Warner Chappell Music, Inc. v. Nealy: The Supreme Court Hears Oral Arguments Concerning a Circuit Split Over Proper Application of Copyright Act’s Statute of Limitations

Introduction

The Supreme Court recently heard oral arguments regarding Warner Chappell Music, Inc. v. Nealy.  This case seeks to answer a question that has caused a circuit split and could have significant financial consequences for parties in copyright lawsuits.  

Summary of the Case

In the early 1980’s, Sherman Nealy and Tony Butler formed Music Specialist, Inc. (MSI).  In the articles of incorporation, Nealy was listed as president and Butler was listed as vice-president.  From 1983 to 1986, MSI recorded and released one album and several singles on vinyl and cassette.  All of their works were registered with the United States Copyright Office.  In 1989, Nealy began serving a prison sentence for distributing cocaine, resulting in the cessation of MSI’s business activities.  While Nealy was in prison, Butler formed another company and began licensing the rights to musical works from the MSI catalog.  (Nealy v. Warner Chappell Music, Inc., 60 F.4th 1325 (11th Cir. 2023)).

When Nealy was released from prison in 2008, he learned that a third party was distributing works from the MSI catalog.  He took no legal action at this time and subsequently returned to prison from 2012 to 2015.  In 2016, he was informed about Butler’s purported transfers of the rights to the musical works by a former MSI associate.

In December 2018, Music Specialist, Inc. and Sherman Nealy filed a copyright infringement suit against Warner Chappell Music, Inc., Artist Publishing Group, LLC., and Atlantic Recording Corporation.  MSI and Nealy sought relief for infringement that occurred 10 years before the lawsuit was filed.  The defendants moved for summary judgment on all claims, which the district court granted in part and denied in part.  In a separate order, the district court certified for interlocutory appeal under 28 U.S.C. § 1292(b) the question whether “damages in this copyright action are limited to the three-year lookback period as calculated from the date of the filing of the Complaint pursuant to the Copyright Act and Petrella.”

The 11th Circuit Court of Appeals granted the petition in order to answer this specific question: “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), may a copyright plaintiff recover damages for acts that allegedly occurred more than three years before the filing of a lawsuit?”  (Nealy v. Warner Chappell Music, Inc., 60 F.4th 1325 (11th Cir. 2023)).

The Circuit Split

This question did not have an obvious answer because of the language of the Copyright Act and because of the different interpretations of the Petrella case.  The statute of limitations statute, 17 U.S.C. § 507(b), provides that “[n]o civil action shall be maintained under the provisions of this title unless it is commenced within three years after the claim accrued.”  Where the gravamen of a copyright claim is ownership, as it is in this case, the discovery rule dictates when a copyright plaintiff’s claim accrues.  Under the discovery rule, a copyright ownership claim accrues, and therefore the limitations period starts, “when the plaintiff learns, or should as a reasonable person have learned, that the defendant was violating his ownership rights.”  (Webster v. Dean Guitars, 955 F.3d 1270 (11th Cir. 2020)).

In Petrella v. MGM, 572 U.S. 663 (2014), the Supreme Court held that the equitable defense of laches may not bar relief on a copyright infringement claim brought within § 507(b)’s three-year limitations period.  The Court stated that § 507(b) “bars relief of any kind for conduct occurring prior to the three-year limitations period.”  Since the statute “itself takes account of delay,” allowing laches to bar relief within the three-year period is contrary to the language of the statute.  

In Sohm v. Scholastic Inc., 959 F.3d 39 (2d Cir. 2020), the Second Circuit held that a plaintiff’s recovery is limited to damages incurred during the three years prior to filing suit, even under the discovery rule.  Their holding was based on language used in the Petrella case.  In the Petrella case, the court stated that “a successful plaintiff can gain retrospective relief only three years back from the time of suit” and that “[n]o recovery may be had for infringement in earlier years.”  This interpretation results in the undermining of the discovery rule because a plaintiff could have a timely claim under the discovery rule but no available relief.  Despite this effect, the Second Circuit felt bound by the explicit language in Petrella.  

The Ninth circuit interpreted Petrella differently than the Second Circuit.  In Starz Ent., LLC v. MGM Domestic TV Distribution, LLC, 39 F.4th 1236 (9th Cir. 2022), the Ninth Circuit held that “neither the text of § 507(b) nor Petrellaimposes a three-year damages bar in a discovery rule case.” The court reasoned that a contrary conclusion “would eviscerate the discovery rule” and would go against the plain text of § 507(b) which does not say anything about barring remedies.  

The 11th Circuit Chose the Interpretation by the 9th Circuit 

The Eleventh Circuit analyzed both circuit’s interpretations and the Petrella case that they were based on in Nealy v. Warner Chappell Music, Inc., 60 F.4th 1325 (11th Cir. 2023).  Since the plain text of § 507(b) does not place a time limit on remedies, the court found the Ninth Circuit interpretation more compelling and 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.”  This holding resulted in Warner Chappell petitioning for certiorari to the Supreme Court.  The Supreme Court granted the writ of certiorari in September 2023 and heard oral arguments on February 21, 2024 to determine whether “[u]nder 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), may a copyright plaintiff recover damages for acts that allegedly occurred more than three years before the filing of a lawsuit?”

Oral Arguments 

Warner Chappell began their oral argument by discussing the proper scope of the discovery rule and attempted to make the argument that the discovery rule should be limited to cases of fraud.  They cited Petrella and argued that in that case, the court was referring to a more “modest equity-based discovery rule” which is limited to cases of fraud and not a “broad-based discovery rule.”  However, the Supreme Court disposed of this argument since it did not help to answer the question that was presented which is about the availability of retrospective relief after three years have passed since the injury occurred.

With respect to the question presented, Warner Chappell relied on Patrella and the Sohm case from the Second Circuit and stated that “[m]y point is simply that when it comes to retrospective relief, if the act took place more than three years earlier, the implication of the statutory language is you are out of luck.”  They went on to state that they were not arguing for a three-year discovery rule but rather a three-year injury rule.  Relying on the cases mentioned above, they claimed that the “trigger is the point of injury.”  This is an interesting interpretation since the discovery rule is about when you become aware of the injury, the time of the injury is not relevant.  As Justice Gorsuch correctly points out, “it’s not even a discovery rule…it’s something else.”  Warner Chappell concluded by again arguing that the discovery rule should be limited to cases of fraud.

Nealy then began their argument and after their introduction, the Justices wanted to know whether or not they should dismiss this case as improvidently granted.  They wanted to know if they needed to determine the existence of the discovery rule as Warren Chappell argued before answering the question presented in this case.  Nealy responded that determining the existence of the discovery rule was not necessary because it has been affirmed by courts for 40 years.  He admitted that a dismissal would be a good option for his client but also stressed the importance of rendering a decision that confirmed that the path the Second circuit has taken is incorrect and should not be followed.  Justice Gorsuch pointed out that in the Petrella decision, “[t]here are many statements where the Court says retrospective relief is limited to three years.”  Nealy responded to this by providing the context that these statements were made in and by clarifying that the holding in Petrella was not about damages but about whether the claim was brought timely.

The United States Government also presented an argument.  The argument reinforced the points made by Nealy that the Second Circuit is incorrect and the Supreme Court has an opportunity to provide clarity to Copyright law.

Conclusion

The decision in this case could have a substantial impact on future copyright cases if the Court goes with the Second Circuit interpretation.  The Ninth and Eleventh Circuit interpretation of Petrella seems to be the better option, especially compared to the text of § 507(b).  However, we may not even get an answer.  The majority of the oral arguments focused on whether or not the Court should decide if the discovery exists.  The Court may decide to dismiss this case as improvidently granted until there is a better vehicle to decide if the discovery rule exists in the first place. However, since 11 circuits have applied the discovery rule over the last 40 years, this case seems like a good opportunity to provide clarity where there is actually a circuit split.