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U.S. Supreme Court Rules in Copyright Damages Case Warner Chappell Music, Inc. v. Nealy

May 22, 2024

On May 9, 2024, in Warner Chappell Music, Inc. v. Nealy, the U.S. Supreme Court held that the United States Copyright Act (the “Copyright Act”) entitles a copyright owner to obtain monetary relief for any timely infringement claim, no matter when the infringement occurred.[i]  The Court’s limited decision, however, left a significant threshold issue unresolved, leaving copyright litigants in a jam.

In 1983, Sherman Nealy and disc jockey Tony Butler formed a music venture called Music Specialist, Inc., which subsequently dissolved in 1986. During its short-lived existence, Music Specialist, Inc. recorded and released one album and several singles.  Following Music Specialist, Inc.’s dissolution, Mr. Nealy went to prison for  drug-related offenses from 1989 to 2008, and again from 2012 to 2015.  During Mr. Nealy’s incarceration, unbeknownst to him, Mr. Butler entered into an agreement with Warner Chappell Music, Inc. to license music from Music Specialist, Inc.’s catalog. One of the songs from Music Specialist, Inc.’s catalog, “Jam the Box,” was digitally sampled for rapper Flo Rida’s 2008 massive hit “In the Ayer.”

In 2018, following Mr. Nealy’s release from prison, he sued Warner Chappell, Inc. in the United States District Court for the Southern District of Florida (the “District Court”) for copyright infringement, alleging that Warner Chappell, Inc. was not authorized to sample, copy, reproduce or use the copyrighted “Jam the Box” in Flo-Rida's "In the Ayer" or other copyrighted works belonging to Music Specialist, Inc. Mr. Nealy’s claim, however, came nearly a decade after the copyright registration  for “In the Ayer” was filed with the U.S. Copyright Office, presenting the issues of whether Mr. Nealy’s claim was barred by the Copyright Act’s three year statute of limitations and, if not time-barred, the scope of monetary damages available. That is, whether recovery of damages is limited to infringement that occurred within the immediately preceding three years, or from the time the infringement initially occurred.

The Copyright Act entitles a copyright owner to recover damages for any timely claim. 17 U.S.C. § 507(b) provides that a copyright plaintiff must file suit within three years after the claim accrued.  When, exactly, a claim begins to accrue under the Copyright Act is not explicitly stated in the statute. [ii] Under the so-called “discovery rule,” a copyright claim accrues when a plaintiff discovers, or with due diligence should have discovered, the infringing act. Alternatively, under the “injury rule,” a copyright claim begins to accrue when the when the infringing act actually occurs.

In Warner Chappell Music, Inc., Mr. Nealy argued that his claims were timely under the “discovery rule” because he did not learn of Warner Chappell Inc.’s infringement until 2016, just after he was released from prison. Before the District Court, Warner Chappell Inc. accepted the fact that Mr. Nealy’s claim was timely under the “discovery rule,” but argued that Mr. Nealy’s damages, if any, should be limited to infringements which occurred during the three years immediately preceding his claim, despite the fact that the initial infringement may have occurred years before. Relying on the Second Circuit’s decision in Sohm v. Scholastic Inc., 959 F.3d 39 (2d Cir. 2020), the District Court ruled for Warner Chappell, Inc., holding “even when claims for old infringements are timely, monetary relief is ‘limited’ to ‘the three years prior to the filing’ of the action.[iii] 

However, on appeal, the Eleventh Circuit reversed the District Court’s decision, aligning itself with the Ninth Circuit’s decision in Starz Ent., LLC v.  MGM Dom. TV Distrib., LLC, 39 F.4th 1236 (9th Cir. 2022), rejecting the limitation on monetary damages to infringements which occurred during the immediately preceding three years.[iv] In September 2023, the U.S. Supreme Court granted certiorari to resolve this Circuit split.  

The U.S. Supreme Court affirmed the Eleventh Circuit’s decision, holding that the Copyright Act does not include a time-based limit on monetary recovery for infringement. In a 6-3 decision, the U.S. Supreme Court held that the provision at issue, 17 U.S.C.S. § 507(b), “establishes no separate three-year period for recovering damages,” therefore, “ a copyright owner possessing a timely claim for infringement is entitled to damages, no matter when the infringement occurred.”

The majority opinion, written by Justice Kagan, recognized that the Court’s decision did not resolve the more threshold issue of whether the Copyright Act even allows for the “discovery rule.” The Court stated that the validity of the “discovery rule” was not before the Court, even pointing to the “surprising” fact that Warner Chappell, Inc. failed to challenge the Eleventh Circuit’s use of the “discovery rule” in its petition for certiorari.[v]  Therefore, the issue for the Court’s consideration was confined to “only whether a plaintiff with a timely claim under the rule can get damages going back more than three years.”  The dissent, written by Justice Gorsuch, highlighted the Court’s “sidestep” of this threshold issue, stating “Rather than address that question, the Court takes care to emphasize that its resolution must await a future case. The trouble is, the Act almost certainly does not tolerate a discovery rule. And that fact promises soon enough to make anything we might say today about the rule’s operational details a dead letter.” 

On May 20, 2024, less than a month after Warner Chappell Music, Inc. v. Nealy was decided, the U.S. Supreme Court denied a petition to review the threshold issue of whether the “discovery rule” applies to actions commenced under the Copyright Act.[vi]  Notably, the petition for certiorari in Hearst Newspapers L.L.C. v.  Antonio Martinelli, referred to the damages question presented in Warner Chappell Music, Inc. v. Nealy as the “the symptom—not the problem.”[vii]

The Court’s decision not to review the Fifth Circuit’s decision leaves the threshold issue of whether the Copyright Act even allows for the “discovery rule” unresolved – for now. Copyright owners will need to await future litigation for clear guidance on the Copyright Act’s statute of limitations. 

Cullen and Dykman’s Intellectual Property team continues to monitor important developments in trademark and copyright law. Should you have any questions about this legal alert, please feel free to contact Karen Levin (klevin@cullenllp.com), Ariel Ronneburger (aronneburger@cullenllp.com), or Ciara Villalona (cvillalona@cullenllp.com).

This advisory provides a brief overview of the most significant changes in the law and does not constitute legal advice. Nothing herein creates an attorney-client relationship between the sender and recipient.

Footnotes

[i] Warner Chappell Music v. Nealy, No. 22-1078, 601 U.S. ___ (2024) .

[ii] Michael Beylkin, Accrual of Claims Under the U.S. Copyright Act: Will the Supreme Court Discard the Bad wine of a Not-So-Recent Vintage, American Bar Association, Jan 31, 2024, https://www.americanbar.org/groups/communications_law/publications/communications_lawyer/2024-winter/accrual-claims-under-us-copyright-act-will-supreme-court-discard-bad-wine-a-notsorecent-vintage/ (last accessed May 21, 2024). 

[iii] Id (citing Nealy v Atl. Rec. Corp., No. 18-CIV-25474-RAR, 2021 US Dist LEXIS 105115, at *10 (S.D. Fla, June 4, 2021))

[iv] Id (citing  Nealy v Warner Chappell Music, Inc., 60 F.4th 1325, 1328 (11th Cir 2023).

[v] A footnote to the Court’s majority opinion provides, in relevant part, “Disregarding the limit in the reformulated question, Warner Chappell’s briefing in this Court focuses almost entirely on the discovery rule itself…That choice is especially surprising given that Warner Chappell’s own petition for certiorari raised the broader discovery-rule issue only in a footnote, which acknowledged that the issue was not raised below and is not the subject of a Circuit split. But even supposing Warner Chappell’s petition had urged us to opine on the discovery rule, our reformulation of the question presented should have put an end to such arguments…”

[vi] Hearst Newspapers, L.L.C. v. Martinelli, No. 23-474, 2024 U.S. LEXIS 2218 (May 20, 2024).

[vii] Petition for Writ of Certiorari, Hearst Newspapers, L.L.C. v. Martinelli, Nov. 2, 2023,  https://www.supremecourt.gov/search.aspx?filename=/docket/docketfiles/html/public/23-474.html (last accessed May 21, 2024). 

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