United States Supreme Court Provides Clarity on Copyright Damages in Warner Chappell Music v. Nealy

By Madeline MaCabe

On May 9, 2024, the U.S. Supreme Court issued its Warner Chappell Music v. Nealy opinion, holding that there is no time limit for recovering monetary damages so long as a copyright holder files their claim before the expiration of the statute of limitations. 144 S. Ct. 1135, 1137 (2024).

Plaintiff Sherman Nealy sued Warner in 2018 for copyright infringement dating back ten years when Nealy’s song “Jam the Box” was incorporated into Flo Rida’s song “In the Ayer” in 2008.

Nealy alleged that he owned the copyrights to the song and that his prior partner, Tony Butler, licensed the music to Warner unbeknownst to him. During that time, Nealy was serving back-to-back prison terms from 1989 to 2008 and 2012 to 2015 for drug-related charges. 

Under the Copyright Act, a copyright owner must file suit “within three years after the claim accrued.” 17 U.S.C. § 507(b). When exactly a claim accrues has resulted in a U.S. circuit split.

The majority of U.S. circuit courts implement the “discovery rule,” in which a claim accrues when the plaintiff discovers or should have discovered, with due diligence, the infringing act. The discovery rule, in turn, allows copyright holders to pursue legal actions for much older infringements, such as in Nealy's case.

Other circuit courts utilize the “injury rule,” in which a claim accrues when the infringing act occurs, without regard for whether the copyright owner is aware of the infringement. Thus, under this interpretation, a plaintiff can only file suit for infringements within the previous three years from the filing date. 

Here, Warner did not challenge the use of the discovery rule to govern the timeliness of Nealy’s claims. Instead, Warner argued that Nealy could only recover damages for copyright infringements occurring in the last three years. The district court agreed, relying on a decision from the Second Circuit, which held that even when claims are timely, monetary relief is limited to three years before the filing of the action.

The Court of Appeals for the Eleventh Circuit reversed, rejecting the three-year damages bar. The U.S. Supreme Court's 6-3 ruling, written by Justice Kagan, affirmed the Eleventh Circuit's decision in favor of Nealy.

The majority stated that if a copyright holder files a timely claim, the holder is entitled to damages no matter when the infringement occurred. While the decision clarifies a copyright holder's right to obtain damages in cases implementing the discovery rule, the Court emphasized that the decision had no bearing on the validity of the discovery rule itself. Instead, the Court assumed that the discovery rule was valid in the current case because defendant Warner did not object to the Eleventh Circuit's use of the rule.

The majority rejected the “judicially invented damages limit" because of the effect the damages bar would have on timely claims under the discovery rule. The damages bar would restrict plaintiffs from obtaining damages for claims that are otherwise timely under the discovery rule if the infringement occurred more than three years before filing. Thus, the damages bar would seemingly convert the discovery rule interpretation into the injury rule interpretation.

The majority opinion also addressed some conflicting language used in their prior 2014 decision in Petrella v. MGM, where the court stated, "A copyright claim… ‘accrues’ when an infringing act occurs.” 572 U.S. 663, 669 (2014).  The Court explained that the holding in Petrella merely settled how the statute of limitations worked in cases where the discovery rule was not available. The Court further emphasized that this decision did not insinuate creating a separate damages limitation for timely claims under the discovery rule.

The dissent, written by Justice Gorsuch and joined by Justice Thomas and Justice Alito, pointed out the elephant in the room: the continuing uncertainty surrounding the validity of the discovery rule. The dissent criticized the majority for "sidestep[ping] the logically antecedent question” in its decision and further proclaimed that the Copyright Act “almost certainly” does not tolerate the discovery rule. 

There was hope that this "logically antecedent question" would soon be answered after the Warner Chappell as the Court was scheduled to review a petition filed by Hearst Newspaper. However, on May 20, 2024, the court denied the petition. Hearst Newspapers LLC v. Martinelli, U.S. Supreme Court, No. 23-474.

Despite the lingering questions, the Warner Chappell decision is ultimately a win for copyright holders. The decision expands the potential recovery and extends liability, specifically under the discovery rule interpretation, for cases where infringements might go unnoticed for long periods of time. 

Sources:

https://fedsoc.org/commentary/fedsoc-blog/warner-chappell-music-v-nealy-clarity-on-damages-still-hazy-on-the-discovery-rule

https://patentlyo.com/patent/2024/05/affirming-discovery-removing.html

https://www.reuters.com/legal/litigation/us-supreme-court-wont-hear-hearst-copyright-appeal-2024-05-20/#:~:text=Paris%2Dbased%20Martinelli%20said%20in,his%20permission%20beginning%20in%202017

https://www.jdsupra.com/legalnews/the-broad-implications-of-warner-9598298/

https://www.reuters.com/legal/us-supreme-court-rules-against-warner-music-copyright-damages-case-2024-05-09/