On May 9, 2024, the Supreme Court in Warner Chappell, Music Inc. v. Nealy settled a longstanding circuit split and ruled 6-3 that the Copyright Act entitles a copyright owner to recover damages for any timely claim, no matter when the infringement occurred.¹ Prior to this ruling, circuit splits had developed with respect to two issues: (1) whether, for statute of limitation purposes, copyright claims accrue when the infringement occurs or when plaintiff discovers or should have discovered the infringing conduct (the so-called “discovery” rule), and (2) whether, the Supreme Court’s 2014 Petrella v. Metro-Goldwyn-Mayer decision limits copyright damages to the three-year period prior to the lawsuit, even if the “discovery” rule applies for statute of limitation purposes.  In Nealy, the majority only resolved the latter issue, finding no temporal limit on copyright damages for a claim that is timely filed, but did not reach the first issue.  Justice Gorsuch, in his dissenting opinion, previewed that he and two other justices are prepared to hold with respect to the first issue, in an appropriate case, that the “discovery” rule applied by many circuits is not authorized by the Copyright Act.

In 1983, respondent Sherman Nealy (“Nealy”) along with an associate (not a party to this case), formed a musical group called Music Specialist, Inc. (“Music Specialist”). The short-lived company recorded and released one album and multiple singles, including the works at issue.² Music Specialist dissolved a few years later.  Nealy soon afterwards was incarcerated from 1989 to 2008 and again from 2012 to 2015.³ During Nealy’s time in prison, and unbeknownst to Nealy, his former associate entered into a licensing agreement with Warner Chappell Music, Inc. (“Warner Chappell”) to license Music Specialist’s works.⁴ Some of the samples licensed to Warner Chappell garnered considerable fame, being used in songs by well-known artists and on popular television shows.⁵

In 2018, Nealy sued Warner Chappell for copyright infringement, alleging ownership of the copyrights to Music Specialist’s songs and that the licensing activities by Warner Chappell infringed those rights.⁶ Nealy’s asserted claims of copyright infringement dated back to 2008, ten years before he filed suit.⁷ Nealy sought “damages and profits for the alleged misconduct,” pursuant to §504 of the Copyright Act.⁸

As an initial matter, Nealy needed to make the threshold showing that his claims were timely under the Copyright Act, which requires a plaintiff to file suit “within three years after the claim accrued.” ⁹ See 17 U.S.C. § 507(b).  The statute does not specify when copyright infringement claims “accrue”, and the three-year statute of limitations period begins.

In Petrella, the Supreme Court analyzed the language of the Copyright Act to determine whether the doctrine of laches is an equitable defense against a claim of copyright infringement asserted within a statutory three-year window.¹⁰ In reaching its decision, the Petrella Court stated that “the limitations period generally begins to run at the point when ‘the plaintiff can file suit and obtain relief’…a copyright claim thus arises or ‘accrue[s]’ when an infringing act occurs.”¹¹ But, the Court also acknowledged that nine Courts of Appeals follow the ‘discovery rule’ to determine when a claim for copyright infringement exists.¹² Other language in the Petrella opinion has also contributed to subsequent confusion, including the statement that under “the copyright statute of limitations, §507(b), …a successful plaintiff can gain retrospective relief only three years back from the time of suit. No recovery may be had for infringement in earlier years. Profits made in those years remain the defendant’s to keep.” ¹³

Courts have since been split on whether, and how to apply the “discovery” rule in the copyright context.  On one hand, some courts have interpreted Section 504 of the Copyright Act to mean that a copyright claim “accrue[s]” when “an infringing act occurs.”¹⁴ This interpretation would effectively limit a plaintiff’s remedy to those acts of infringement occurring during the three-year period prior to filing suit.¹⁵

On the other hand, many courts have applied the discovery rule, which states that “a claim accrues when ‘the plaintiff discovers, or with due diligence should have discovered,’ the infringing act.”¹⁶ But even for courts that do apply the discovery rule, in the wake of Petrella, it was unclear whether a three-year limitation on damages nevertheless would be applied.

Here, Nealy claimed he “discovered” Warner Chappell’s infringing conduct in 2016, one year after Nealy was released from prison and within three years of filing suit.¹⁷ Before the district court, Warner Chappell did not object to the discovery rule governing the timeliness of Nealy’s claims, but objected to Nealy’s ability to recover damages or profits for any claims of infringement, arguing that even if the discovery rule applied, Nealy could only recover damage or profits for those acts of infringement occurring within the three-year period prior to the filing of the lawsuit.¹⁸ Warner Chappell’s argument align with the views expressed by the Second Circuit, which had relied on Petrella to find that a copyright claim is actionable only if brought within a three-year period, and that any recoverable relief must also be restricted to that three-year period. The Ninth Circuit, on the other hand, had taken the opposing view, stating that the plain text of the Copyright Act does not “support the existence of a separate damages bar for an otherwise timely copyright claim” and “imposing such a bar…would gut the discovery rule by eliminating any meaningful relief ‘for the very claims it is designed to preserve.’”¹⁹

Relying on a decision from the Second Circuit, the district court agreed with Warner Chappell’s arguments and held that even if the claims for old infringements are timely under the discovery rule, monetary relief is limited to the three years prior to filing suit.²⁰ The district court certified its ruling for interlocutory appeal.²¹

The Court of Appeals for the Eleventh Circuit reversed, applying the Ninth Circuit’s interpretation that rejects the notion of a three-year damages bar for timely claims.²²  Accordingly, the Eleventh Circuit ruled that Nealy could recover full damages for claims of infringement that are timely under the discovery rule, including for infringements that “occurred more than three years before the lawsuit’s filing.”²³

Warner Chappell petitioned the Supreme Court, which granted certiorari to resolve the Circuit split.²⁴

In the majority opinion, the Supreme Court expressly stated that it was not addressing whether Nealy’s claims were timely, nor whether the discovery rule is the correct method for determining timeliness of a copyright infringement claim.²⁵

Instead, the Court only addressed the circuit split “among the many Courts of Appeals applying a copyright discovery rule (11 at last count) about whether to superimpose a three-year limit on damages.”²⁶ On the issue of whether a claim that is timely under the discovery rule entitles a plaintiff to recover damages from acts of copyright infringement that “allegedly occurred more than three years” before the date of filing the lawsuit, the Court held that it does.²⁷

The Court (like the Eleventh Circuit) analyzed the text of the Copyright Act, specifically the Act’s statute of limitations, which states, “no civil action shall be maintained under the provisions of this title unless it is commenced within three years after the claim accrued.”²⁸ The Court held that this provision establishes a three-year period to file suit from when the claim accrues (here, the Court assumed under the discovery rule), but that provision does not extend to a time limitation on recovery of damages.²⁹

The Court further held that to the extent there is any time limitation on damages, it must come from the Act’s remedial sections.³⁰ However, those provisions state that an infringer is liable for either statutory damages or for the owner’s actual damages and the infringer’s profits.³¹ There is no time limit imposed by the Act on monetary recovery in the remedial sections.

While the Court did not reach the issue of whether the discovery rule is the correct means of determining whether a claim of copyright infringement is timely, the majority opinion criticized the Second Circuit’s application of the discovery rule as “essentially self-defeating.” Namely, while the Second Circuit allows for claims more than three-years old to be brought under the discovery rule, it “takes away the value in what it has conferred, by preventing the recovery of damages for those older infringements.”³² This essentially guts the discovery rule of any practical value. 

The Court further found that the Second Circuit misapplied Petrella in its interpretation of the discovery rule. The Court clarified that the holding in Petrella provides “how the limitations provision works,” and is applied properly “when a plaintiff has no timely claims for infringing acts more than three years old.”³³ In Petrella, the plaintiff was long aware of defendant’s infringing conduct and thus could not avail herself of the discovery rule. That was not the case for Nealy.³⁴

Accordingly, the Court held that, should Nealy’s claims be timely under the discovery rule, he may obtain damages for those claims regardless of when the infringement originally occurred.³⁵ Affirming the Eleventh Circuit’s ruling, and settling one of two circuit splits, the Court held that the Copyright Act “contains no separate time-based limit on monetary recovery.”³⁶

Written by Justice Gorsuch (and joined by Justices Thomas and Alito), the dissent addresses the first circuit split that the majority opinion does not reach, i.e., whether the discovery rule should be applied in the context of the Copyright Act in the first place.³⁷ Citing Petrella, the dissent finds that “a claim ‘accrues when a plaintiff has a complete and present cause of action’”, meaning “when the plaintiff can file suit and obtain relief.”³⁸ Although Justice Gorsuch acknowledges the existence of a discovery rule, he expresses the view that such a rule “is not applicable across all contexts, specifically, the statute must call for the applicability of the discovery rule, except in cases of fraud or concealment.”³⁹

In referring back to the Copyright Act, Justice Gorsuch finds that there is little reason to presume that the “Copyright’s Act’s provisions at issue in this case contemplate any departure from the usual rules”⁴⁰ and in applying Petrella, he would have found Nealy’s claims untimely.⁴¹ The dissent also expresses the view that the Court should have dismissed the case “as improvidently granted and awaited another squarely presenting the question whether the Copyright Act authorizes the discovery rule.”⁴²

In view of the holding, this case confirms that, for now, a party bringing a “timely” claim for copyright infringement, if successful, is entitled to damages for all claims of copyright infringement, irrespective of when the infringement occurred. This holding resolves one of two circuit splits and entitles plaintiffs to damages for old instances of infringement without any three-year limitation on damages, assuming that the claim is shown to be timely under the discovery rule (or applicable measure in the relevant jurisdiction).  As to the second circuit split on whether the discovery rule applies to actions asserted under the Copyright Act, the Supreme Court recently denied certiorari in Hearst Newspapers L.L.C. v. Antonio Martinelli, where that specific issue was presented.  For now, whether the discovery rule will continue to be applied in the copyright context remains to be seen.