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Florida sides with California on delayed discovery in copyright cases

Posted by Johnson & Johnson, LLP | Mar 22, 2023

Los Angeles & San Francisco

Daily Journal

Perspective
March 3, 2023
By Douglas L. Johnson and Daniel B. Lifschitz

On Feb. 27, the 11th U.S. Circuit Court of Appeals officially picked a side in the growing schism over whether the delayed discovery of copyright infringement allows a plaintiff to claim more than three years' worth of damages, answering that question in the affirmative. The decision, issued in the case of Nealy v. Warner Chappell Music, Inc., __ F.4th __ (11th Cir. 2023), further increases the likelihood that the Supreme Court will eventually have to step in and resolve the confusion on this issue that persists in the wake of its decision in Petrella v. Metro-Goldwyn-Mayer, 572 U.S. 663 (2014).

According to Section 507(b) of the Copyright Act, a copyright holder has three years to sue on an accrued infringement claim. In Roley v. New World Pictures, 19 F.3d. 479, 481 (9th Cir. 1994), the court held that an infringement claim “accrues” when a copyright holder knows or should know that infringement has occurred, thereby allowing reasonable ignorance to effectively toll the statute of limitations until actual or constructive knowledge of the infringement is obtained. A further example of this rule in action was provided a decade later in Polar Bear Prods. v. Timex Corp., 384 F.3d 700, 707 (9th Cir. 2004), where a suit filed in 2000 was permitted to capture damages going back to the defendant's first infringement in 1995 due to the plaintiff reasonably discovering said infringement in 1997.

The approach taken by 9th U.S. Circuit Court of Appeals in Roley and Polar Bear Prods. was not an outlier. In fact, eight other federal circuits had approved of delayed discovery's application by the time the Supreme Court had the opportunity to address Section 507(b) in Petrella. Thus, there was little reason to believe the Petrella court had any interest in vitiating the discovery rule, which was not even at issue in the case. Indeed, Petrella only concerned whether the equitable doctrine of laches could shrink Section 507(b) – which the Supreme Court rejected – rather than whether delayed discovery could toll it.

The 2nd U.S. Circuit Court of Appeals, however, held that “[d]espite not passing on the propriety of the discovery rule in Petrella,” the Supreme Court had “explicitly dissociated the Copyright Act's statute of limitations from its time limit on damages,” such that “we must apply the discovery rule to determine when a copyright infringement claim accrues, but a three-year lookback period from the time a suit is filed to determine the extent of the relief available.” Sohm v. Scholastic, Inc., 959 F.3d 39, 51-52 (2d Cir. 2020). In other words, Sohm inexplicably provided a right to sue without a corresponding remedy.

Sohm's zombified version of the discovery rule was rejected in the Central District of California, which held that “[i]f plaintiffs cannot recover for infringements that occurred more than three years before the lawsuit commenced, even if they were not aware of the infringements, then the discovery rule serves no practical purpose.” Starz Entm't, LLC v. MGM Domestic TV Distribution, LLC, 510 F. Supp. 3d 878, 887 (C.D. Cal. 2021). The 9th U.S. Circuit Court of Appeals affirmed, holding that the language seized on in Sohm is “relevant only to incident of injury rule cases, not to cases where we apply the discovery rule.” Starz Ent., LLC v. MGM Domestic Television Distrib., LLC, 39 F.4th 1236 (9th Cir. 2022).

In rejecting Sohm, the Starz decision cemented a circuit split that Nealy has now exacerbated. In Nealy, the 11th U.S. Circuit Court of Appeals confirmed it agrees with the holding in Starz “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,” both because “Petrella's statements about the availability of relief are directed to the way the statute of limitations works when claims accrue under the injury rule, not the discovery rule,” as well as because “the text of the Copyright Act does not place a time limit on remedies for an otherwise timely claim.”

In abolishing the application of laches to claims for damages under Section 507(b), the Supreme Court noted that it was acting with the purpose of providing uniformity and disincentivizing forum shopping. Petrella, 572 U.S. at 670. Yet due to conflicting readings of Petrella, copyright plaintiffs are now incentivized to file any infringement claims supported by delayed discovery in the Ninth or Eleventh Circuit, while copyright defendants are incentivized to seek declaratory relief in the Second Circuit to circumscribe their liability under Sohm. It therefore seems inevitable that the Supreme Court will have to chime in on Section 507(b) once again and clarify the intended scope of Petrella's holding.

Douglas L. Johnson is managing partner, and Daniel B. Lifschitz is a senior associate at Johnson & Johnson LLP.

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