Last month the Supreme Court expressed skepticism towards a record company’s bid to cap copyright infringement damages. The case is Warner Chappell Music, Inc. v. Neely, No. 22-1078, on appeal from the Eleventh Circuit, Nealy v. Warner Chappell Music, Inc., 60 F.4th 1325 (11th 2023), cert. granted in part, 144 S. Ct. 478 (2023).
I. A Drug Sentence and Late Discovery of Alleged Infringement
Sherman Nealy was a music industry novice. In 1983, Nealy teamed up with Tony Butler—a DJ more knowledgeable of the music business—to form Music Specialist, Inc. (“MSI”). From 1983 to 1986, MSI recorded several singles on vinyl and cassette which were registered with the U.S. Copyright Office. Then, MSI dissolved in 1986 and ceased operations in 1989 when Nealy began serving a sentence for cocaine distribution, which he would serve until 2008.
While Nealy was in prison, Butler formed 321 Music, LLC (“321”) and began licensing the rights to musical works from the MSI catalog, including a single called “Jam the Box.” In February 2008, Atlantic Recording Corporation obtained a license to interpolate (re-record a melody or part of a melody) “Jam the Box” into the song “In the Ayer” by artist Flo Rida. Nealy returned to prison between 2012 and 2015, but before his second prison sentence, litigation had already begun between Atlantic, Flo Rida, Butler, another company licensing MSI’s works, and 321.
It was not until late 2018 when Nealy, after having reinstated MSI as a corporation, then filed a copyright infringement lawsuit over the transfer of rights of the musical works in 2016.
II. Eleventh Circuit Allows Damages Preceding Three Years Before Suit.
Unsurprisingly, at summary judgment the district court considered the timeliness of Nealy’s lawsuit. Nealy had alleged that he had been in and out of prison and was not connected into the music industry, all of which delayed his filing of a lawsuit. A three-year statute of limitations governs claims under the Copyright Act, which runs from the time the claim accrues. 17 U.S.C. § 507(b). The district court denied defendant’s motion for summary judgment on the issue, but Nealy and MSI, the plaintiffs, nevertheless appealed to the Eleventh Circuit a question related to damages: “whether the Copyright Act’s statute of limitations, 17 U.S.C. § 507(b), precludes a copyright plaintiff from recovering damages for harms occurring more than three years before the plaintiff filed suit, even if the plaintiff’s suit is timely under our discovery rule.” Nealy, 60 F.4th at 1331. Under the discovery rule, a claim accrues when a plaintiff learns, or should as a reasonable person have learned, that the defendant was violating his rights. That is, Nealy and MSI argued they were entitled to damages from the point of accrual, not merely the three years preceding the lawsuit.
In Nealy, the Eleventh Circuit waded into a circuit split over the Copyright Act’s discovery rule and—siding with the Ninth Circuit over the Second Circuit—held 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.” Id. Accordingly, the Eleventh Circuit endorsed Nealy’s pursuit of pre-2015 damages.
The record companies filed a petition for writ of certiorari with the Supreme Court, which granted the petition and modified the question as follows:
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.
Warner Chappell Music, Inc. v. Nealy, 144 S. Ct. 478 (2023).
III. Several Justices Question the Cart Before the Horse
During oral argument on February 21, 2024, several Justices questioned Warner’s counsel’s decision to focus on damages without having first discussed the existence of the discovery rule, suggesting that Warner’s main argument was relegated to a footnote. Justice Samuel Alito even pondered dismissing Warner’s petition because in Martinelli v. Hearst Newspapers LLC, 65 F.4th 231 (5th Cir. 2023), the Court may consider the question of whether the discovery rule even exists.
Still, the Court hinted skepticism of the Second Circuit’s approach that a successful copyright infringement plaintiff could not recover damages outside of the three-year statute of limitations. In essence, a reading of the tea leaves suggests that the Court will side with the Ninth and Eleventh Circuits and hold that a copyright plaintiff’s damages are not capped by the three-year period, but rather extend with the discovery rule.
Unless and until the Court definitively rules on the existence of the discovery rule in copyright infringement cases, it will likely not rule on the scope of damages. A decision from the Supreme Court will resolve circuit split and reduce forum shopping in copyright infringement cases.
***Through its Entertainment Law and Artist Management Division, Chilivis Grubman advises clients on copyright registration and protection, among other intellectual property rights.