On May 9, 2024, the Supreme Court issued a 6-3 decision affirming the Eleventh Circuit's decision in Warner Chappell Music, Inc., et al v. Sherman Nealy, et al, which held that copyright damages are recoverable for infringements occurring prior to the Copyright Act's three-year statute of limitations - if the asserted claims are timely filed under the discovery rule.  

The underlying lawsuit related back to a 1980s business venture between Sherman Nealy and Tony Butler, who formed Music Specialist, Inc. ("MSI"). During its existence in the early 80s, MSI released an album and several singles until it eventually dissolved in 1986. Soon thereafter, Nealy was sentenced to prison on various drug-related charges and ended up spending most of the next 25 years in prison. During that time period, his former business partner had entered into an agreement with Warner Chappell Music, Inc. to license works from MSI's catalog. Nealy, however, did not discover this fact until after he was released from prison in 2015. 

Accordingly, in 2018, Nealy sued Warner Chappell alleging that he owned the copyrights to MSI's songs and that Warner Chappell's licensing activities infringed those rights. Specifically, Nealy claimed that Warner Chappell's infringing conduct dated back to 2008 and sought copyright damages for the entire ten-year period, despite the fact that § 507(b) of the Copyright Act provides a three-year statute of limitations.   

Nealy, however, overcame this hurdle by arguing that his claims were timely under the discovery rule. The discovery rule is not a Copyright specific doctrine, but rather a general rule that provides, in certain circumstances, that a claim is timely if it is filed within the applicable statute of limitations after the plaintiff discovered the existence of the claim. Here, Nealy argued that he did not reasonably discover Warner Chappell’s infringing conduct until after he was released from prison in 2015, and that he filed his lawsuit in 2018, which was within the three-year statute of limitations.  

In response, Warner Chappell did not argue that the discovery rule is not, or should not be, applicable to copyright infringement claims. Instead, Warner Chappell relied on a prior 2nd Circuit decision that held that even when the alleged infringement goes back for more than three years, the copyright owner can still only recover damages arising from the infringing conduct that occurred during the three-year statute of limitations period. The trial court agreed with that position, which the 11th Circuit then reversed on appeal holding that because there was no dispute that Nealy's claims were timely filed under the discovery rule, he was entitled to damages for the entire infringing period. 

The Supreme Court's ruling today affirms the 11th Circuit's decision, and the Court has now made clear:  

"There is no time limit on monetary recovery. So a copyright owner possessing a timely claim for infringement is entitled to damages, no matter when the infringement occurred.”

The Court’s majority reached its conclusion based on the plain language of §507(b), which provides: “No civil action shall be maintained under the provisions of this title unless it is commenced within three years after the claim accrued.” From there, the Court noted that §507(b) does not include any time limit on damages. In other words, §507(b) does not provide that a copyright owner is only entitled to damages arising from infringing conduct going back three years from the date of filing. Rather, §507(b) merely states that a claim has to be commenced within three years from accrual, and if that accrual was delayed under the discovery rule, then nothing in the Copyright Act limits the owner’s damages to just the prior three years. 

Notably, the majority opinion distinguished its decision from the Court’s prior ruling in Petrella v. Metro-Goldwyn-Mayer, Inc., 572 U.S. 663 (2014). In Petrella, the plaintiff had long been aware of the defendant’s infringing conduct, so when it filed suit it only claimed damages for the infringing conduct for the prior three years. Thus, the majority reasoned there are no inconsistencies between the two rulings because Petrella did not involve application of the discovery rule.  Rather, Petrella “merely described how the limitations provision works . . . [when] the plaintiff had long know of the defendant’s infringing conduct, [and] could not avail herself of the discovery rule” to seek damages for infringements acts that were more than three-years old. 

However, and as the dissent aptly points out, the broader implications of the Court’s decision in Nealy are marginal at best. That is because, as the majority’s opinion makes clear at the outset: 

“In this case, we assume without deciding that a claim is timely under the provision if brought within three years of when the plaintiff discovered an infringement, no matter when the infringement happened.” (emphasis added).  

In other words, as the majority points out numerous times in its decision, Warner Chappell never disputed the applicability of the discovery rule in this case.  And the majority opinion makes clear that the Court has “never decided whether that assumption is valid—i.e., whether a copyright claim accrues when a plaintiff discovers or should have discovered an infringement, rather than when the infringement happened.” Rather, the Court’s ruling in Nealy is limited to the issue of whether a copyright plaintiff can recover damages for acts that allegedly occurred more than three years before the filing of a lawsuit – assuming the discovery accrual rule applied. As a result, Judge Gorsuch concludes his dissenting opinion by stating: 

“Respectfully, rather than devote our time to this case, I would have dismissed it as improvidently granted and awaited another squarely presenting the question whether the Copyright Act authorizes the discovery rule. Better, in my view, to answer a question that does matter than one that almost certainly does not.” 

Therefore, for copyright owners who reasonably discover the existence of infringing activity years after the fact, the door is still open to file suit within three years of that discovery and pursue damages for the full extent of the infringing conduct. And for those accused of such infringing conduct, best to learn from Warner Chappell’s mistake and not simply concede that the discovery rule applies. Instead, you will want to challenge that assumption and then hope you can convince at least three other Justices to join in the dissent’s opinion that the Copyright Act “almost certainly does not tolerate a discovery rule.”