Insights
Publications

Will the Supreme Court Limit Copyright Damages? Implications of Warner Chappell Music, Inc. et al. v. Sherman Nealy et al.

February 28, 2024 Articles

The U.S. Supreme Court heard oral arguments in Warner Chappell Music, Inc. et al. v. Sherman Nealy et al. (Case No. 22-1078) on February 21, 2024. On the surface, the case presents the opportunity for the Court to cut off the damages available in copyright lawsuits for acts that allegedly occurred more than three years before the filing of a lawsuit. However, the exchanges at oral argument suggest that the impact of this case may not be one of copyright law, but rather to serve as a reminder to appellate counsel to focus their arguments on the question presented, rather than attempt to reframe it.

Background

Key Facts, Statutory Framework, and the Supreme Court’s Prior Decision in Petrella

The Supreme Court case arises from a dispute between respondents Sherman Nealy and his company Music Specialist, Inc. (collectively, “Nealy”) and petitioners Warner Chappell Music, Inc. (“Warner Chappell”) and Artist Publishing Group, LLC. (“APG”) (collectively, “Warner Chappell”). Mr. Nealy founded MSI in 1983 and hired an employee to create music for MSI. The employee then created a number of musical works made for hire, including several works that are at issue on appeal. Although Mr. Nealy purportedly never authorized the employee to license MSI’s music, the employee began to license MSI’s copyrighted works while Mr. Nealy was incarcerated and continued to do over the next 20 years. In 2008, the employee allegedly licensed works to Warner Chappell. Mr. Nealy claimed that he first learned of the unauthorized licenses to Warner Chappell in January 2016 after he was released from prison for the second time in fall 2015. Nealy filed suit in the Southern District of Florida in December 2018, seeking to recover damages for Warner Chappell’s alleged infringement going back many years.

The key provisions of the Copyright Act are Section 504 (Remedies for infringement: Damages and profits) and Section 507 (Limitations on actions). Section 507 provides a default three-year statute of limitations for civil actions under the Copyright Act, providing that no civil action shall be maintained “unless it is commenced within three years after the claim accrued.” Section 504, which identifies the default remedies available to a copyright owner for infringement, does not include any time limit for general damages. Until a recent Second Circuit decision (discussed below), courts have routinely allowed plaintiffs to recover damages outside of the three-year statute of limitations and have not imposed any time bar to recovering damages provided a claim is timely brought. 

In 2014, the Supreme Court issued its decision in Petrella, holding that laches could not be invoked in a claim for copyright damages brought within the Copyright Act’s three-year limitations period (17 U.S.C.A. § 507).[1] In so holding, the Supreme Court stated that “Section 507(b) ... bars relief of any kind for conduct occurring prior to the three-year limitations period”[2] and that a copyright plaintiff could “gain retrospective relief running only three years back from the date the complaint was filed.”[3] In the underlying lawsuit involving the screenplay for the movie Raging Bull, however, the plaintiff “sought no relief for conduct outside § 507(b)’s three-year limitations period.”[4] The Court expressly reserved the question of whether the discovery accrual rule should govern when the statute of limitations period begins.[5]

    The Eleventh Circuit Rejected the Three-Year Damages Limitation

    In the district court proceeding, the parties moved for summary judgment and the Southern District of Florida held that although the timeliness of the claims was an issue for trial, any potential damages were limited to a three-year period prior to filing suit, relying on the Second Circuit’s 2020 opinion in Sohm v. Scholastic.[6]

    In Sohm, the Second Circuit held in part that “under the Copyright Act, a plaintiff's recovery is limited to damages incurred during the three years prior to filing suit.”[7] Relying on Petrella, the Second Circuit concluded that a “three-year lookback period from the time a suit is filed” should be used to “determine the extent of the relief available.”[8] As noted above, prior to Sohm, courts had routinely applied the discovery rule to allow plaintiffs to recover damages outside of the three-year statute of limitations. As Nealy’s brief to the Supreme Court stated, “every court to rule on the issue except Sohm “has permitted a copyright plaintiff to recover damages for claims rendered timely by the discovery rule,” and no case other than Sohm applied a damages bar.[9] Even after the Second Circuit decided Sohm, the Ninth Circuit rejected Sohm’s three-year limitation in Starz v. MGM in 2022, disagreeing that such a limitation on the recovery of damages is dictated by Petrella.[10] Instead, the Ninth Circuit concluded that “[a]pplying a separate damages bar based on a three-year ‘lookback period’ that is ‘explicitly dissociated’ from the Copyright Act’s statute of limitations in § 507(b) would eviscerate the discovery rule.”[11]

    In the dispute between Nealy and Warner Chappell, the Eleventh Circuit limited appeal to the following question: “Whether the three-year statute of limitations under 17 U.S.C. § 507(b) bars the recovery of damages incurred more than three years prior to filing suit when the discovery rule dictates the accrual of a copyright claim.” Holding first that the discovery rule governed the timeliness of Nealy’s claims and rejecting Sohm’s holding, the Eleventh Circuit concluded that “a copyright plaintiff may recover retrospective relief for infringement occurring more than three years before the lawsuit's filing so long as the plaintiff’s claim is timely under the discovery rule.”[12]

    The Supreme Court’s Reframing of the Question Presented and Petitioners’ Efforts to Resist the Reformulated Question

    Warner Chappell petitioned for a writ for certiorari with the following question presented: “Whether the Copyright Act’s statute of limitations for civil actions, 17 U.S.C. 507(b), precludes retrospective relief for acts that occurred more than three years before the filing of a lawsuit.”

    The Supreme Court granted the petition with a slightly reformulated question: “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 can recover damages for acts that allegedly occurred more than three years before the filing of a lawsuit.” (Emphasis added.)

    The parties’ subsequent briefs disputed whether the applicability of the discovery rule was at issue. Warner Chappell seized on the clause “under the discovery accrual rule applied by the circuit courts” to attack the applicability of the discovery rule in the Copyright Act, arguing that “[t]he only discovery rule consistent with [the Supreme Court’s] precedents is a narrower exception for discovery delayed by fraud, latent disease, or medical malpractice” so the discovery rule should not apply to Nealy’s claims.[13]

    At oral argument, much of the questioning focused on whether the scope of the discovery rule was properly before the Court. The Justices questioned counsel for Warner Chappell about whether arguments concerning the discovery rule were raised below and whether the existence of the discovery rule had been assumed in the reframed question presented. Justice Barrett noted, “[W]e took [the discovery rule] off the table, and your cert petition did not ask us to grant cert on the merits of the discovery rule. In fact, your cert petition acknowledged that there was no split on the discovery rule and that the split was between the Second and the Ninth on this recovery of damages beyond three years point.”[14] Although counsel for Warner Chappell claimed the scope of the discovery rule was relevant to the question presented, Justice Jackson questioned the assertion, remarking, “We were very specific. We weren’t saying, you know, please entertain some arguments about the scope of the rule. We were taking it off the table, as Justice Barrett suggests.”[15] Justice Sotomayor similarly questioned, “Counsel, isn’t it artificial for you to do what Justice Barrett said, which is to raise the most important part of your argument in a footnote to say the Court can reach it if it wants?”[16] In response to Warner Chappell’s claim that they “were quite forthright in indicating that [they] would raise the issue on which [they] were bound below, the issue of whether or not the Copyright Act embodied a discovery rule at all,” Justice Sotomayor disagreed, saying, “No, counsel. You put that in a footnote, that there was no circuit split around it.”[17] Counsel for Nealy argued that it was appropriate for the Court to “assume that there’s a discovery rule and ask what impact does that rule have on damages.”[18]

    Justice Alito, along with Justice Barrett, suggested that the Court could dismiss the petition as improvidently granted given the briefing on the issue.[19] Justice Alito identified two questions—(1) whether there is a discovery rule, and (2) if there is, what are its implications for relief—and reasoned that “[t]he first is logically prior to the second.”[20]

    Takeaways

    If the Supreme Court adopts Sohm’s three-year damages bar as Petitioners urge in this case, this would significantly alter how copyright damages are awarded and reshape not only copyright litigation strategy, but the licensing value of copyrighted works. Such a ruling would have wide-ranging implications for copyright litigation involving hot-button issues such as artificial intelligence, the music and publishing industries, and beyond. Given the tenor of the oral argument, however, such a seismic shift seems unlikely. A decision holding that the discovery rule does not apply to the Copyright Act appears even more remote—at least in connection with the Warner Chappell case.[21] Although practitioners will need to await the issuance of the Court’s decision to find out for sure, it appears that the Court will likely either dismiss the petition as improvidently granted or issue a ruling answering solely the question presented.

    With any of these outcomes, the case highlights the critical need to frame questions presented strategically from the outset and to adhere to any reformulations of the question by the reviewing court. While Petitioners may have viewed their arguments here as appropriately grounded in the words of the rephrased question presented, several Justices signaled at oral argument that they were not receptive to Petitioners’ stretch in interpreting the question presented. The oral argument in Warner Chappell should serve as a reminder that appellate practitioners who avoid addressing the issue(s) an appellate court wants addressed do so at their peril.

    Jeffrey Fisher is a partner and Victoria Huang is an associate in Farella Braun + Martel’s Intellectual Property Litigation Group.


    [1] Petrella v. Metro-Goldwyn-Mayer, Inc., 572 U.S. 663 (2014).

    [2] Id. at 667.

    [3] Id. at 672.

    [4] Id. at 667.

    [5] Id. at 670 n.4.

    [6] Sohm v. Scholastic Inc., 959 F.3d 39 (2d Cir. 2020).

    [7] Sohm v. Scholastic, 959 F.3d at 52.

    [8] Id.

    [9] See Brief for Respondents, 30.

    [10] Starz Ent., LLC v. MGM Domestic Television Distribution, LLC, 39 F.4th 1236, 1244 (9th Cir. 2022).

    [11] Id.

    [12] Nealy v. Warner Chappell Music, Inc., 60 F.4th 1325, 1331 (11th Cir. 2023), cert. granted in part, 144 S. Ct. 478, (2023).

    [13] Brief for Petitioners, 4, 31.

    [14] Oral Argument Transcript, 7:5-12.

    [15] Id., 8:7-11.

    [16] Id., 10:17-21.

    [17] Id., 11:14-23.

    [18] Id., 46:9-12.

    [19] Id., 17:8-12, 53:5.

    [20] Id., 18:20-24.

    [21] As referenced at oral argument, however, a petition presenting the issue of whether the discovery rule applies to the Copyright Act’s statute of limitations for civil claims is pending before the Court. See Hearst Newspaper, L.L.C. et al. v. Antonio Martinelli, Case No. 22-20333.

    Firm Highlights

    Publication

    It Wasn’t Me, It Was the AI: Intellectual Property and Data Privacy Concerns With Nonprofits’ Use of Artificial Intelligence Systems

    In today's rapidly changing technological landscape, artificial intelligence (AI) is making headlines and being discussed constantly. To be sure, AI provides a powerful tool to nonprofits in creating content and exploiting for countless cost-effective...

    Read More
    Publication

    Copyright Law for Influencers and Brands: How Content Creators and Companies Hiring Them Can Navigate Copyright Law for a Successful Partnership

    In recent years, the advent of the social media “influencer” has revolutionized advertising. Companies often partner with influencers to market their products, hoping to tap into the influencer’s devoted audience. Likewise, influencers create certain content...

    Read More
    Publication

    Thomson Reuters v. Ross Intelligence: AI Copyright Law and Fair Use on Trial

    On Sept. 25, 2023, Judge Stephanos Bibas (sitting by designation in the District of Delaware), determined that fact questions surrounding issues of fair use and tortious interference required a jury to decide media conglomerate...

    Read More
    News

    Farella Braun + Martel Earns 2024 Best Law Firms® Rankings

    Read More
    News

    Winston Liaw Named a Leadership Council on Legal Diversity Fellow

    Northern California legal powerhouse Farella Braun + Martel is proud to announce that Winston Liaw has been named a Leadership Council on Legal Diversity (LCLD) Fellow for 2024. Winston joins a select group of...

    Read More
    News

    JPMorgan Chase Accuses TransUnion of Stealing 'Trade Secrets'

    Intellectual property practice chair Eugene Mar provided expert commentary to American Banker for the article "JPMorgan Chase Accuses TransUnion of Stealing 'Trade Secrets'." In the article, he said: "By filing this as a trade...

    Read More
    Publication

    Fair Use Question Goes to Trial in AI Copyright Lawsuit – Thomson Reuters v. Ross Intelligence

    On September 25, 2023, a United States Circuit Judge determined that fact questions surrounding issues of fair use and tortious interference required a jury to decide media conglomerate Thomson Reuters’s lawsuit against Ross Intelligence...

    Read More
    Publication

    Is the Copyright Threat to Generative AI Overhyped? Implications of Kadrey v. Meta

    In November 2023, Meta successfully had nearly all of the claims against it dismissed in the Kadrey v. Meta Platforms, Inc. suit, a victory with potential implications for other technology companies with generative AI tools...

    Read More
    Publication

    Hsu Untied Interview With Dan Callaway

    Dan Callaway, a partner specializing in intellectual property litigation, was a guest on Hsu Untied , an award-winning podcast hosted and produced by Richard Hsu featuring entrepreneurs, venture capitalists, best-selling authors, and more.  During...

    Read More
    News

    Scraping Battles: Meta Loses Legal Effort to Halt Harvesting of Personal Profiles

    Alex Reese spoke to Matt Fleischer-Black of  Cybersecurity Law Report about the Meta v. Bright Data decision and its impact on U.S. scraping case law. Read the article here (paywall or trial).

    Read More