Supreme Court Affirms Eleventh Circuit’s Ruling in Warner Chappell Music, Inc. v. Sherman Nealy

On May 9, 2024, the Supreme Court issued a 6-3 decision in Warner Chappell Music, Inc., et al. v. Sherman Nealy, et al., affirming the Eleventh Circuit’s ruling that, provided suit is timely filed under the discovery rule, copyright damages are recoverable for infringements occurring prior to the Copyright Act’s three-year statute of limitations.  The majority opinion is consistent with the amicus brief filed by AIPLA on December 1, 2023. To read the opinion of the Court, please click here.

BACKGROUND

In the early 1980s, Sherman Nealy and Tony Butler established Music Specialist, Inc. (MSI). Nealy funded the venture, while Butler, an experienced disc jockey, authored the music that is in dispute in the case. MSI released an album and several singles from 1983 to 1986 before dissolving as a corporation, though its business activities persisted until 1989. Subsequently, during Nealy's incarceration for drug offenses, Butler founded a new company, 321 Music, LLC, and began licensing rights to MSI's musical works.

Upon Nealy's release in 2008, he was informed of third-party usage and distribution of MSI's catalog but did not take legal action. Nealy was also unaware at the time of then-ongoing litigation over the works involving various entities, including Warner Chappell Music, Inc. (“Warner”), Artist Publishing Group, LLC (“Artist”), Atlantic Recording Corporation (“Atlantic”), and Butler's 321 Music. Nealy only learned of this litigation, and alleged unauthorized transfers of rights, sometime in the fall of 2015, after his release from a second prison term. Nearly three years later, in December 2018, Nealy and MSI filed a lawsuit against Warner, Artist, and Atlantic for copyright infringement seeking relief for infringement allegedly occurring as early as 2008. Following a pre-trial stipulation in which the parties agreed the case presents an "ownership dispute," the defendants moved for summary judgment, which the district court granted in part and denied in part. On an interlocutory appeal regarding the availability of damages prior to the three-year statute of limitations period, the U.S. Court of Appeals for the Eleventh Circuit determined that, in an ownership dispute, the discovery rule of claim accrual allows a plaintiff to recover damages for infringement occurring prior to the three years limitations period.

The question before the Supreme Court was whether under the discovery accrual rule applied by the circuit courts and the Copyright Act’s statute of limitations for civil actions, 17 U.S.C. § 507(b), a copyright plaintiff may recover damages for acts that allegedly occurred more than three years before the filing of a lawsuit.

OPINION OF THE COURT

Justice Kagan delivered the opinion of the Court, joined by Chief Justice Roberts and Justices Barret, Jackson, Kavanaugh, and Sotomayor.  The majority affirmed the Eleventh Circuit’s holding that where a lawsuit is timely filed under the discovery rule, the plaintiff is entitled under the Copyright Act to monetary damages for all actionable infringements, regardless of when they occurred.

The majority opinion assumed the applicability of the discovery rule. Justice Kagan observed that the question on which the Court granted certiorari incorporated an assumption that the discovery rule of claim accrual used by circuit courts applies. The majority further noted that the Court has “never decided whether that assumption is valid” and declined to rule on the matter because “Warner Chappell never challenged the Eleventh Circuit’s use of the discovery rule below.”

Turning to the merits, Justice Kagan concluded that the plain text of the Copyright Act does not impose any limitation on monetary relief under such circumstances. She observed that the limitations clause in §507(b) provides only a limitation on the timeliness of actions and is silent on limitations on damages.  Likewise, the remedial sections, §504(a)-(c), provide no textual basis for imposing any limitations. Since the Act provides no time limit on damages, a copyright owner may recover damages regardless of when the infringement occurred, if the claim is otherwise timely with respect to the damages in question.

The Court also noted that its holding did not conflict with its holding in Petrella v. Metro-Goldwyn-Mayer, Inc., 572 U. S. 663 (2014).  In Petrella, the plaintiff had long known of the defendant’s infringing conduct and, upon filing suit, sought only the prior three years of damages, since claims to older damages had already accrued and expired and were thus untimely.  The majority distinguished on grounds that the holding in Petrella “merely described how the limitations provision worked…where the plaintiff had long known of the defendant’s infringing conduct and so could not avail herself of the discovery rule to sue for infringing acts more than three years old.” By contrast, Nealy had “invoked the discovery rule to bring claims for infringing acts occurring more than three years before he filed suit” and Petrella’s analysis was thus inapplicable.

The Court also addressed the contrary view of the Second Circuit, which had previously interpreted Petrella as imposing such a three-year damages limit. The majority noted that the Second Circuit’s interpretation was “essentially self-defeating” in that it purported to recognize a discovery rule, yet took away the value it confers by barring damages prior to the three-year limitations period, making the discovery rule “functionally equivalent to…an accrual rule based on the timing of an infringement.” The majority again declined to “resolve today which of those two rules should govern a copyright claim’s timeliness” but rejected “a judicially invented damages limit to convert one of them into the other.”

DISSENT

Justice Gorsuch filed a dissenting opinion, joined by Justices Thomas and Alito, arguing that the Court previously acknowledged in Petrella that, “ordinarily [a claim] accrues when a plaintiff has a complete and present cause of action” and that the Court interprets statutes according to that standard rule, making limited exceptions, such as in circumstances involving fraud or concealment. Noting that no such unusual circumstances were alleged in the case at bar, Justice Gorsuch concluded that the discovery rule should not apply.

Acknowledging that the majority’s decision to “pass over this complication may be understandable” since “none of the parties before us questioned the application of a discovery rule in proceedings below, but joined issue only over how it should work,” Justice Gorsuch argued that the Court should have passed on this case because the Court’s opinion concerns “a rule of law that…very likely does not exist.” As such, he would have dismissed the case as improvidently granted and awaited a case that gives the Court an opportunity to “answer a question that does matter [rather] than one that almost certainly does not.”