Plaintiffs Benefit From SCOTUS Ruling There Is No Time Bar for Copyright Damages
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Plaintiffs Benefit From SCOTUS Ruling There Is No Time Bar for Copyright Damages

Brownstein Client Alert, June 18, 2024

Background: Copyright Demands and Litigation

Many companies are not strangers to receiving demand letters on behalf of copyright owners. Routine demand letters often allege that the company’s use of what it believed was a stock photo, public domain image, or music on websites or social media is in fact infringing use of copyrighted materials. And, because copyright infringement is essentially a strict liability offense and the Copyright Act provides for statutory damages for infringement of registered works, these demand letters typically demand settlements of many thousands of dollars for unauthorized or unlicensed uses of various works.

Defending copyright infringement claims is not often straightforward. For example, the “fair use” defense places the burden of proof on the defendant and is a fact-intensive analysis. And, in 2023, the Supreme Court arguably narrowed the fair use defense in its holding in Andy Warhol Foundation for the Visual Arts, Inc. v. Goldsmith, et. al, holding that the late pop artist Andy Warhol’s silkscreen portraits of the late rock star Prince infringed on the copyright of the original photo taken by photographer Lynn Goldsmith. The Supreme Court held that the reproduction and display of the silkscreen prints in a major magazine publication was not sufficiently transformative to qualify as fair use.

Another Win for Copyright Plaintiffs

Now, in Warner Chappell Music, Inc. v. Nealy et. al, the Supreme Court has issued another decision that benefits copyright plaintiffs. The Supreme Court held that so long as a copyright claim is timely filed, there is no limitation on the time for which a plaintiff may seek damages.

What constitutes a timely filed claim? The Copyright Act provides that a claim must be filed “within 3 years after the claim accrued.” 17 U. S. C. Section 507(b). When a claim “accrues” is the subject of a circuit split that the Supreme Court declined to resolve. Most circuits follow the judicially created doctrine of the “discovery rule,” holding that a claim accrues when a plaintiff knew or should have known about the infringement. A minority of circuits hold that a claim accrues when infringement first occurs. In Warner Chappell Music, the Supreme Court stated that it would not rule on whether the discovery rule properly governs the timeliness of claims. But, prior to the Supreme Court’s decision in Warner Chappell Music, many circuits held that regardless of application of the discovery rule, if a claim was timely filed, a plaintiff could still not recover damages for infringements that occurred more than three years prior to the filing of the complaint.

In Warner Chappell Music, Inc. v. Nealy et. al, respondent Sherman Nealy invoked the discovery rule to sue Warner Chappell Music for infringements going back 10 years. Nealy argued that his claims were timely filed because he first learned of the infringing conduct less than three years before he sued and could not have learned of the conduct sooner because he was serving a jail sentence.

The district court held that in the district Nealy’s claims were brought, the discovery rule applied and Nealy’s claims were timely. But the district court held that even though Nealy was permitted to sue, he could recover damages or the infringer’s profits only for infringements occurring within the past three years. The Eleventh Circuit reversed, rejecting the notion of a three-year damages bar on a timely claim. The Supreme Court affirmed, holding the Copyright Act entitles a copyright owner to obtain monetary relief for any timely filed infringement claim, no matter when the infringement occurred.

Practical Effects

Companies previously approached or sued by copyright owners on copyright claims could argue that regardless of the timeliness of the claim, the plaintiff’s damages or any calculation of the infringer’s profits must nonetheless be limited to the previous three years. That rule no longer stands.

An uptick in overall copyright enforcement and litigation is likely and copyright plaintiffs may potentially seek larger demands and awards based on the Supreme Court’s decision in Warner-Chappell. Discovery is likely to become more expansive for both parties, as copyright plaintiffs seek financial records dating back to the first infringement and copyright defendants try to produce documents substantiating deductions against their revenues.

Companies seeking to minimize their risk of facing a copyright infringement lawsuit can conduct internal and digital audits to ensure that software, creative materials (like photographs and music) and other works of authorship are original or duly licensed.

This document is intended to provide you with general information regarding recent case law related to copyright claim damages. The contents of this document are not intended to provide specific legal advice. If you have any questions about the contents of this document or if you need legal advice as to an issue, please contact the attorneys listed or your regular Brownstein Hyatt Farber Schreck, LLP attorney. This communication may be considered advertising in some jurisdictions. The information in this article is accurate as of the publication date. Because the law in this area is changing rapidly, and insights are not automatically updated, continued accuracy cannot be guaranteed.

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