When does a copyright claim begin? When the victim discovers the infringement? Or when the violator began making money from the infringing act?

In the 1980s, independent music producer Sherman Nealy and business partner Tony Butler, through Nealy’s label Music Specialist, Inc. (MSI) recorded and produced several singles and an album. In 1989, MSI folded when Nealy went to prison on a cocaine charge. While Nealy did his time, Butler took MSI’s catalog and licensed the music to other rappers and producers, including Warner Chappell Music and Atlantic Recording Corporation.

Butler did not notify Nealy or ask for any authorization to license the music to other artists, including rapper Flo Rida. Although the license violations took place as early as 2008, Nealy did not learn of the infringements until 2016. He filed a copyright infringement lawsuit in 2018, two years after learning of the theft.

Discovery vs. Injury

Nealy filed his case in the Southern District of Florida. In his claim for copyright infringement, he requested damages accruing from the date of the first infringement, more than ten years past.

Two rules were at play in Nealy’s filing of the copyright infringement claim: the date of the original infringement (the injury), and the first date Nealy could reasonably have learned of the infringement (the discovery).

The discovery rule states that claims accrue beginning on the date the plaintiff learns or reasonably should have learned of the infringement. In this case, the Copyright Act requires plaintiffs to file their action within three years of the date they discover an infringement. The discovery rule and the statute of limitations place a strict three-year limit on how much a plaintiff could recover in a copyright infringement.

By contrast, the injury rule states that a claim accrues when the infringement occurs, regardless of whether the plaintiff knew or could have known of the infringement. Under this rule, no matter when the infringement occurs, there is a claim, and the plaintiff is entitled to damages whenever the claim is filed.

The district court followed the discovery rule and held that Nealy could only recover damages for the three years prior to the date of filing the claim, in this case back to 2015. Nealy appealed to the 11th Circuit.

Timely Suits and Expired Statutes

The 11th Circuit turned to a Supreme Court decision from 2014, Petrella v. Metro-Goldwyn-Mayer. In that decision, the Court barred a plaintiff from recovering damages in a copyright case where the infringement occurred more than three years before the filing. The plaintiff in Petrella had known of the infringement, but had been unable to file a claim, since the holder of the copyright had been unwilling to sue. Only when she inherited the copyright was she able to file suit.

The Court’s language in Petrella was ambiguous, saying in part that “copyright claims that are timely filed within the statute of limitations are not subject to the equitable defense of laches…the statute of limitations bars relief of any kind for conduct occurring prior to the three-year limitations period.”

Lower courts have split on this ruling. The Second Circuit held that a plaintiff is limited to damage within three years of the suit (Sohm v. Scholastic, Inc.); the Ninth Circuit ruled that this interpretation makes no sense next to the discovery rule (Starz Ent., LLC v. MGM Domestic Television Distrib. LLC)

Return to the Supreme Court

When the Supreme Court took the case back, they reviewed the lower courts’ split and the language in Petrella. Writing for the majority, Justice Kagan stated that the Copyright Act nowhere states that the three-year statute for filing a claim does not suggest a three-year limit for recovering damages. To do so, Kagan said, could result in a plaintiff filing a timely suit but being unable to recover damages if no harm had accrued in the past three years.

The decision distinguished Petrella because the plaintiff in that case had known of the infringement for a considerable time. She had not timely filed her infringement case, so allowing her to “look back” would be unfair. Nealy filed as soon as he learned of the infringement, so he had the right to the full protection of the Copyright Act.

Infringement Cases Going Forward

The dissent in Nealyexpressed a concern that upcoming litigation on the discovery rule might alter the holding in Petrella. Until that time, parties on both sides of the issue should keep the Nealy ruling in mind.

Anyone who intentionally (as the defendants in Nealy did) or unintentionally infringes on a copyright should be aware that under this ruling, plaintiffs have the right to reach back to the date of the initial infringement. Merely because the plaintiff is incarcerated is not a shield against possible liability.

Plaintiffs should be aware of the double cautions in Nealy and Petrella. First, both cases hinged on what the plaintiff knew or reasonably should have known. Nealy was only allowed to reach back to 2008 because he discovered the infringement in 2016 and filed his lawsuit in 2017, before the Copyright Act statute expired. The plaintiff in Petrella was limited to a three-year reach-back because she knew of the infringement and delayed her lawsuit.

Anyone using copyrighted material must notify owners or likely owners immediately, if only to begin “running the clock” so to speak. Once the owner is aware of the infringement, they can file suit or not, but they have three years to do so. Anyone who is using such material should realize that the three-year statute is not a shield. If the owner were unaware of the infringement or could not have learned of it, they can file any time after discovering the theft.

Of course, the ideal way to avoid this is by paying for licenses up front. The Nealy and Petrella cases were unusual, Nealy because he was incarcerated, Petrella because she was heir to an estate and unable to file suit sooner. However, less scrupulous patent and copyright infringers who were hiding behind the unclear language of the Copyright Act no longer have those shadows. The ruling in Nealy gives IP copyright owners the right to sue if no other resolution can be achieved. Caveat fures.