The statute of limitations in copyright law is three years from the time the claim accrues. Under the “discovery rule” used in most circuits, “a claim accrues when ‘the plaintiff discovers, or with due diligence should have discovered,’ the infringing act.”
There are two ways to describe the holding of the Supreme Court on May 9, then, in Warner Chappell Music, Inc. v. Nealy. The lawyerly way is to say that the discovery rule, to the extent it exists, allows a co-owner of a copyright to recover damages from more than three years before the lawsuit was filed. Another way to put it is that rapper Flo Rida’s record label may have to pay damages to the producer of “Pretty” Tony’s 1984 single “Jam the Box,” sampled for Flo Rida’s “In the Ayer,” since the producer did not find out about the use of the single as he was serving multiple prison sentences.
As the latter description indicates, the story underlying the Supreme Court’s recent decision is fairly colorful. Sherman Nealy founded Music Specialist, Inc. in the early 1980s along with Tony Butler (“Pretty” Tony), and the company produced a series of influential singles in the genre of freestyle music, fusing electronic production and hip hop. Nealy had by that time had run-ins with the law, and he was subsequently incarcerated from 1988-2008 and 2012-2015. During this time, Butler licensed songs produced by Music Specialist to entities including Atlantic Records (owned by Warner) for such songs as “In the Ayer” by Flo Rida and “Fuego” by Pitbull and others. Nealy believed these licenses were invalid without his involvement, and he sued Warner and its subsidiaries, along with the Executive Vice President of A&R at Atlantic Records at the time and his entity Artist Publishing Group. The song “In the Ayer” was featured in Season 4 of “So You Think You Can Dance” on FOX, peaked at Number 9 on the Billboard Hot 100, and was certified platinum by the RIAA.
The problem is, "In the Ayer" was released in 2008, and Nealy filed suit in the Southern District of Florida at the end of 2018. Under Section 507(b) of the Copyright Act, “[n]o action shall be maintained under the provisions of this title unless it is commenced within three years after the claim accrued.” Nevertheless, following 11th Circuit precedent, the district court denied summary judgment to defendants and found that a trial was needed on when Nealy knew or should have known that his ownership interest in the copyright was being challenged. The district court certified an interlocutory appeal to the 11th Circuit as to whether this was correct, and the 11th Circuit affirmed, finding that to the extent the discovery rule was properly invoked, Nealy had a claim for damages going back more than three years.
As mentioned above, the discovery rule permits bringing an action for infringements more than three years prior where the plaintiff lacked knowledge of the infringement. The key prior decision of the Supreme Court here is 2014’s Petrella v. MGM, where the Court found that an action for damages based on the screenplay for the film “Raging Bull” was not barred by the doctrine of laches, and that the limitation of damages to three years from accrual was sufficient to deter plaintiffs from sitting on their rights. In Petrella, the Court stated that “A copyright claim . . . ‘accrues’ when an infringing act occurs.” It noted that some circuits had adopted the discovery rule, but it did not comment on whether the rule was a valid interpretation of the Copyright Act. Accordingly, although Petrella did not invalidate the discovery rule, the rule seemed to conflict with a plain reading of the Court’s opinion, which seemed to endorse an “injury rule” instead.
In circuits which recognize the discovery rule, a copyright claim accrues upon discovery, not upon the infringement. As the 11th Circuit recognized the discovery rule, the key question in this case was whether Nealy could recover damages only for the three years immediately prior to bringing suit, or whether he could recover all of his damages, regardless of when they occurred. In other words, is the statute of limitations a damages rule, or simply a standing rule? The 11th Circuit found that Nealy could recover all of his damages since the original infringement so long as the accrual was timely under the discovery rule. Accordingly, the question presented to the Supreme Court was “[w]hether the Copyright Act’s statute of limitations for civil actions, 17 U.S.C. 507(b), precludes retrospective relief for acts that occurred more than three years before the filing of a lawsuit.”
In retrospect, the decision to focus on damages and not the discovery rule generally was a serious mistake for Warner. In a footnote on page 14 of its petition for writ of certiorari, Warner noted that “this case would allow the Court to reach the question [of the applicability of the discovery rule] if it were so inclined,” but it did not place the issue front and center in its question presented. Warner noted that in light of circuit precedent, raising the issue below would have been futile, and given this, Warner chose to limit its question presented to a narrow case of interpreting the discovery rule.
Six Justices, in a short opinion by Justice Kagan, had no trouble affirming the 11th Circuit’s finding on damages, holding that to the extent a lawsuit may be brought, the rightsholder may “recover damages for any timely claim.” The Copyright Act contains no language limiting time for damages; the relevant timeframe relates to accrual of the claim and the requirement that a claim be brought within the statute of limitations. The majority opinion is equivocal as to the validity of the discovery rule, but in a footnote it rejects considering that question where it was not properly presented and briefed. As this was an interlocutory appeal, the case will continue to trial, assuming the courts do not get cold feet about the discovery rule.
In a dissent, Justice Gorsuch, joined by Justices Thomas and Alito, did not so much disagree with the reasoning of the majority opinion as they disagreed that it should have been written at all. Like the majority, they are skeptical of the discovery rule, but they would have dismissed the case as having been “improvidently granted and awaited another squarely presenting the question whether the Copyright Act authorizes the discovery rule.”
Perhaps not by coincidence, such a case—Martinelli v. Hearst Newspapers, L.L.C.—had been awaiting a decision on petition for writ of certiorari for months. If Justice Gorsuch felt it would be “[b]etter . . . to answer a question that does matter than one that almost certainly does not,” that would have been the case to answer it in. However, despite the dissent’s three votes, on May 20, 2024, the Court denied the petition. This leaves lower courts in limbo: the discovery rule in copyright has been clarified (and not rejected), but a cloud hangs over its validity even though it remains the law in most circuits.
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