Time's Up! Warner Chappell Music, Inc. v. Nealy and the Discovery Rule Saga

The Florida wild bobcat ponders the implications
 of the latest 
SCOTUS decision.
In 2018, Sherman Nealy, a Miami based producer, sued Atlantic Records, Warner Chappell, and Artist Publishing Group in Florida federal court over the unauthorised interpolation of the 1984s track “Jam the box” in Flo Rida’s “In the Ayer,” which was released in July 2008 and managed to peak at No. 9 on the Billboard Hot 100.

Mr. Nealy asserted that he only became aware of the unlawful sample in 2016, despite the infringing activity dating back to 2008. During this period, Mr. Nealy was not involved in the music industry as he was serving a prison sentence. Meanwhile, Flo Rida’s song already gained significant popularity and was licensed for use in several popular television programs, including "So You Think You Can Dance.” 

The case was ultimately picked by the US Supreme Court, tackling two major unresolved questions: (1) whether a copyright claim accrues when a plaintiff discovers or should have discovered an infringement rather than at the time the infringement occurred, and (2) whether a plaintiff with a timely claim under this rule can seek damages extending back more than three years.

The Discovery Rule

According to the Copyright Act 17 U. S. C. §507(b) “No civil action shall be maintained under the provisions of this title unless it is commenced within three years after the claim accrued”.

Two main directions emerge from reading this limitation provision and interpreting the wording, in particular, the phrase "the claim accrued". The first is that a copyright claim "accrues" only when an infringing act occurs or, alternatively, a claim may “accrue” when the plaintiff discovers the infringing act or should have discovered it by exercising due diligence.

In fact, the District Court followed the latter interpretation. Since the parties agreed that the only disputed substantive issue regarding the claims was whether Mr. Nealy owned the copyrights, the court ruled that their claims accrued when Mr. Nealy knew or should have known that the defendants were challenging their ownership of the work. However, Mr. Nealy encountered a different timing objection, related not to his ability to bring suit but to his recovery of damages. The District Court accepted the argumentation of the Second Circuit Court of Appeal in Sohm v. Scholastic ruling in favour of a three-year cap for damages on a timely claim.

In attempting to demystify the recovery of damages regime that follows the discovery rule, the Eleventh Circuit Court of Appeal was confronted with another perplexing case precedent: Petrella. In that case, the Supreme Court held that “a successful plaintiff can gain retrospective relief only three years back from the time of suit. No recovery may be had for infringement in earlier years. Profits made in those years remain the defendant’s to keep”. 

Nevertheless, it is important to note that a court’s opinion should not be interpreted in the same manner as a statute. In point of fact, the statements made by the Court in Petrella merely describe the operation of the injury rule in the context of the facts of that case and others of a similar nature. If that rule were to be applied, a significant proportion of Mr. Nealy’s claims would be deemed to be untimely, given that they relate to infringements that occurred as much as ten years prior. The Eleventh Circuit rejected the notion that there should be a three-year cap for damages on a timely claim.

The winner takes it all 

Pretty Tony – Jam The Box
Justice Elena Kagan, basing her 6-3 majority opinion on the assumption that Mr. Nealy’s claims may be timely under the discovery rule, held that the “time-to-sue prescription” in § 507(b) establishes no separate three-year period for recovering damages. In an intriguing twist, the dissenting opinion questioned the very essence of the discovery rule under the Copyright Act, suggesting (!) that it is “better to answer a question that does matter than one that almost certainly does not”.

This ruling was accompanied by the observation that the Second Circuit’s view in Sohm v. Scholastic— and by extent the District Courts in this case — lacked textual support. Such judicially created damages limit is self-defeating. On the one hand, the court acknowledges the existence of a discovery rule, thereby enabling some copyright owners to sue for infringements that occurred more than three years prior. On the other hand, the court effectively negates the value of its own actions by preventing the recovery of damages for infringements that occurred prior to the three-year period. 

Indeed, the Supreme Court has provided a logical solution to a paradoxical situation, but this temporal omnipotence has a significant financial impact on the industry that should not be overlooked. The difference between 3 years and 10 years of damages is more than considerable and depends solely on whether a copyright owner is "timely" with their claims.

Time's Up! Warner Chappell Music, Inc. v. Nealy and the Discovery Rule Saga Time's Up! Warner Chappell Music, Inc. v. Nealy and the Discovery Rule Saga Reviewed by Antonios Baris on Wednesday, June 19, 2024 Rating: 5

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