DIG, Dogs and Bad Wine: Justices Float Scrapping Warner Chappell to Consider Alternate Petition on ‘Discovery Accrual Rule’ for Copyright

Oral arguments took place today in Warner Chappell Music v. Nealy, a case that asks whether a copyright plaintiff can recover damages for acts that allegedly occurred more than three years before the filing of a lawsuit. The Justices repeatedly asked the parties involved whether they should dismiss the case as having been improvidently granted (DIG) in order to first grant and decide another pending case that directly addresses a technically peripheral, but seemingly crucial, question at issue in Warner Chappell, namely, whether the so-called discovery accrual rule applies to the Copyright Act’s statute of limitations for civil claims.

Path to High Court

The U.S. Court of Appeals for the Eleventh Circuit issued a decision in February 2023 that held that the discovery accrual rule allows plaintiffs to collect retrospective relief for infringements occurring outside of the Copyright Act’s three-year limit against civil actions for infringement claims, codified at 17 U.S.C. § 507(b). The appellate court found that the plain language of Section 507, which requires that an action commence “within three years after the claim accrued,” does not impose a limitation on recovery for claims that are timely under the discovery accrual rule.

Warner Chappell’s petition for writ of certiorari was granted by the Supreme Court in September 2023 and argued that the Eleventh Circuit’s decision deepened a circuit split on the application of the discovery accrual rule to Section 507(b). The rule tolls the statute of limitations until the date that the plaintiff copyright owner could have reasonably discovered the infringement with due diligence. While the Eleventh Circuit joined the Ninth Circuit in determining that the three-year recovery period begins from the date of the claim’s accrual, the Second Circuit has ruled in cases like Sohm v. Scholastic (2020) that recovery begins from the date that the lawsuit was filed, even when the discovery rule tolls the statute.

When the High Court granted Warner Chappell’s petition, it reformulated the question presented 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.”

More than a dozen amici have weighed in, including the U.S. Solicitor General, who participated in today’s arguments. The Solicitor General is backing Nealy and urging the Supreme Court to affirm the Eleventh Circuit’s interpretation of the High Court’s ruling in Petrella v. Metro-Goldwyn-Mayer (2013) over competing interpretations in the Second Circuit. Petrella is at the heart of the circuit split on the discovery accrual rule and focused on the application of equitable laches to claims filed within the Copyright Act’s statute of limitations. Since Petrella, circuit courts have been left to interpret whether Petrella’s holding requires strict adherence to the three-year limitation on recovery in cases where the discovery accrual rule applies.

Arguments: DIG, Dogs and Wine

Arguing for Warner Chappell was Kannon Shanmugam of Paul Weiss, who said the answer to the question presented under the statute is clearly no. According to Shanmugam, it is settled law that a claim “accrues” as described in Section 507 when a claimant has a complete cause of action. And, according to Warner Chappell’s petition, a claimant has a complete cause of action “usually, when the infringement occurs.”

Joe Wesley Earnhardt argued for the respondents, Sherman Nealy, et. al., and said that, since the discovery rule is not before the Court due to the rephrased question, “[a]ssuming Respondents’ claims are timely under the discovery rule, Respondents are entitled to seek damages as a remedy for those claims.” Under the statute, copyright owners are entitled to recover the actual damages suffered, any profits of the infringer, or statutory damages for all infringements involved in the action, Earnhardt said. While Congress has created “three-year lookback damages bars” elsewhere, it did not do so for copyright and a judicially-created bar would not be permissible, he added.

Yaira Dubin argued for the United States and told the Court that the only question before the Court is whether damages can be awarded where a copyright claim is found to accrue upon discovery and that the plain answer to that question is yes. The Court’s rephrased question assumes the existence of the discovery accrual rule, said Dubin, and thus, petitioner’s attempt to get the Court “to answer whether the discovery accrual rule applies to copyright claims at all or at least to the claims here,” is out of bounds.

Four of the Justices—Alito, Jackson, Gorsuch and Barrett—asked each of the counsel at different points about a scenario in which the Court grants cert on the pending petition in Hearst Newspapers v. Antonio Martinelli, which squarely presents the question “Whether the ‘discovery rule’ applies to the Copyright Act’s statute of limitations for civil claims. 17 U.S.C. 507(b).” If the Court does that, the Justices questioned whether Warner Chappell’s case would have to be dismissed and revisited after that underlying question is resolved.

While Earnhardt told Justice Jackson that “we don’t have…a dog in the hunt in this case about whether there is a discovery rule or not,” he noted that “for 40 years, the courts of appeals unanimously have found that there is one.” Gorsuch seemed confused by Earnhardt’s response and Earnhardt clarified that they don’t have a stake in the discovery rule here because the issue is not before the Court under the reformulated question, to which Gorsuch responded: “We don’t have it before us, and that is a curiosity of this case. We’re being asked to decide the scope of something that may or may not exist.”

The Justices also drew attention to their recent case law in Rotkiske v. Klemm, 140 S. Ct. 355, 360-361 (2019), in which the Court described an expansive approach to the discovery rule as “bad wine of recent vintage,” a reference to the Court’s 2001 opinion in TRW, Inc. v. Andrews, which characterized the injury-discovery rule applied by the Ninth Circuit as such. Gorsuch expressed his frustration with this lack of agreement on the discovery rule, joking that “some people say that the wine is there. Other people say there’s no dog and we’ve got bones. I don’t know,” before asking Earnhardt, “Wouldn’t it be just good governance to take up that question first?”

In the pending Hearst petition, Hearst argued that “the circuit split at issue in Warner Chappell Music is the symptom—not the problem” and that the Court should consider its petition on whether the discovery rule applies together with the Warner Chappell case.

It’s Urgent

Commenting on the case generally yesterday, Barry Werbin of Herrick, Feinstein LLP said that, regardless of what the Justices decide to do, “there is an urgent need to establish a single, consistent standard among the Circuits on this critical copyright damages issue.” Werbin added:

“This growing Circuit split inevitably leads to forum shopping and disparate damage rulings in copyright cases. This, in turn, makes it more difficult to settle such cases early on based on informed assessments of the potential maximum damage awards in infringement cases. Defendants within the jurisdictions of courts following the Second Circuit’s position can arguably infringe with impunity, knowing that upon discovery of their actions their liability would be limited to only a three-year lookback for damages.”