The Supreme Court Punts on the Discovery Exception in Copyright Cases: Warner Chappel Music (May 9, 2024)

? Stephen D. Milbrath

????????? Imagine a business owner appearing in his intellectual property lawyer’s office with a claim for copyright infringement. The lawyer soon discovers the first acts of infringement likely commenced more than three years before, thus making those first acts of infringement likely time-barred under 17 U.S.C. §507(b), the Copyright Act’s three-year statute of limitations. That section permits no lawsuit to be filed “unless it is commenced within three years after the claim “accrued.” The key term “accrued” is not defined explicitly and its meaning is unsettled but it is commonly understood to involve a discrete violation of the author’s rights for which suit can be filed and relief demanded immediately. The Copyright Act is also understood as permitting separate legal actions for each successive violation of the author’s rights, authorizing a new suit for each new violation. This raises an important practical question for client and lawyer alike: can a suit be filed to recover damages for not only the timely-filed claims but also the time-barred violations? If not, the client may well not have an economically viable claim to press in federal court.? The obvious incentive to recover damages for those time-barred aspects of the infringer’s conduct has given rise to litigation over whether there is a discovery exception to the Copyright Act’s three-year time bar, one that permits the copyright owner to sue for damages if the now-stale violations were not previously discovered for good reasons or because of concealment or even fraud. At least part of that question was answered in the May 9, 2024, decision of the Supreme Court in the Warner Chappel Music case, while the court left the larger question of the existence of a discovery exception to the time bar unanswered.?????????

????????? Section 507(b)’s critical term – accrued – if construed to mean the point at which the illegal act is actionable whether discovered or not, places a premium on being diligent in investigating and suing for the infringement of copyrighted works, because it starts the three-year limitation period when the plaintiff can file suit, even as it shelters infringers from liability for claims not asserted within that three-year period.?????????

????????? The sheltering of the infringer from liability, however, creates concerns about deterrence and protecting the rights of authors, artists, and other content creators from being unfairly exploited by concealed or unknown violations, particularly in a digital age. And this is why many have advocated for a discovery exception to the three-year limitation statute, one that would in substance define, as by judicial fiat, the statutory term “accrued” as occurring only when the copyright holder knows or reasonably should know of the infringement. But Congress did not so define the term “accrued” explicitly. By common construction a civil wrong or statutory violation occurs not when discovered but when the wrong has been completed, so that it is actionable as an independent wrong. Without a curative amendment to the Copyright Act expressly defining the term, copyright owners can never be sure about how the Act will be applied in a particular dispute over ownership or even infringement.?

????????? Discovery exceptions are common in the law, and many cases recognize a discovery exception for copyright infringement claims under §507(b). The federal appeals courts are by no means consistent concerning the availability of discovery exceptions; some apply rules for the accrual of ownership-related copyright infringement claims that differ from the rules applied to mere unlawful copying suits; and the Second Circuit affirmed the existence of a discovery exception to §507(b) while nevertheless barring look-back damages, thereby negating the value of the discovery exception it created in the first place. That incongruent construction of the statute had much to do with the granting of review by the Supreme Court in the Warner Chappel Music case, a Florida case from the Eleventh Circuit, in conflict with the approach to look-back damages taken by the Second Circuit.?

????????? ?Following a series of cases permitting a discovery exception for copyright violations involving ownership of disputed works, the Eleventh Circuit invoked the discovery exception for lately discovered ownership disputes and held that the ownership dispute which triggers copyright claims “accrues” when the claimant knows or should have known about the ownership dispute between the copyright owner and a third-party claiming ownership in or a license to the copyrighted work. The court held that because the discovery exception to §507(b) saved the plaintiff’s claim from being barred by the three-year statute of limitation, there was no impediment under the Copyright Act’s remedies provisions that could bar recovery of damages for acts of copyright infringement occurring more than three years before the suit was commenced. ?It thus held that a copyright plaintiff with a timely claim under the discovery rule may recover “retrospective relief for infringement that occurred more than three years prior to the filing of the lawsuit.

????????? The Eleventh Circuit holding was a win for plaintiff’s lawyers in copyright cases, because it not only affirmed a discovery exception for copyright claims but it held for the first time that §507(b) “does not limit the remedies available on an otherwise timely claim.” and so the plaintiff in the scenario imagined above could sue to recover the whole of the damages suffered from the nominally time-barred acts of infringement, with no three-year look-back cap on the recovery. Hence the client in the above hypothetical could capture all the damages and profits flowing from the defendant’s improper conduct, even if it commenced more than three years before the suit was filed.

????????? The Supreme Court’s opinion affirmed the Eleventh Circuit, but it also declined to resolve whether there is or is not a discovery exception for the accrual of a claim for copyright infringement, effectively punting on the key issue, which is likely to be considered anew soon.

????????? Speaking for the majority of the court, Justice Kagan’s opinion concludes that the “Copyright Act contains no separate time-based limit on monetary recovery” while also rejecting the approach to the discovery rule take by the Second Circuit – which places a cap on recovery on stale claims -- but makes no resolution of the much debated question whether there is a discovery accrual rule to be found in §507(b). ?Hence the discovery exception was left intact by the Warner Chappel majority opinion, and even strengthened by eliminating any notion of a damages cap at three years.

????????? Yet copyright practitioners can find few reasons to be sanguine about the discovery exception even considering the opinion of the Warner Chappel majority. The court emphasized that the parties in the case had both consented to the merits of the discovery exception in their briefing and so review had not been granted to decide that issue. Moreover, the court saw itself bound in many respects by its prior holding in Petrella v. MGM, and that opinion, which involved the defense of laches, casts doubt on the applicability of any discovery exception to §507(b). The dissenting opinion by Justice Gorsuch also forcefully observes that the Copyright Act “almost certainly does not tolerate a discovery rule” absent fraud or various kinds of concealment “consistent with traditional equitable practice.” This view is in keeping with the text of §507(b) itself, which says that no suit “shall be maintained “unless it is “commenced within three years after the claim accrued,” a sentence plain enough to warrant the conclusion from analogous cases that a copyright infringement claim accrues when the infringing act occurs, rather than when discovered.?

????????? In a proper case the court seems likely to jettison the discovery rule altogether in infringement cases not involving fraud or concealment. In the meantime, the takeaway from this decision is that the Copyright Act creates no temporal limit on the recovery of damages for timely-filed infringement suits and so permits recovery of actual damages and additional profits of the infringer even for violations occurring more than three years before suit.

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