact as to when the claims accrued. But the court certified, and plaintiffs petitioned to appeal, the question of “whether the Copyright Act’s statute of limitations … precludes a copyright plaintiff from recovering damages for harms occurring more than three years before the plaintiff filed suit, even if the plaintiff’s suit is timely under [the Eleventh Circuit’s] discovery rule.”

The Eleventh Circuit first confirmed that the discovery rule applied in determining the timeliness of plaintiffs’ claims. Because plaintiffs’ copyright claims involved a dispute over ownership of the copyrights, Eleventh Circuit precedent supported the application of the discovery rule. With that finding, and assuming the plaintiffs had filed their lawsuit within three years of the date by which they knew or reasonably should have known about their ownership claims, the Eleventh Circuit turned to the question of whether plaintiffs could “recover retrospective relief for infringement that occurred more than three years before they filed this lawsuit.”

Defendants argued that the Supreme Court’s 2014 decision in Petrella v. Metro-Goldwyn-Mayer barred recovery of damages for infringements that occurred more than three years prior to the filing of a copyright action. In Petrella, the Supreme Court held that copyright claims that are timely filed within the statute of limitations are not subject to the equitable defense of laches, stating in its decision that the statute of limitations “bars relief of any kind for conduct occurring prior to the three-year limitations period” and that damages in a copyright action can be obtained “running only three years back from the date the complaint was filed.” Circuit courts have split on the interpretation of this language, with the Second Circuit holding in Sohm v. Scholastic, Inc. that a plaintiff may only recover damages for copyright infringement that occurred within the three-year window preceding the filing of the suit, even when the discovery rule applies, while the Ninth Circuit held in Starz Ent., LLC v. MGM Domestic Television Distrib., LLC that Petrella did not limit damages to the three-year period before the suit was filed, because such an interpretation “would eviscerate the discovery rule.”

The Eleventh Circuit sided with the Ninth Circuit, holding that “a copyright plaintiff may recover retrospective 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.” Highlighting the contextual differences that led to the statements in Petrella on which defendants relied, the Eleventh Circuit noted that the claims in Petrella were timely, for statute of limitations purposes, under the injury rule—not the discovery rule utilized by the Eleventh Circuit. Because a copyright claim accrues under the injury rule when the infringement occurs, and because “separate claims accrue with each new injury” (under the “separate-accrual rule”), the Eleventh Circuit reasoned that the injury rule, by its operation, limits damages recoverable by a copyright plaintiff to the three-year period before filing. The discovery rule, on the other hand, “affords defendants a different kind of protection from stale claims” by creating a singular moment of claim accrual—i.e., when the plaintiff knew or should have known about the claim—and, when suit isn’t filed within three years of that moment, barring all claims that logically follow. Because the Supreme Court in Petrella did not apply the discovery rule, the Eleventh Circuit concluded that the quotes from Petrella relied on by defendants were not determinative in this action. 

Furthermore, the Eleventh Circuit reasoned that the Supreme Court could not have intended to create a rule by which damages are unavailable to a plaintiff who otherwise timely files a claim under the discovery rule, because the Petrella decision expressly preserved the question of whether the discovery rule governs the accrual of copyright claims. In the Eleventh Circuit’s view, if application of both the discovery rule and the injury rule would lead to the same result—a bar on damages outside the three-year period preceding the filing of a lawsuit—there would have been no need for the Supreme Court to distinguish between the two rules and preserve the question of the propriety of the discovery rule, as it did. For those reasons, the Eleventh Circuit concluded that the Supreme Court in Petrella “did not bar copyright damages in actions that are timely under the discovery rule.”

Having reached that conclusion, the Eleventh Circuit looked to the text of the Copyright Act’s statute of limitations (17 U.S.C. Sec.  507(b)) to determine whether defendants’ position could be supported. The court noted that the statute contains no limitation on the remedies available for a timely filed claim, nor do the damages provisions of the Copyright Act place a time limit on the availability of damages for past infringement. Finding that the plain text of the Copyright Act “does not support the existence of a separate damages bar for an otherwise timely copyright claim,” the Eleventh Circuit held that a plaintiff who timely files a copyright claim under the discovery rule may recover damages from the infringement, even if such damages occurred more than three years prior to the suit being filed.

Summary prepared by Tal Dickstein and Kyle Petersen