Nealy Sings A New Tune For Copyright Holders

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Under the Copyright Act, a plaintiff must file a suit for infringement of copyright "within three years after the claim accrues." 17 U.S.C.§507(b).
United States Intellectual Property
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Washington, D.C. (May 13, 2024) – Under the Copyright Act, a plaintiff must file a suit for infringement of copyright "within three years after the claim accrues." 17 U.S.C.§507(b).

The United States Supreme Court issued a ruling on May 9, 2024, in the case ofWarner Chappell Music, Inc., et al. v. Nealy et al., addressing whether copyright holders' recovery for infringement claims is limited to infringements occurring during the three-year period when such claims may be brought or whether recovery can include infringements that occur earlier.

The Supreme Court affirmed the Eleventh Circuit's decision and held that, under the "discovery rule" applied by many of the circuit courts, which sets the accrual date for the statute of limitations at the time the plaintiff discovers (or should have discovered) infringement, a plaintiff can recover damages for infringing acts that occurred more than three years before filing the lawsuit, as long as the suit was timely filed within three years of the discovery. The Court's holding inNealyextends the timeframe for recovering damages, benefitting copyright holders who may not immediately discover longtime ongoing infringements, and will serve as a deterrent to infringers who could be on the hook for damages for the entire period of their infringing conduct.

The Nealy case concerns Warner Chappell Music's infringement of Sherman Nealy's copyrights in music recorded and released by Nealy in the early '80s as part of Music Specialist, Inc., a music venture collaboration that Nealy had with Tony Butler. The entity was dissolved within several years, but its recordings were subsequently licensed by Butler to Warner Chappell Music without Nealy's knowledge or consent, during a period in which Nealy was in prison for drug-related offenses. Warner Chappell was successful in exploiting the Music Specialist works, further licensing them to popular television shows, like "So You Think You Can Dance," and to artists like Flo Rida, the Black Eyed Peas, and Kid Sister for use in their recordings. Upon Nealy's release from prison and his discovery of the infringement, he brought an action against Warner Chappell, seeking to recover damages and profits, pursuant to the Copyright Act, for the entire period of infringement, which dated back 10 years before the action was filed.

As noted, the Copyright Act requires plaintiffs to file suit "within three years after the claim accrues." However, the circuit courts are split as to what triggers accrual. While some circuits hold that a claim accrues at the time of infringement, such that a claim can only be made within three years of the infringement itself, many hold that the claim accrues when a plaintiff discovers, or with due diligence should have discovered, the infringement. In this case, because Warner Chappell accepted application of the discovery rule, the Supreme Court made clear that its decision is not an opinion on accrual of the claim and whether the discovery rule is or is not valid. From there, the Court opined that, because the Copyright Act makes no mention of a separate time limit on damages, one could not be imposed. The Supreme Court distinguished the case fromPetrella v. Metro-Goldwyn-Mayer, Inc., which limited the plaintiff's recovery to the three years preceding the lawsuit, because the plaintiff in that action had been aware of the infringement for longer than three years and brought the claim only to address the infringement occurring in the three years that were not outside the statute of limitations.

In his dissent, Justice Gorsuch, joined by Justices Thomas and Alito, criticized the majority's decision to sidestep the issue of when an infringement claim accrues and the validity of the discovery rule applied by some but not all of the circuits. In Justice Gorsuch's view, the Copyright Act likely does not tolerate an interpretation of the statute of limitations premised on a discovery rule, as discovery rules are typically exclusively reserved only for cases involving fraud or concealment. He noted that the Supreme Court was not obligated to accept the parties' assumption that a discovery rule exists to get to the question of how it should work. Justice Gorsuch indicated his preference would be to have waited for a case concerning the discovery rule itself to "answer a question that does matter [rather] than one that almost certainly does not." On this basis, he appeared to opine that, once a case does eventually reach the Supreme Court to question the validity of a discovery rule to determine when a claim of infringement accrues, the decision inNealywill be rendered moot.

For now and until the case anticipated by Justice Gorsuch materializes, the Supreme Court's ruling lends greater clarity for copyright infringement claims in discovery rule jurisdictions, affirming that recovery is available for infringing acts, regardless of when they occur, provided the copyright holder commences an action within three years of discovery. However, until there is a definitive answer as to when a claim accrues (when the infringement occurs or when it was discovered or should have been discovered), the decision creates considerable commercial uncertainty surrounding copyright licensing, because a licensee (e.g. a film producer licensing music in a film) may face a third-party claim for infringement without a time limit.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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