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Bloomberg Law Quotes Johnson & Johnson Attorney Dan Lifschitz in Reporting on Nealy v. Warner Chappell (Mar. 1, 2023)

Posted by Johnson & Johnson, LLP | Mar 06, 2023

Copyright Damages Circuit Split Widens, Inviting Forum Shopping

Bloomberg Law

March 1, 2023, 11:34 AM

By Isaiah Poritz

Deep Dive

• 11th Cir. time-limit ruling a boon for copyright plaintiffs
• Damages could be 'orders of magnitude larger,' lawyers say

A divide among federal appeals courts over the breadth of monetary damages that copyright holders can recover in lawsuits widened this week with a ruling from the Atlanta-based Eleventh Circuit, which found that rights holders can sue for damages from a period beyond copyright law's three-year statute of limitations.

The expanded damages horizon is a legal boon for copyright plaintiffs in that circuit, including those from music, film, art, publishing and other creative industries who are frequent fliers in copyright cases. They can now seek damages for alleged infringement that occurred decades before they filed suit, which isn't the case in all courts across the country.

"The ruling is very plaintiff friendly," said Allison Lovelady, an intellectual property attorney at Shullman Fugate P LLC based in Florida. "I think it might cause an uptick in some of the copyright claims that we're seeing."

Dan Lifschitz, a copyright attorney at Johnson &Johnson LLP, said the ruling "pulls back the curtain on damages" in a way that could be "orders of magnitude larger" for plaintiffs who didn't know about infringement that occurred more than three years before they filed a lawsuit.

The two appeals courts with the largest volume of copyright disputes, the California-based Ninth Circuit and New York-based Second Circuit, have been split on the damages timeframe question since last summer.

The legal divide could encourage forum shopping and end with a review by the US Supreme Court, which has appeared more willing to take on intellectual property questions in recent years, attorneys say.

The Second Circuit ruled in 2020 that the Copyright Act's statute of limitations prevents plaintiffs from seeking damages for infringement that occurred more than three years before the lawsuit was filed. But the Ninth Circuit found in 2022 that the limitation doesn't bar a plaintiff from seeking damages from
infringement before that time frame.

The Eleventh Circuit is now the only other appeals court to address the issue-siding with the Ninth Circuit. That could put the Second Circuit on "an island unto itself on this issue," Lifschitz said.

"That's going to be problematic not only because the split is going to be so pronounced, but because the Second Circuit is a hub of copyright litigation."

'Discovery Rule'

In the case before the Eleventh Circuit, Sherman Nealy and his company Music Specialist Inc. claimed that record labels and music publishers, including Warner Chappell Music Inc., obtained unauthorized licenses from third parties to use their music.

Nealy, who had been in and out of prison since the 1980s, claimed that he wasn't aware that the music companies had been infringing his copyrights until in January 2016, and he filed a lawsuit in December 2018 in Florida federal court seeking damages from alleged infringement that occurred as early as 2008.

The Florida district court certified an early appeal on the damages question, which the Eleventh Circuit had never addressed before.

Circuit Judge Andrew Brasher's opinion for the three-judge panel said that the text of the Copyright Act and the Supreme Court's most recent ruling on the law's statute of limitations led to their conclusion.

Brasher first determined that the case was controlled by the "discovery rule," a legal standard adopted by most other circuit courts which says that the statute of limitations begins to count down as soon as the "the plaintiff discovers, or with due diligence should have discovered" the alleged injury.

The 2014 Supreme Court case, Petrella v. Metro-Goldwyn-Mayer Inc., focused on a slightly different question about whether defendants in copyright suits can argue that a plaintiff unreasonably delayed filing a lawsuit even if it was within the three year window. However, in its opinion, the high court said that copyright plaintiffs can get damages "running only three years back from the date the complaint was filed."

But Brasher said the Petrella opinion needed to be read in context: It was focusing only on cases controlled by the "injury rule," a different legal standard that says the three year countdown begins when the infringement occurred, instead of when the plaintiff learned about the infringement.

The injury rule applied in the Petrella case because the plaintiff-the rights holder of the screenplay to the movie "Raging Bull"-never disputed that she knew about Metro-Goldwyn-Mayer's alleged infringement when it first occurred. In the Eleventh Circuit case, Nealy reasonably argued that he couldn't have known about Warner Chappell's infringement for years.

Lifschitz said the Second Circuit's 2020 ruling interpreted Petrella too literally by failing "to take into account the context" that the high court was only considering the injury rule. "You can't read a judicial decision like a congressional statute," he said.

While plaintiffs may be incentivized to sue in districts in the Ninth and Eleventh circuits, Lifschitz said, defendants "may well want to rush to court in the Second Circuit" to file declaratory judgment lawsuits.

Supreme Court Review?

The divide among the three circuits could entice the Supreme Court to resolve the circuit split.

"There are a lot of pseudo-splits where people will talk about there being circuit splits when there really aren't," said Aaron Moss, chair of Greenberg Glusker LLP's litigation department . "This is a true, honest-togoodness circuit split."

He noted that the issue is a "little bit hyper technical," so the "question is whether it's too insignificant in the overall scheme of things to make the Supreme Court's docket."

But the high court has appeared willing to take seemingly technical and procedural copyright disputes in the past few years. In 2021 the justices took up a copyright case involving legal errors in copyright registrations, and a Supreme Court case in 2019 centered on what constitutes a fully registered copyright claim.

The high court may also be especially motivated to resolve a dispute that arises from one of its past opinions, Lifschitz said.

The Supreme Court could use the opportunity to clarify the contours of the discovery rule and in what cases it should apply. In the Petrella ruling, the court recognized in a footnote that nine appeals court have adopted the discovery rule as an alternative to the injury rule.

"We have not passed on the question," the footnote said.

The case is Nealy v. Warner Chappell Music Inc., 11th Cir., No. 21-13232, 2/27/23.

To contact the reporter on this story: Isaiah Poritz in Washington at [email protected]

To contact the editors responsible for this story: Tonia Moore at [email protected]; Adam M. Taylor at [email protected]

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