Dechert LLP
05/10/2024 | News release | Distributed by Public on 05/10/2024 12:22
The Supreme Court Clarifies that the Copyright Act’s Three-Year Statute of Limitations Does Not Place a Three-Year Limit on Damages
On May 9, 2024, the Supreme Court issued its opinion in Warner Chappell Music, Inc. v. Nealy, No. 22-1078, 601 U.S. ___ (2024), addressing a circuit split regarding the recovery of damages under the Copyright Act.
The Copyright Act requires that civil copyright actions must be "commenced within three years after the claim accrued." 17 U.S.C. § 507(b). Although circuit courts have split on what it means for a copyright claim to "accrue[]," the split on that particular issue was not what the Court took up in this case. Instead, for purposes of Warner Chappell, the Court assumed that a copyright claim "accrue[s]" when the plaintiff discovers, or with due diligence should have discovered, the infringing act. This is known as the "discovery rule," which is recognized by the Eleventh Circuit, from which the Warner Chappell case originated, as well as most other circuit courts.
In this case, Nealy sought damages for infringement by Warner Chappell going back ten years. The district court agreed with Nealy that his claims were not barred by the Copyright Act's three-year statute of limitations because he first learned of Warner Chappell's infringement within the three years before filing suit. Per the discovery rule, Nealy's claims "accrued" when he discovered the infringing activity, which started the Copyright Act's three-year clock to commence an action.
With Nealy's action timely commenced under the Copyright Act, the question before the Court was the extent of damages Nealy could recover. Warner Chappell argued below that, even if Nealy's action was not barred for untimeliness, the Copyright Act nonetheless restricted recovery of damages to the three-year window preceding the filing of the complaint. Citing the Second Circuit in Sohm v. Scholastic Inc., 959 F.3d 39 (2d Cir. 2020), the district court agreed with Warner Chappell. The Eleventh Circuit reversed, disagreeing with Sohm, and aligning with the contrary approach taken by the Ninth Circuit in Starz Entm't v. MGM, 39 F.4th 1236 (9th Cir. 2022).
The Supreme Court affirmed, siding with the Eleventh and Ninth Circuits. In a 6-3 decision authored by Justice Kagan, the Court held that Section 507(b) of the Copyright Act establishes a three-year period for filing suit and does not impose any separate limitation on the recovery of damages. The Court further held that nothing in the remedial sections of the Copyright Act imposes any time limit on recovering damages. As such, the Court held that "a copyright owner possessing a timely claim for infringement is entitled to damages, no matter when the infringement occurred." 601 U.S. ___, slip op. at 7 (Kagan, J.).
Justice Gorsuch, joined by Justices Thomas and Alito dissented, although seemingly did not disagree with the majority's application of damages principles. Instead, the dissent argued that a discovery rule should not extend the explicit statute of limitations set forth in the Copyright Act except in limited cases and, on that basis, that the Court should not have reached the question presented, which was premised on application of the discovery rule. 601 U.S. ___, slip op. at 11-12 (Gorsuch, J., dissenting). The dissent further argued that unless the text of the underlying statute itself provides for discovery accrual, as opposed to "incident of injury" accrual, the discovery rule should be applied only in cases of fraud or concealment which would entitle the claimant to equitable tolling. Id.
The Court's ruling in Warner Chappell distinguishes the approach to damages in copyright cases from that in patent cases, where there is no standalone statute of limitations or time bar to filing suit. Instead, patent damages are limited to the "six years prior to the filing" of the infringement claims. 35 U.S.C. § 286.
Trade secret cases may be more likely impacted by the Warner Chappell decision. The Defend Trade Secrets Act ("DTSA") contains a three-year statute of limitations that explicitly incorporates the discovery rule ("A civil action under subsection (b) may not be commenced later than 3 years after the date on which the misappropriation with respect to which the action would relate is discovered or by the exercise of reasonable diligence should have been discovered.").[1] Following the reasoning of Warner Chappell, that provision would address only the time for filing suit and would not impose any separate limitation on the recovery of damages for previous periods.
Ultimately, in addition to the explicit holding regarding damages under the Copyright Act, the Warner Chappell decision suggests that, for other types of cases where the discovery rule applies, an applicable statute of limitations addresses only timeliness of suit and does not otherwise restrict recovery of damages. If no other temporal restriction on the recovery of damages exists, Warner Chappell suggests that a claimant with a timely suit is entitled to damages for the entire period of injury. Looking forward, though, the Court seems likely to address the more fundamental question of when discovery accrual should actually apply to copyright claims, or in the tort context more generally, particularly when the text of the statute includes an explicit limitation period.