To rule or not to rule, that was the question in Nealy v. Warner-Chappell

On May 9, the U.S. Supreme Court decided whether the “discovery rule” applies to accrual of copyright infringement claims.

Or did it?

Under the discovery rule, a claim accrues, and the limitations period begins to run, when a claimant discovers, or with due diligence should have discovered, its claim. The rule originates in common law. Both federal and state courts have applied it over many years. They have done so more or less uniformly and across a wide range of contract, tort, and statutory claims. This includes claims for copyright infringement.

That subject came before the Court in its October term in Warner-Chappell v. Nealy. Docket No. 22-1078. Under the Copyright Act a civil action must be “commenced within three years after the claim accrued.” 17 U.S.C. § 507(b). Before Nealy, the Supreme Court considered it only once.

In that case, Petrella v. MGM, the Court held that the doctrine of laches does not bar an otherwise timely claim of infringement under the limitations provision of the Act. 572 U.S. 663 (2014). In so holding, the Court endorsed the “separate accrual” rule.

That “widely recognized” rule treats each act of infringement in a succession of such acts as a distinct harm giving rise to an independent claim for relief. Thus, even if a party began infringing a copyrighted work outside the three-year limitations period, any successive infringing conduct occurring within three years – say, an additional act of reproduction or distribution of the infringing work – would be actionable and give rise to damages for those acts.

Despite the alarm bells sounded in dissent, the danger of prejudice to defendants based upon successive acts of infringement beginning “50 or 60 years” before failed to transpire. The outcome in the case brought against the songwriters of “Stairway to Heaven” may reflect one jury’s (and this writer’s) view of such claims. “Led Zeppelin Triumphs In ‘Stairway’ Rip-Off Trial,” Law360 (June 23, 2016). A stale claim – made there almost 50 years after the first act of infringement – remains stale.

Like the Stairway to Heaven case, Nealy was a successive acts case. But unlike the Stairway to Heaven case, Nealy contended he was unaware of the alleged infringement and could not have been otherwise. As recited in the majority opinion, Nealy apparently sat in prison during the decade between the first act of infringement and his lawsuit. He brought his lawsuit less than three years after his confinement ended. Nealy therefore sought to invoke the discovery rule to reach back to inception of the infringement. In doing so, he claimed damages for all infringing acts during the entire decade-long period.

This theory of damages is standard operating procedure. Assuming the facts permit – they did not in the Stairway to Heaven case, and many times don’t (especially when the allegedly infringing work is wildly popular and commercially successful)—a claimant like Nealy will allege that he did not discover, nor could he have discovered, the infringement of his work until three years before he filed suit. In that circumstance, he will invoke the discovery rule and say, as Nealy did, that he is entitled to damages from the proverbial Day One.

This was the precise question accepted by the Supreme Court for review. Namely, whether, under the discovery rule applied by the circuit courts and the Copyright Act’s statute of limitations for civil actions, a claimant could recover damages for acts allegedly occurring more than three years before the filing of a lawsuit.

All of the circuit courts to consider the question have adopted the discovery rule as governing the timeliness of copyright infringement claims. See Martinelli v. Hearst Newspapers, 65 F.4th 231 (5th Cir.2023); Nealy v. Warner Chappell Music, 60 F.4th 1325 (11th Cir.2023); Starz Entertainment v. MGM, 39 F.4th 1236 (9th Cir.2022); Psihoyos v. Wiley & Sons, 748 F.3d 120 (2nd Cir.2014); Graham Co. v. Haughey, 568 F.3d 425, 433 (3rd Cir.2009); Cambridge Literary Properties v. Goebel Porzellanfabrik, 510 F.3d 77 (1st Cir.2007), and Gaiman v. McFarlane, 360 F.3d 644 (7th Cir.2004). Indeed, in both courts below, Warner-Chappell accepted that the discovery rule governed the timeliness of Nealy’s claims.

Despite Warner-Chappell’s unsuccessful attempt to reverse course, the Supreme Court would do likewise: It “assumed without deciding” that a claim for copyright infringement accrues upon discovery. So technically, application of the discovery rule to the accrual of copyright infringement claims wasn’t resolved by the Court in Nealy once or for all.

What, then, was at stake? The circuit courts had split on the effect of the discovery rule on the scope of a claimant’s damages. More precisely, the Second Circuit veered off-course from its and others’ precedent adopting the discovery rule to allow damage claims from inception. In Sohm v. Scholastic, that court decided that notwithstanding its previous adoption of the rule, the Copyright Act limited a claimant’s damages for a continuing infringement to just those three years immediately preceding its lawsuit. 959 F. 3d 39 (2020). It took almost three years for the Eleventh Circuit to disavow that view in the Nealy case. 60 F. 4th 1236 (2023).

Not surprisingly, the Supreme Court sided with the Eleventh Circuit. In its majority opinion, six of the Court’s justices held that the Copyright Act establishes no separate three-year damages bar on a timely claim. Because the Court assumed without deciding that the discovery rule applied to accrual of an infringement claim, it also found that a claimant may obtain damages for any timely infringement claim, no matter when the infringement occurred.

In its briefing and at oral argument before the Supreme Court, Warner-Chappell leaned into the Petrella decision, relying upon some of the language used by Justice Ginsburg in the text of the majority opinion. To a majority of current justices that seemed like a stretch.

The three dissenting justices disagreed. Invoking some of that same language, the dissent suggested that the Copyright Act “almost certainly does not tolerate a discovery rule.” But Justice Ginsberg’s opinion, albeit in a footnote, acknowledged uniformity among the circuit courts even then in adopting the discovery rule to the accrual of claims under the Copyright Act. Her opinion never once questioned the rule’s viability or considered how it might impact the decision in Petrella, even in the abstract.

At most, then, the Nealy decision was a course correction. According to the dissent, nothing terribly decisive transpired in the Court’s resolution of the case. This was the problem it had with the majority’s decision. For whatever reason, despite uniformity among the circuit courts, three justices want to take on the question of application of the discovery rule to accrual of copyright claims, and appeared frustrated that the Court in Nealy didn’t.

That lack of closure on the subject is reflected elsewhere on the Court’s docket. Late last year, the Fifth Circuit joined its sister courts in adopting the discovery rule to accrual of a copyright infringement claim.

Unhappy with that result, the defendant Hearst Newspapers filed a petition for writ of certiorari. Martinelli v. Hearst Newspapers, Docket No. 23-474 (Nov. 6, 2023). Hearst’s petition squarely puts the question whether the discovery rule applies at all to the Copyright Act’s statute of limitations for civil claims.

The Court requested a response to Hearst’s filing. As of the end of January, the matter was fully briefed, and the petition remains pending.

That proceeding points, perhaps, to another possible go on the subject of whether and how far a claimant can reach back and seek damages for an infringement of its copyrighted work. With one more vote to accept review, the Supreme Court may indeed rule once and for all on the subject.