Supreme Court Clarifies Availability of Copyright Damages

On May 9, 2024, the Supreme Court held that the Copyright Act contains no time-based limit on the recovery of damages. As a result, copyright owners have the ability to recover damages for copyright infringement no matter when such infringement occurred, as long as the case filed is filed within the three-year statute of limitations.

Background

Sherman Nealy and Tony Butler formed a music company that recorded one album and several singles. Without Sherman Nealy’s consent, Tony Butler licensed works from their joint catalog to Warner Chappell. Upon learning his business partner licensed these works, Sherman Nealy filed a suit against Warner Chappell for copyright infringement.

There is a circuit split with regard to the definition of accrue. In some circuits, a copyright claim accrues when the infringing act occurs. In other circuits, a copyright claim accrues when “the plaintiff discovers, or with due diligence should have discovered the infringing act.” This theory is referred to as the discovery rule. The Southern District of Florida is a court that recognizes the discovery rule.

Nealy argued that his copyright infringement claims were timely because he filed suit within three years of discovering such infringement. In fact, Warner Chappell did not challenge the applicability of the discovery rule. Rather, Warner Chappell argued that Nealy could only recover damages or profits for infringement occurring in the last three years. The District Court agreed, and Nealy appealed to the Eleventh Circuit.

The Eleventh Circuit reversed the District Court’s decision, holding that damages were not confined to the past three years. In rendering its decision, the Eleventh Circuit noted that imposing a three-year bar on damages “would gut the discovery rule by eliminating any meaningful relief for the very claims it is designed to preserve.”

Supreme Court Decision

The Supreme Court granted certiorari to answer the narrow question of whether, under the discovery accrual rule, a plaintiff can recover damages for infringement occurring more than three years prior to filing suit. In answering this question, the Supreme Court did not decide whether the discovery rule accrual assumption was valid because Warner Chappell never challenged the rule's applicability.

In determining whether there was a three-year bar on damages, the Court looked at the plain language of the statute. While the Copyright Act established a three-year statute of limitations period, the remedial section of the act does not impose a temporal limit on monetary recovery. Therefore, the Court concluded that as long as a copyright owner timely files for infringement, he is entitled to damages, regardless of when the infringement occurred.

Dissent

Justice Gorsuch, along with Justices Thomas and Alito expressed disagreement with the majority’s opinion. More specifically, the dissenting justices believed that the majority needed to determine the applicability of the discovery rule of accrual in the copyright context. In their opinion, the plain language of the Copyright Act does not allow for the discovery rule, stating that a claim for copyright infringement accrues when the infringing act occurs. Even the Court’s own precedent states that the discovery rule is only applicable in cases of fraud or concealment. Therefore, Nealy’s claims should have been deemed untimely as they were brought more than three years after they accrued, and Nealy did not allege fraud or concealment. Ultimately, the dissenting justices would have dismissed this case as “improvidently granted.”

Takeaways

When a copyright owner timely files suit for copyright infringement, damages are not limited to infringement occurring in the three years prior to filing suit. However, it is important to understand which trial courts adhere to the discovery accrual rule, as accrual rules determine whether claims are timely and will be adjudicated.