A recent U.S. Supreme Court decision in a copyright infringement case could have far-reaching implications by allowing plaintiffs to seek damages under the Copyright Act for greater periods of time of infringement.

In a 6-3 majority decision in Warner Chappell Music, Inc. et al. v. Sherman Nealy et al., the Court held copyright owners attempting to recover damages under the Copyright Act can do so going back more than the three-year statute of limitations, if the court is applying the “discovery rule” in the case.

The decision resolves a conflict between circuit courts. The Second Circuit limited damages to “within three years after the claim accrued,” while the Eleventh Circuit allowed damages to be recovered for more than three years under the discovery rule, used by some circuit courts to say the Copyright Act’s statute of limitations applies to when the alleged infringement was discovered, as opposed to when “the claim accrued.”

Interestingly, the court did not rule on the discovery rule itself, saying only that if a court were to follow the rule, “that provision establishes no separate three-year limit on recovering damages.”

Warner Chappell Music, Inc. et al. v. Sherman Nealy et al. dates back to 1983, when Sherman Nealy and Tony Butler formed Music Specialist, Inc. That company recorded and released one album and several singles. The collaboration dissolved and Nealy soon went to prison on drug-related charges. He served two stints, from 1989 to 2008, and from 2012 to 2015.

Meanwhile, Butler agreed to license works from the Music Specialist catalog to Warner Chappell. One song ended up in Flo Rida’s hit song “In the Ayer,” which sold millions of copies and reached No. 9 on the Billboard chart, and others appeared on television shows and in recordings by the Black Eyed Peas and Kid Sister.

Nealy, in 2018, sued Warner Chappell for copyright infringement. Nealy alleged he held the copyrights to Music Specialist’s songs and that Warner Chappell’s licensing activities infringed on his rights. He said he only became aware of the infringement upon his release from prison. He dated the infringing activity back to 2008 and sought damages and profits for the alleged misconduct.

Warner Chappell did not challenge the discovery rule; it chose instead to argue Nealy could only recover damages for those infringements occurring in the three years before he filed his lawsuit. The district court agreed with that argument, but the Eleventh Circuit reversed the decision. That conflicted with other circuit rulings, leading the case to be taken up by the Supreme Court.

In the Court’s May 9, 2024, decision, it found “the Copyright Act entitles a copyright owner to obtain monetary relief for any timely infringement claim, no matter when the infringement occurred. The Act’s statute of limitations establishes a three-year period for filing suit, which begins to run when a claim accrues (here, the Court assumes without deciding, upon its discovery). That provision establishes no separate three-year limit on recovering damages.”

The court ruling also states “there is no time limit on monetary recovery. So, a copyright owner possessing a timely claim is entitled to damages for infringement, no matter when the infringement occurred… The Court granted certiorari in this case on the assumption that such claims may be timely under the Act’s limitations provision. If Nealy’s claims are thus timely, he may obtain damages for them.”
The three dissenting justices contended the case should have been dismissed and a judicial ruling should first be made on the appropriateness of the discovery rule under the Copyright Act. Barring that, they contended, Nealy’s claims are untimely because he filed suit more than three years after many of Warner Chappell’s alleged acts of infringement.

The decision places copyright owners throughout the country in a position to seek damages for infringements occurring well beyond three years of the infringing acts where the owner did not discover the infringement until much later. Still, because the discovery rule itself is still in question, particularly given the Court’s dissent, copyright holders must remain diligent about monitoring unauthorized use of their intellectual property and file claims in a timely manner.

Harris Beach’s Intellectual Property lawyers are tracking this and related matters. Should you have questions, please reach out to attorney James R. Muldoon at (315) 214-2021 and jmuldoon@harrisbeach.com, or the Harris Beach attorney with whom you most frequently work.
This alert is not a substitute for advice of counsel on specific legal issues.

Harris Beach has offices throughout New York state, including Albany, Buffalo, Ithaca, Long Island, New York City, Rochester, Saratoga Springs, Syracuse and White Plains, as well as Washington D.C., New Haven, Connecticut and Newark, New Jersey.