Uncertainty About Continued Viability of the “Discovery Rule” in Copyright Statute of Limitations

A recent dissenting opinion of the U.S. Supreme Court in Nealy,1 a copyright infringement case, casts doubt on the future viability and durability of a dominant interpretation of the statute of limitations in copyright infringement lawsuits, according to which the limitations period begins to run from the time when the alleged infringement is discovered, rather than from when it occurs.

The “discovery rule,” is currently the dominant interpretation of the limitations statute in copyright infringement actions. As such, the dissenting opinion, which urges and predicts the demise of the rule, has sparked robust debate in the academic and legal practitioner circles concerning the consequences of a change in the law with respect to the application of copyright statute of limitations.

Ironically, Nealy did not itself directly concern the viability of the discovery rule but rather dealt with whether the three-year statutory limitation period for initiating copyright infringement suits limits any recoverable damages to the three-year period immediately preceding the filing date of the lawsuit, a question that the high Court answered in the negative.

By way of background, according to the statute, the limitations period for bringing a copyright infringement action in court is three years from the date of the claim’s “accrual.”2 The statute does not specifically define when a claim has been “accrued,” leaving the courts to interpret the term. Courts have split in their interpretations of that term, with some interpreting “accrued” as being synonymous with “occurred,” meaning that a copyright claim accrues when the alleged infringement takes place.3 That standard, known as the “injury” rule, is followed by a distinct minority of courts. The vast majority adopted the “discovery rule,” under which a claim “accrues” when the infringing act is discovered, regardless of how long the discovery happens after the injury.4 Not surprisingly, the discovery rule, which allows plaintifis to bring claims on very old infringements as long as the infringement was discovered within three years prior to the filing of the suit, is preferred by copyright plaintifis. On the other hand, a change in the application of the limitations statute to the injury rule would favor copyright defendants.

Even though the Supreme Court decision in Nealy did not directly address the discovery versus injury split, it did indirectly give new life to that debate by holding that the copyright limitation statute did not limit recovery of damages to a three-year window preceding the filing of a complaint and that so long as the claim is brought timely under the applicable circuit rule (discovery or injury), damages can be recovered regardless of when the lawsuit was filed. In Nealy, the infringement had occurred some ten years before the lawsuit was filed, meaning that the statute of limitations, while allowing recovery of damages under the discovery rule, would have barred any damages recovery under the injury standard.

The dissenting opinion in Nealy did not disagree with the majority’s holding that the copyright limitations statute did not limit damages recovery to the three-year window immediately preceding the filing of the suit, but rather highlighted what it deemed to be a more fundamental question, namely the viability of the discovery rule itself, noting that under the injury rule the claim for damages would have been barred since the claim in Nealy was filed some ten years after the infringement had occurred, which would have rendered it untimely under the injury rule. The dissent thus urged that the high Court should have dismissed the case as unsuitable for a decision, and look for a future case where the viability of the discovery rule was in issue to allow the court to rule on that issue.

From the perspective of the three dissenting Justices, the majority had imprudently sidestepped the core discovery versus injury issue, i.e., calculating the three-year limitations period of the statute from the date when the infringing act had occurred or from the date when the infringement was discovered. The dissent then went on to review the history and precedent pertaining to the debate and strongly took the position that the discovery rule would very likely be found to be an improper interpretation of the copyright limitations statute in light of general and historical interpretations of statute of limitations laws under which unless the statute provides for a discovery rule, the default interpretation, absent fraud or concealment, is the injury rule.

The facts of the Nealy case are as follows. In 2018, Nealy and other plaintifis brought suit against Warner Chappell Music, Inc. and other defendants for copyright infringement alleged to have occurred in 2008, some ten years prior to the filing of the lawsuit. Plaintifi had discovered the alleged infringement in 2016, two years before the date the lawsuit was filed. Applying the discovery rule as the controlling law in the Eleventh Circuit, the court of appeal ruled that the copyright infringement action had been timely brought in that it had been filed within three years of it being discovered, making the plaintifi eligible for recovery of damages.

As pointed out, the review granted by the Supreme Court did not directly concern the validity of the discovery rule, but rather to “whether, under the discovery accrual rule applied by the circuit courts and the Copyright Act’s statute of limitations for civil actions, 17 U.S.C. § 507(b), a copyright plaintifi can recover damages for acts that allegedly occurred more than three years before the filing of a lawsuit.”5

In their Supreme Court briefings, the Nealy defendants argued, for the first time, that the discovery rule was an impermissible interpretation of the copyright limitations statute, rendering the claim itself as untimely since the infringement had occurred some ten years before the lawsuit was filed.6 The Nealy majority explicitly side-stepped that issue as not being properly before it and decided the case under the assumption that the discovery rule was valid and that the lawsuit was thus timely brought.

The Nealy dissent is significiant as a harbinger of the Supreme Court’s likely position on the discovery versus injury rule controversy. In fact, as noted by the dissent, in an earlier decision the high Court had clearly sided with the injury rule by stating that a claim ordinarily “accrues when a plaintifi has a complete and present cause of action”7 and that “the limitations period generally begins to run at the point when the plaintifi can file suit and obtain relief.”8 Building on the reasoning of Petrella, the Nealy dissent pointed out that, generally, the discovery rule in statute of limitation applications is the exception and not the rule, applying only in rare circumstances where fraud or concealment can be proven.9

The dissenting Justices did not see any basis in the statute or its history to conclude that Congress would have departed from the general historical rule and treat the limitations statute in copyright infringement cases any differently than usual interpretation of limitations statutes whereby the time to bring suit begins from the time when the actual infringement occurs, absent fraud or concealment, which had not been alleged in Nealy.10

Circuit courts of appeal, which, as noted, have largely opted for the discovery rule over the injury rule have based their decisions on a decades-old Supreme Court opinion in Holmberg,11 which set forth the general equitable principle that “where a plaintifi has been injured by fraud and remains in ignorance of it without any fault or want of diligence or care on his part, the bar of the statute does not begin to run until the fraud is discovered.”12 The Holmberg decision has since been extended to apply to the copyright statute of limitations even in instances where fraud or concealment are not present.

Another basis for the widespread adoption of the discovery rule by the appeal courts is that the Supreme Court has previously spoken approvingly of application of the discovery rule to limitation periods where the statutes are silent on the issue.13 However, as noted by the Nealy dissent, the high Court all but explicitly rejected the idea that it had endorsed a view that Congress can convey its refusal to adopt a discovery rule only by explicit command.14 As an example of the explicit language in a statute justifying the tolling of a limitation period, the Nealy dissent pointed to the interpretation of the limitation period under the Fair Credit Reporting Act, according to which, “an action to enforce any liability created under [the Act] may be brought . . . within two years from the date on which the liability arises, except that where a defendant has materially and willfully misrepresented any information required under [the Act] to be disclosed to an individual and the information so misrepresented is material to the establishment of the defendant’s liability to that individual under [the Act], the action may be brought at any time within two years after discovery by the individual of the misrepresentation.”15

The Nealy dissent’s interpretation of the limitation statute in copyright cases is supported by the Supreme Court decisions interpreting similar statutes, according to which “absent the application of an equitable doctrine . . . the statute of limitations begins to run when the alleged . . . violation occurs, not when the violation is discovered.”16 Consistent with historical interpretation of statutory limitation periods, the dissent urged the high Court to proceed “consistent with traditional equitable practice and ordinarily apply the discovery rule only in cases of fraud or concealment,”17 citing the Court’s own earlier warnings “against taking any more expansive approach to the discovery rule.”18 Referring to the text of the statute re the copyright limitations period, the dissent saw “little reason to suppose the Copyright Act’s provisions at issue in this case contemplate any departure from the usual rules,” reciting its own language in Petrella, according to which, “standard language like that calls for the application of the standard incident of injury rule.”19

Conclusion

The discovery versus injury rule interpretation of the statute of limitations in copyright infringement matters is almost certain to be addressed by the Supreme Court, with the likely result that the high Court will side with the injury rule interpretation of the statute. Such an interpretation, in turn will significantly impact copyright infringement disputes by changing the dynamics of such disputes in favor of copyright infringement defendants.

ENDNOTES
(1) Warner Chappell Music, Inc. v. Nealy, 601 U.S. 366, 368–74 (2024) (Nealy).
(2) 17 U.S.C. § 507(b).
(3) See Petrella v. Metro-Goldwyn-Mayer, Inc., 572 U.S. 663, 670 (2014).
(4) See, e.g., Sohm v. Scholastic Inc., 959 F.3d 39, 52 (2d Cir. 2020).
(5) Nealy, 601 U.S. at 371.
(6) Id. at 376.
(7) Petrella, 572 U.S. 663 (2014).
(8) Id. at 670, n.4.
(9) Nealy, 601 U.S. at 375.
(10) Id. at 374–76.
(11) Holmberg v. Armbrecht, 327 U.S. 392 (1946).
(12) Id. at 397.
(13) Rotella v. Wood, 528 U.S. 549, 555, (2000).
(14) Nealy, 601 U.S. at 375 (citing TR Inc. v. Andrews, 534 U.S. 19, 27-28 (2001)). (15) 15 U.S.C.A. § 1681p.
(16) Rotkiske v. Klemm, 589 U.S. 8, 8 (2019).
(17) Nealy, 601 U.S. at 375.
(18) Rotkiske, 589 U.S. at 14.
(19) Nealy, 601 U.S. at 374–76.

Dr. Dariush G. Adli